What happened to Bolivia’s “economic miracle”?

What happened to Bolivia’s “economic miracle”?

2023-04-16 17:55:10

The lawyer Sofía Andrade withdrew her savings in dollars from the bank when she started make the currency scarce in the streets of Bolivia. “I prefer to have them at home, I’m afraid they won’t let me take out later,” she said.

Like her, many Bolivians are withdrawing their dollar deposits or buying the currency to prevent the national currency from losing value, which has prompted an unknown parallel market since 2011 when a fixed exchange rate of 6.96 bolivianos per dollar was established.

The greenback shortage -which the opposition attributes to the depletion of foreign exchange and the government to speculation- increased uncertainty about the economic fragility of Boliviawhich for more than a decade experienced what many called an “economic miracle” due to record exports, an average annual growth of the Gross Domestic Product (GDP) of 4.6%, low inflation, a fixed exchange rate and subsidized gasoline. .

The president of Bolivia, Luis Arce, assures that there will be no devaluation. Photo: AP

Rows to buy dollars

When the dollar shortage began, hundreds began to spend the night at the doors of the Central Bank to buy at the official exchange rate. Given the high demand, the sale of the currency is now done through a QR code after registering in a registry. The rows have disappeared, the problem hasn’t.

“The government ensures that everything is fine, that there are no problems with the dollars, but we cannot buy them as before. I don’t believe them,” she told The Associated Press Silvana, a 60-year-old street vendor who preferred not to give her last name.

Faced with popular concern, the center-left president Luis Arce went out to calm the waters. “There will be no devaluation. There is no need with the strength of a growing economy. Many countries entered the trap of devaluations trying to beat inflation, ”she said this week in the first interview he has given to a private TV channel since he took power at the end of 2020.

Goodbye to the “economic miracle”?

Considered the “brain” of the “economic miracle” as minister of the area between 2006 and 2017 -during the government of Evo Morales-, Arce now seems unable to find the formula to overcome the crisis.

The president assured that he will not withdraw the million-dollar fuel subsidy before the fear of a social outbreak. For each liter of gasoline imported at international prices, the consumer only pays half, an onerous subsidy that bleeds foreign currency reserves, according to experts.

Marcelo Montenegro, Bolivia's Minister of Economy.  Photo: BLOOMBERG

Marcelo Montenegro, Bolivia’s Minister of Economy. Photo: BLOOMBERG

The president blamed the war in Ukraine for the global economic turbulence, although he assured that this has not affected the Bolivian economy. “An economy does not grow if it is bad, we are growing and we have the lowest inflation in the region,” he said.

Bolivia experienced one of the biggest booms in its history in the past decade thanks to the high prices of raw materials, a trend that coincided with the rise to power in 2006 of Morales, the country’s first indigenous president and a close ally of the late president. Venezuelan Hugo Chavez.

The Aymara leader used the huge flow of money to reduce poverty, expand the middle class and build roads. The buildings multiplied in the cities and the car ceased to be a luxury, but there were also waste and corruptionaccording to his detractors.

The country’s income tripled with the nationalization of hydrocarbons in 2006, but the sector stagnated due to a lack of investment and the country went from being an exporter to an importer of hydrocarbons in 2022, according to the state-run National Institute of Statistics.

“They have farreado (wasted) the money. Now there is a lack of liquidity. People are buying dollars in the face of uncertainty, but those dollars don’t return to the market, they stay under the mattress,” said opposition senator Rodrigo Paz, from the center-right Comunidad Ciudadana party.

no reservations

The price bonanza ended in 2014, but Bolivia managed to stretch out its savings for several years until the appearance of the Covid-19 pandemic and is now almost unreserved.

For this reason, the government seeks to make use of gold, whose exports grew at the expense of the exploitation of natural reserves in the Amazon but which leave little profit for the State. In 2022, gold exports reached 3,004 million dollars, but the public coffers obtained only 75 million from taxes, according to official data.

“We are scraping the pot,” ironized analyst Gonzalo Chávez.

“It is an exhausted economic model that based its success on capturing the surpluses generated by natural resources, it is not based on the generation of wealth. It worked while raw materials had high prices,” explained analyst and consultant Jaime Dunn.

Social discontent is growing in Bolivia and several unions have come out to protest in recent weeks.  Photo: EFE

Social discontent is growing in Bolivia and several unions have come out to protest in recent weeks. Photo: EFE

“The only way to keep it alive is by burning more currency and increasing debt, which is already around 70% of GDP,” he added.

For its part, the government ruled out modifying the statist model. “Thanks to the model, there are subsidies that, added to the fixed exchange rate of the dollar, have built a robust productive apparatus with price stability and low inflation (0.19% in the first quarter of 2023),” said the Minister of Economy, Marcelo Montenegro.

This week the The World Bank lowered its growth forecast for the region due to the fall in the prices of raw materials and predicted that Bolivia will grow 2.7% this year, while for the International Monetary Fund the rate will be located at 1.8%. The government, however, assured that growth will be 4.8%. “I will disappoint the international projections again,” said Arce.

political turmoil

Adding to the economic concern is a turbulent political climate due to public criticism of Arce’s management by his political mentor, former President Morales, who in turn is the head of the ruling Movement for Socialism (MAS).

The pulse in the streets is no longer one of optimism. “We were coming out of the pandemic that plunged us into the crisis and when the economy was reactivating I feel that now we are submerging again,” said housewife Sofía Godínez, 54, mother of three children who are studying at the university.

Arce faces a growing climate of social protests. For the last six weeks, state teachers have been mobilizing in the streets to demand more budget for the sector and the hiring of more educators.

The government has responded that it does not have the economic possibility to satisfy those demands.

Source: AP


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