Bolivian government hopes to save reserves with controversial Gold Law

The controversial Gold Law project that the Government of Luis Arce trusts will help strengthen the depleted Bolivian international reserves received the go-ahead in the Senate, with which it only remains for the president to promulgate the norm for its validity.

The norm was approved in a context in which dollars are also scarce.

These are the keys to the law that has been questioned by opponents and economic experts because, among others, it gives the Central Bank of Bolivia (BCB) the power to sell gold without the approval of Parliament:

Background

Bolivia already had a Law for the Purchase of Gold for International Reserves, promulgated in 2011 by then-President Evo Morales.

This rule, which was abrogated by the new law, authorized the BCB to buy gold bars from state mining companies and from a mineral marketing center exploited by cooperatives to increase gold reserves.

In 2020 it was known that gold became an important asset in the Bolivian Net International Reserves (NIR), since at that time it represented 41% of its structure.

The current situation of the Bolivian reserves is unknown and only the data of US$ 3,538 million is available until last February, one of the lowest levels since 2014, when they reached 15,122 million.

At the end of April, the issuing entity reported that Bolivia has 43.05 tons of gold in reserves, of which 42.51 are deposited “in international financial institutions of high credit quality” and the rest is in their vaults.

New law

The new law seeks to strengthen the RIN through the direct purchase of gold from local producers to refine it and certify it internationally as a reserve asset.

It also authorizes the issuing entity to carry out financial operations with gold in international markets.

The regulation establishes that the BCB must maintain a minimum of 22 tons of gold reserves and will also have to report every four months to the Legislature on the operations it carries out with this asset.

The Government and the BCB assured that if the project had been approved in 2021, assuming the purchase of 20% of the exported gold, by 2022 the NIR would have reached a level of US$ 5,081 million, compared to the 3,796 million at which they closed last year. .

According to the authorities, the rule will ensure “low inflation with economic growth,” gold producers’ access to “competitive prices, exact and fair weight” and improved performance and liquidity of reserves.

Controversy and criticism

The approval of the law was preceded by heated discussions between opponents and pro-government supporters, and also once again revealed the internal fight in the government’s Movement for Socialism (MAS), which had trouble getting legislators close to former President Morales to give it the green light. .

Some parliamentarians from the “avoid” questioned the tax exemptions for the purchase of gold by the BCB, while the opposition has warned that the rule could become a “blank check” for operations with gold reserves.

The economic analyst Jaime Dunn told EFE that this law, “More than directly supporting the national economy, it will help the liquidity of the BCB and the Government” and “It is nothing more than a simple palliative” that will help the Executive for a few months, without actually resolving the current economic crisis.

For Dunn, one must wonder how the liquidity in dollars that will arrive through the regulation will be managed, because if they go to public spending or to cover fuel imports, the currencies will leave the country again.

In his opinion, to stop the decrease in INR, the first thing to do is “cut the bleeding” generated by subsidies, public spending or fuel imports and then “cure the economy” with measures such as reducing the state apparatus, boosting exports, opening the country to foreign investment and relying on the private sector.

Source: EFE