Desperate for dollars

Bolivia seeks to sell off remaining gold reserves to alleviate economic crisis.

The economic situation in Bolivia has been a cause for concern lately, with declining foreign currency reserves, including foreign exchange and gold, putting a significant strain on the country’s financial stability. This has been attributed to a combination of factors, including falling exports, declining commodity prices, and reduced foreign investment in the country. The declining foreign currency reserves have had a significant impact on Bolivia’s economy, with the government struggling to pay its debts and maintain its social programmes. This has led to a reduction in public investment, which has in turn impacted the country’s economic growth and development.

Over recent months, Bolivians have been withdrawing US dollar deposits in a context of economic fragility which has seen the central bank’s net reserves fall from USD 15 billion in 2014 to USD 3.54 billion in February. Luis Arce, president of Bolivia, has insisted that the measure will not lead to the devaluation of the currency. He added that the local economy is continuing to grow and that inflation, at 2.5% in March 2023, is below last year’s when it reached figures over 3%.

The government of Bolivia has taken steps to address the issue, including implementing austerity measures and seeking financial assistance from international organisations such as the International Monetary Fund (“IMF”). However, these measures have been met with resistance from the public, who are concerned about the impact on their livelihoods.

In the latest attempt to boost foreign reserves, the lower house of the Congress of Bolivia passed on 21 April, a legislative proposal known as “Ley del Oro” (the Gold Law), which will allow the government to purchase gold from miners at global prices to increase the central bank’s foreign reserves. The Chamber of Deputies approved the measure with 73 votes in favour, 45 against and 4 invalid votes.

“The Gold Law is a matter of life and death for the Arce government, Bolivia’s economic situation is desperate as the central bank’s dollar stocks have effectively run out.”

Former director, central bank, Bolivia.

A former director of Bolivia’s central bank was supportive of the policy but nervous about the government’s ability to execute, “The Gold Law is a matter of life and death for the Arce government, Bolivia’s economic situation is desperate as the central bank’s dollar stocks have effectively run out. The only option it has to prevent a very acute economic crisis from erupting in the coming weeks is for the Assembly to approve the sale of gold reserves. Gold, as a reserve, should be used for this kind of situation. The problem is that the government has no plan, no idea how to use this last asset. The plan of Arce and his close team is to get to 2025. It’s as simple as that.”

There are also practical considerations that the former central banker highlighted, “In theory, the law allows the central bank to collect gold from cooperatives and sell it on international markets. But this is impossible because the central bank’s gold must be certified and it is impossible for the cooperatives’ gold to be certified because it is extracted in the worst way. Not only is it depredating the Amazon and pouring mercury into rivers, but it is also part of the activities of international mafias that involve child labour, human trafficking, organ trafficking, arms trafficking, drugs, and so on. Nobody will certify that gold. And if they could even certify it, it takes up to two years. So what the government really wants to do is to sell the gold that is already certified but is held abroad.”

“It is a lie that the Gold Law is to buy gold from the cooperatives; rather, what the government wants is to finish selling off the last remaining gold reserves that the country has left.”

Former finance minister, Bolivia

This view was shared by a former finance minister, “It is a lie that the Gold Law is to buy gold from the cooperatives; rather, what the government wants is to finish selling off the last remaining gold reserves that the country has left. The cooperativists have already said that they will not hand over their gold and even if they did, they would exchange their bolivianos for dollars the next day making the situation worse.”

Opposition parties fear that the Gold Law will allow the central bank to sell gold without any form of approval from Congress. They highlight that the population is buying US dollars due to economic uncertainty and that they will not return them to the market until the economic situation improves, opting instead to keep them at home as a store of wealth.

The central bank has insisted that it is common to invest gold reserves in international markets and stressed that the local mining industry will also benefit from the measure. Edwin Rojas, president of the central bank, estimated that the Gold Law had the potential to generate USD 1.2 billion while increasing the country’s gold reserves by 98.7%.

A seasoned Bolivian economist had a rather more negative outlook for Bolivia, “On the one hand, nobody wants to give a license to sell the last asset the country has to a corrupt government that will continue with judicial persecution of every person and organisation that is perceived to be a threat to them. On the other hand, it is a very violent decision to let the economy collapse and it will hit the poorest people very hard. Selling all remaining gold may produce USD 1.4 billion but this will all be squandered by 2025.”

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