Given the lack of dollars in Bolivia, socialist rulers dialogue with capitalists

The socialist government of Bolivia He is strengthening ties with business leaders he once dismissed as he fights to prevent a dollar shortage from sinking the economy.

Officials from the Ministry of Economy and Finance and other ministries met last week with representatives of sectors such as finance, manufacturing, construction and pharmaceuticals, and agreed to many of their requests, such as less onerous rules for exporters.

The ten-point plan also included measures to address persistent fuel shortages, such as investments in biodiesel and tax breaks for electric vehicles.

“Today the Government already considers us, takes us part in the decisions”said Pablo Camacho, president of the National Chamber of Industries of Bolivia, who attended the meeting. “The speed of the measures must be recognized. We were surprised by the commitment”.

The socialist party MAS, which has governed the Andean nation for most of the last two decades, has long maintained a tense relationship with private business. The Administration often refuses to send officials to events organized by the private sector, and makes decisions such as increasing the minimum wage without consulting business owners. But the dollar shortage is bringing both sides closer together.

Bolivia narrowly avoided a financial crisis last year by passing a law allowing the central bank to sell part of its gold reserves. The most recent figures for external reserves published show that the bank has already sold almost all the metal that the law allowed, and that in December it only had US$166 million left in cash.

This leaves it with very little firepower with which to defend its peg of around 6.9 bolivianos per dollar that has been in place for 16 years. This has caused a black market in dollars and shortages of some basic products, especially fuel.

“The situation in the foreign exchange market has become alarming” BancTrust & Co. wrote in a report published last week. “The official exchange rate is increasingly irrelevant, as fewer and fewer agents have access to it”.

Medicine shortage

Companies have had difficulties paying for imports due to the lack of dollars. The pharmaceutical sector has warned of possible shortages of medicines and medical equipment due to lack of foreign currency.

The recent rift between President Luis Arce and former President Evo Morales has divided the ruling socialist party, effectively depriving it of its majority in Congress. This constitutes a big problem for the Ministry of Economy, since, even if it could borrow from abroad, any loan would have to be approved by legislators.

“The underlying problem is fiscal, and the Government is reluctant to address it“Ricardo Penfold, of Seaport, wrote in a note. “Given Bolivia’s current political crisis, addressing the fiscal issue seems unlikely”.

Arce was elected in 2020 and served as Economy Minister under Morales during Bolivia’s boom years.

Following its meeting with business leaders, the Government also agreed to issue dollar bonds, although it is unclear how it will do so, as the nation’s distressed credit effectively isolates it from world markets. Monetary authorities have looked for ways to take advantage of the so-called “mattress bench”, through which Bolivians hoard greenbacks outside the financial system, including foreign exchange generated by the national cocaine industry.

The central bank did not respond to a request for comment.

It goes into terrain “trash”

In February, Fitch Ratings further downgraded Bolivian bonds to “trash”, noting that the fall in international reserves threatens the country’s ability to pay its debt service.

Natural gas exports boosted the country’s economy at the beginning of this century, but production declined due to a lack of investment in exploration, says Napoleón Pacheco, an economics professor at the Universidad Mayor de San Andrés. And he still hasn’t found a new source of growth.

“The Bolivian economy is in a process of clear deterioration“, he claimed.