Why does Bolivia, the “economic miracle”, run out of dollars?

First modification: 04/30/2023 – 03:05

A look at the past to understand the present. Since the end of March this year, hundreds of people have spent the night in front of the Central Bank of Bolivia (BCB) to buy dollars at the official exchange rate, fixed since 2011, in the face of rumors of a sudden shortage of the greenback. To avoid further chaos, the BVC proposed a system to buy currency over the Internet, managing to make the crowd in front of its offices disappear, but not the underlying problem.

In Bolivia there is growing concern about the country’s economic fragility, a sea change for a place that, for more than a decade, experienced what many called an “economic miracle” thanks to sustained strong growth, record hydrocarbon exports, a inflation envied by its neighbors, a fixed exchange rate and subsidized gasoline.

Bolivia’s annual inflation, at 2.5% per year in March, has been falling since last year when it exceeded 3%. The Government still insists that Bolivia will grow 4.8% of GDP this year, despite the contrast with the forecast of the International Monetary Fund (IMF) of 1.8%.

“I will disappoint the international projections again,” joked the leftist president Luis Arce, who was Minister of Economy between 2006 and 2017, during the boom period in Bolivia with the presidency of Evo Morales.

The Arce government has spent weeks trying to calm the doubts of the population and investors about the economic health of the country.

Why there are not any dollars?

Bolivia, a traditional exporter of natural gas in the region, has enjoyed an economic boom in the last decade thanks to the high prices of raw materials. The South American country exports minerals and agricultural products, including soybeans, and has recently seen an increase in gold sales abroad.

After Evo Morales, the first indigenous president, came to power in 2006, the government nationalized the hydrocarbons industry and Morales used the huge flow of money to reduce poverty, expand the middle class and build highways. But, according to detractors of that government that lasted until 2019, the bonanza was accompanied by waste and corruption.

Bolivia’s revenues tripled, even though the country neglected its main star product: the hydrocarbons industry stagnated due to lack of investment and the country went from being an exporter to an importer of hydrocarbons in 2022, according to the National Institute of Statistics.

The commodity price boom ended in 2014 and Bolivia began to eat away at its savings, a situation that worsened after the pandemic and left the country with almost no reserves. “Starting in 2014 and 2015, export revenues drop significantly because the prices of raw materials, gas, minerals and soybeans also drop significantly and make the country reduce its total exports to 8.7 billion dollars,” Gonzalo Chávez, an economist at the Catholic University of Bolivia, told France 24.

According to the economist, after this “an adjustment of expenses and income is not made, at that moment the government continues spending as if there had been no external shock. It turns out that we use internal debt, external debt and loss of international reserves to precisely mitigate the external shock”.

The expert assures that, during the government of Evo Morales, some 8,600 million dollars of the reserves were used, a situation that the governments of Jeanine Añez and Luis Arce followed with another 3,000 million dollars.

“Some 11,000 million dollars have been spent on international reserves until the end of 2022, the government shows the data and they were extremely low. As of February 2023, no information is given, but it is known that the reserves would be around 3,000 million dollars,” said the expert.

According to the economics professor, the main immediate impact is a drop in international expectations regarding the economy and the creation of a parallel currency market in Bolivia.

“Starting with the currency problem, problems that have been observed for a long time begin to appear. International indicators drop for the Bolivian case. As there are few dollars, imports are delayed, they become slower, more expensive, a kind of parallel market is generated for the first time. It is showing that behind this shortage of foreign currency what we had were serious fiscal problems, a reduction in the size of the hydrocarbon export sector, ”he added.

Despite this, the Government is optimistic that it will be able to offset part of the deficit with the growth of gold mining, although the sector generates little income for the State: 75 million dollars out of a total of 3,000 million dollars in gold exports on last year.

with PA