Dollar scarcity, mounting debt and falling international reserves are highlighting the limits of the very heterodox Bolivian economic model.
The South American country is in the midst of a currency crisis. The shortage of the dollar generated fears of devaluation of the national currency, which is pegged to the US dollar. In the past few months, Bolivians have been withdrawing their dollar deposits or rushing to buy the US currency. The scarcity of the dollar means that, for the first time since 2011, a parallel market for the foreign currency has emerged.
Bolivia’s net foreign reserves have fallen from a $15bn peak in 2014 to less than $4bn now. The crisis reflects several short-term problems, such as a rise in interest rates around the world and higher fuel prices because of the war in Ukraine. But it also stems from long-term problems including the drop in hydrocarbon exports.
The country’s economic model is at risk. The so-called ‘Economic Social Communitarian Productive Model’, initiated by former president Evo Morales in 2006, stresses the participation of the government in the economy.
The economy grew at an average rate of 4.6% per year between 2006 and 2014. After the commodity boom ended in 2014, Bolivia resorted to high public spending and domestic credit to maintain economic growth. Achievements were built in large part on state spending fuelled by the income from natural gas exports. But since 2013, those exports have dwindled.
And if this was not enough, in April the Bolivian Financial System Supervisory Authority took control of Banco Fassil, the third-biggest bank in the country, in what observers are calling a very isolated incident.
