9/11/2013 Portland, Oregon – Pop in your mints…
We recently returned from Bolivia, which, for the geographically challenged, is a relatively large country located in the heart of South America. Our better half hails from this land that extends from the peaks of the Andes to the Amazon basin, and we have more than a passing interest in the goings on there.
What we observed in Bolivia this past trip can only be described as an economic boom. While the economy has been on the uptick for a number of years, what we saw this year was well beyond an uptick. During previous visits, we witnessed the construction of major roads along with an insane number of apartment complexes being constructed. On this trip it was evident that the parks are now being maintained and the number of western style shopping malls and other spaces had greatly increased.
The homogenization of Bolivia, as we are fond of calling the phenomenon of globalization, is well underway.
Indeed, as one toggles the GDP of Bolivia on the embedded chart below, courtesy of tradingeconomics.com, the warp curve of economic growth that we have observed in our travels there, which began in 2005, just before Evo Morales (whose policies can only be described as Neo-Socialist) was elected, is confirmed by GDP figures.
As we descended into Viru Viru, the interestingly named airport in Santa Cruz, we struck up a conversation with a young man who was working as a commercial diver in Oman. In the course of the conversation, we remarked that Bolivia appeared to be in the midst of an economic boom.
When we asked our fellow weary traveller his opinion as to why the Bolivian economy had entered into its most recent growth spurt, he simply replied, “se fue la DEA.” Which means, the DEA is gone.
The DEA (US Drug Enforcement Administration, for those unfamiliar with the show Miami Vice) had occupied the rich agricultural land of the Chapare, which, while not ideal for growing coca leaves, enjoys a humid climate in which nearly anything will grow quickly, for nearly 33 years when Morales ordered them to leave during a diplomatic spat with the US in November of 2008. It was a long-standing grudge that Morales, a coca farmer himself, had against the agency which he saw as an imperial force which harassed the simple farmers in the region that was his adopted home.
A quick glance at the GDP graph above seems to indicate that the DEA’s departure, which was completed in early February of 2009, appears to have been the catalyst that sent the Bolivian economy into overdrive.
Not only that, but when one overlays the Latin American GDP in the graph above, it is clear that not only Bolivia, but all of Latin America has experienced a similar GDP warp curve and attendant development in their infrastructure and consumer amenities.
While it may appear that a simple injection of drug money, which now flows somewhat unhindered into the country in search of the now abundant coca leaf (the raw material for cocaine and other illicit drugs) would account for this unprecedented growth, the phenomenon has coincided with another US policy that has paralleled the time frame in which Bolivia has been “DEA free*.”
Ben Bernanke’s printing press, which kicked into hyperdrive circa 2008 and has not stopped since.
While places like Hong Kong and China receive a great deal of attention for their respective currency pegs to the US Dollar, the Boliviano (the Bolivian national currency) is also pegged to the US Dollar in a similar 7:1 fashion. As such, the Bolivian economy, which until recently has had a relatively low-level of consumer debt, has taken the dollars that Bernanke had intended to stimulate the US economy, and put them to work rather than throwing them down the black hole of their banking institutions.
So what is the ultimate catalyst for the explosive Bolivian and Latin American GDP growth over the past five years, the DEA leaving Bolivia or US Monetary policy? Either way, it is clear that despite the Socialist bent of many Latin American countries, there is a flashing green light to invest in them as long as these two conditions persist, for they are like rocket fuel for these largely cash based economies with dollar pegs fixed to their national currencies.
“Viva mi Patria Bolivia…como la quiero yo!”
*Morales has deployed his own military to fulfill the role of the DEA in their absence, however it is evident that they are not as zealous in their persecution of the coca leaf as their American counterparts.
Key Indicators for September 11, 2013
Oil Price per Barrel: $107.63
Corn Price per Bushel: $4.74
10 Yr US Treasury Bond: 2.94%