Bolivia’s Slow-Motion Economic Crisis Is Accelerating

Via The Economist, a report on Bolivia’s accelerating economic crisis:

Pickup trucks hauling empty fuel drums are lined up outside a petrol station next to a field of soyabeans in Santa Cruz, Bolivia. The attendant says the queue hasn’t budged in days: there is no diesel. It’s been this way, on and off, for two months. “And the summer sowing is about to start,” he sighs.

Bolivian politics are messy—in June there was an attempted coup by a rogue general. The economy is chaotic too. In February 2023, running low on dollars, the central bank stopped publishing weekly reports on its reserves. Since then, the government has scraped dollars together month by month. Meanwhile, the gap between the official and black-market exchange rates yawns wider. Imported goods are increasingly scarce and prices are rising. It’s a slow-motion currency crisis. Bolivians are bracing for a devaluation.

The Movement to Socialism (MAS) has ruled Bolivia for all but one year since 2006. Some of that period has seen remarkable stability and growth. A fixed exchange rate, subsidised energy and food, and hefty public investment are the pillars of the MAS economic model. The state has paid for all this using dollars earned by exporting natural gas to Brazil and Argentina.

Then the model ran out of gas. Prices slumped as the commodity boom ended. Production fell as the state-owned gas company stopped drilling wells. International reserves, which stood at $15bn in 2014, have fallen to around $2bn, with just $153m in dollars. The state now struggles to pay for fuel imports.

And so an economy built on cheap dollars and fuel can no longer count on either. The result is “prolonged agony,” says José Luis Exeni, a political analyst. Importers are running down inventories and hiking prices. Supermarkets have bare shelves and idle staff. Exporters, struggling to source inputs, are producing less.

Billboards showing Luis Arce, the president, flying an aeroplane, with taglines trumpeting macroeconomic stability, have been taken down. The IMF predicts GDP growth of 1.6% this year, the lowest in two decades (excluding the first year of the pandemic). Two years ago, the MAS boasted that Bolivia’s inflation was the lowest in the region. Now it is among the highest.

In response, the government is being pulled in two directions at once. In meetings with the private sector it talks of liberalising agriculture exports and changing the law to attract investment in oil and gas. Meanwhile, unions want the government to force exporters to repatriate more of the dollars they make. Giovanni Ortuño, president of a Bolivian business lobby, says Mr Arce has assured them that the government will not take this path. But in public Mr Arce will not rule it out.

Coercing exporters would do nothing to fix the fundamental economic problems. That requires altering the exchange rate and the fuel subsidy; the price of petrol has been fixed at around $0.50 per litre since 2004. It may also mean a loan from the IMF, and broader economic liberalisation. But the MAS considers such reforms to be against its principles. “They aren’t pragmatic,” said Beatriz Muriel, an economist. “They are highly dogmatic.”

Politics were unstable before the coup in June. Evo Morales, a former president, is fighting to be the candidate of the MAS in next year’s presidential election. Mr Arce’s government is kneecapped because he cannot count on legislators loyal to Mr Morales. Roughly $1bn of loans from development banks worth around 2% of GDP are awaiting congressional approval.

Mr Arce seems to be attempting to scrape through to next year’s election without carrying out any painful-but-necessary changes. But the working-class voters who are the core constituency of the MAS have started to protest. “Shortages and price increases; falling purchasing power and rising poverty; deterioration of the social mood,” says Gabriel Espinoza, a former director at Bolivia’s central bank. “The question is when and how this will morph into conflict in the streets.”



This entry was posted on Thursday, October 24th, 2024 at 4:19 am and is filed under Bolivia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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