Bolivia’s wallet is feeling light

Dollar shortages and policy reversals. 

Bolivia is navigating a challenging macroeconomic landscape marked by dwindling international reserves and a deteriorating trade balance, primarily driven by a decline in natural gas revenues. After extensive consultations with prominent business leaders, Bolivia’s Minister of Economy, Marcelo Montenegro, has unveiled a comprehensive ten-point plan to stabilise the nation’s economy amidst this crisis. 

This suite of measures represents a strategic shift designed to address the temporary dollar shortage that Bolivia is experiencing. One significant change involves relaxing export restrictions, which previously required exporters of soybeans, meat, sugar and other goods to obtain a supply certificate before selling internationally.  

This policy adjustment is expected to enhance the inflow of foreign currency, vital for the country’s economic stability as currently “foreign currency income is not enough to meet the needs of the state.” The former Vice Minister of Tax Policy of Bolivia added, “It is a very critical situation, and it is worsening.” Another pivotal aspect of the plan is the transition from a longstanding subsidy on fuel to a diesel auction system, aiming to alleviate the financial burden on the state. 

To replenish Bolivia’s depleting reserves, the government has authorised the Central Bank to issue debt in US dollars. This proactive measure underscores the government’s commitment to mitigating the economic challenges. However, “macroeconomic indicators are deteriorating every day and there is no response from the government.” A graduate of Georgetown and now international consultant continued,Arce is on the ropes…if he had the support in the Legislative Assembly, he could continue with this denial and postpone the problem to explode in 2026, after the elections. But now it is clear that loans will not be approved.” 

“macroeconomic indicators are deteriorating every day and there is no response from the government.”

A graduate of Georgetown and international consultant, Bolivia

“An alternative that should have been implemented several years ago is to access green finance and sustainable finance,” reported the former Minister of Mining. In a desperate shift, the Bolivian government, contradicting its previous stance against “commodifying Mother Earth”, is now pursuing green and sustainable finance. Vice President Choquehuanca even sought financial aid in London, signalling a drastic pivot from their traditional principles.  

“The media does not talk about the looming energy crisis,” cited the former Minister of Productive Development. Structural reforms are indispensable, yet it seems increasingly likely that President Arce will not implement them, pushing the country towards an inevitable default. Unlike Venezuela, which managed to stave off economic collapse temporarily by auctioning assets abroad, Bolivia does not have those assets,” stated former General Advisor CAF.

Efforts to capitalise on green bonds for lithium and other developments have been underwhelming. “The sale of dollar bonds of the Central Bank managed to raise about USD 50 million,” informed the former Mining Minister, “in other words, nothing.” A drop in the ocean of Bolivia’s financial needs.  

The lack of coherence between Bolivia’s ecological rhetoric and its financial strategies only adds to the uncertainty, leaving the nation in a precarious financial position with few viable solutions. “People are already feeling the slowdown, unemployment, inflation and although the state propaganda denies it, it is no longer enough,” enforced the former General Advisor CAF. 

“People are already feeling the slowdown, unemployment, inflation and although the state propaganda denies it, it is no longer enough.”

Former General Advisor CAF, Bolivia

While some critics argue that Arce’s policy pivot may undermine his reliability, supporters have commended his recent willingness to engage with the business community — seen as a rarity in his administration. Despite these efforts, alternative strategies to alleviate the economic crisis have been suggested, needing “about 3 billion dollars a year just for the survival of the economy,” reported the former Vice Minister of Tax Policy of Bolivia. 

An alternative strategy is seeking assistance from the International Monetary Fund (“IMF”) and significantly reducing public spending. The government, however, has expressed reluctance to pursue IMF involvement, and drastic cuts in public expenditure could compromise Arce’s electoral prospects. “The few dollars available this year, the government knows they have to go to gasoline and diesel imports.” The international consultant continued, “Secondly, they have already told the importers of medicines that they are the priority. Except for these two, everything else does not matter.” 

The urgency of adopting effective economic measures is further underscored by recent downgrades in Bolivia’s credit rating by both Fitch and Standard & Poor’s to CCC. “This is for two reasons: the first is economic as Bolivia no longer has foreign currency and there is no way to get it.” The Georgetown graduate added, “the second is political. Arce’s denial and the fight within his party, worries the markets more.”  

As Bolivia implements these new economic strategies, the effectiveness of Montenegro’s ten-point plan will be closely watched. “The macroeconomy is so unbalanced that there is no other way than adjustment.” The former Vice Minister of Tax Policy of Bolivia elaborated, “We have already seen what adjustment is doing in Ecuador and Argentina.” The coming months will be crucial in determining whether these measures can steer Bolivia away from economic distress and towards a more stable and prosperous future. “Who would invest under these conditions?” asked the former Minister of Productive Development. A good question indeed.

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