The government of Bolivia adopted a series of measures this week to address the serious shortage of dollars in the country that represent a break with the pillars of what has been its economic policy since the Movement towards Socialism (MAS) of Evo Morales He came to power in 2006.
After meeting with business groups, the Minister of Economy, Marcelo Montenegro, announced the economic reforms, which modify some of those that have been hallmarks of the government’s policy for years, such as the subsidy for the purchase of fuel and the control of exports.
Experts had been warning for some time a deterioration of the Bolivian economyand the shift in government policy is interpreted as an attempt by President Luis Arce to right the situation before the next elections in the country, scheduled for next year.
Arce thus modifies some of the economic policies that he helped design when he was former President Morales’ Economy Minister.
According to Minister Montenegro, the measures agreed with the private sector seek “a scenario of corrective improvement so that this temporary lack of dollars can be overcome.”
What the Government announced and how it changes its previous policy
Montenegro met with businessmen this Tuesday, which represents a change with respect to the government’s previous policy, since meetings of the Executive with the private sector have been very unusual since the MAS governs Bolivia.
The Confederation of Private Entrepreneurs of Bolivia showed its “satisfaction” and congratulated itself because “a new stage in the public-private relationship” begins.
After the meeting, Montenegro announced a decalogue of economic measures with the aim of “normalizing the temporary scenario of dollar shortage.”
According to the experts consulted, the most notable are easing export restrictions and creating a diesel auction for large producers.
In Bolivia, food can only be exported when the authorities consider that supply in the domestic market is guaranteed, so exporters had to obtain a supply certificate before selling their items abroad.
Montenegro announced that soybeans, meat, sugar and other foods will now be exempt from applying for this certificate, which should alleviate the difficulties suffered by the export sector.
The government implemented a subsidy for the purchase of fuel more than three decades ago, despite the fact that various analysts warned that its cost was one of the main reasons for the deterioration of public accounts.
In recent times, fuel imports have skyrocketed, as have episodes of supply shortages, which accentuated complaints, especially from large grain producers in the east of the country.
Montenegro announced that large producers will now be able to participate in a diesel auction through the state monopoly YPF-B, in which They will be able to bid above the officially set price to ensure the essential supply to keep their businesses running.
According to Juan Antonio Morales, former president of the Central Bank of Bolivia, “the fuel subsidy represents a great fiscal pressure for the Bolivian State and with the auction it will be able to sell it at a price closer to the international one,” which would alleviate its need for foreign currency.
Other measures announced are the authorization for the Central Bank of Bolivia to issue dollar-denominated debt to raise more funds in the US currency and establish limits on the commission that banks can apply to the sale of dollars.
What is the economic situation of Bolivia?
According to Juan Antonio Morales, “The country faces a complex macroeconomic situation due to the depletion of its international reserves and the deterioration of the trade balance.”
A concern shared by analysts at the Fitch rating agency, who this week lowered the credit rating of the Andean country due to the “uncertainty” and “macroeconomic risks it faces.”
The government rejected the agency’s new assessment because it did not take into account that Bolivia has “the lowest inflation in the region” or other “strengths” of its economy.
The main cause of concern is the drop in its international reserves.
Edwin Rojas, current president of the Central Bank of Bolivia (BCB), estimated reserves at US$1.7 billion last January, when the country had around US$15 billion ten years ago.
Added to this is the decline in income from natural gas exports.
Bolivian fields have been depleted and, after years in which income from gas exports underpinned sustained growth and poverty reduction during the presidency of Evo Morales (2006-2019), the country began to importing more fuel than it exports, which reduced its foreign currency earnings and worsened the dollar shortage.
What is happening with the dollars
Last March, lines of citizens eager to obtain dollars began at banks and exchange houses, which increasingly created obstacles to delivering them.
This led the Government to announce that the Central Bank would supply dollars to whoever requested it, but lines persisted and complaints arose about the operation of that mechanism.
In Bolivia, a fixed exchange rate is in effect, established by the authorities, but importers, who need to operate in the US currency, protest because banks have been charging them a commission of up to 20% for some time when they try to obtain them.
“This has aggravated the shortage of foreign currency in the country, because many prefer to keep their dollars safe abroad rather than bring them into the country,” economist Jaime Dunn explains in conversation with BBC Mundo.
The lack of dollars hinders the ability of the government and the private sector to pay for importswhich have an increasingly greater weight in the Bolivian economy, especially in critical items, such as hydrocarbons, which the country now acquires mostly from abroad and have been in short supply in recent times.
The Bolivian Pharmaceutical Chamber warned that the lack of foreign currency can put the supply of medicines and medical devices in the country at risk.
The government maintains that the sporadic lack of fuel is due to internal “sabotage” and assures that the shortage of dollars is a “transitory” situation.
What impact can the measures have?
The government hopes that the new plan will allow it to reduce the cost of fuel subsidies by $100 million a year.which remains unchanged for the rest of the population.
The Executive believes that many pessimistic analyzes do not take into account the strong points of the Bolivian economy, such as its moderate inflation or the potential for the exploitation of its lithium deposits in the era of the search for alternatives to fossil fuels.
The former president of the BCB Juan Antonio Morales believes that “Bolivia needs these adjustment measures, although it must take them protecting the most vulnerable.”
Jaime Dunn, however, points out that the “measures adopted are very timid and do not attack the root of the problem, which is high public spending.”
Morales doubts that the issuance of debt in dollars will have a significant impact, since “the banks and the financial sector do not trust the Central Bank much due to the amounts it already owes them.”
The expert believes that if the reforms do not work, Bolivia may have no alternative but to request help from the International Monetary Fund, which is anathema for the ruling party.
Added to the uncertainty is a complicated political panorama.
The MAS split between the supporters of President Arce and former President Evo Morales and both are now rivals. Morales has criticized the government’s economic management and describes the current situation as “worse than in neoliberal times.”
According to Dunn, “Evo is skillfully exploiting discontent with the economic situation.”
The division of the ruling party has deprived the executive of the majority it would need in the National Assembly to sell the Central Bank’s gold reserves, which further limits its room for maneuver.
Click to read more stories from BBC News World.
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