When President Rodrigo Paz declared an “economic, financial, energy, and social emergency” in December, there was little doubt about his diagnosis of Bolivia’s problems. After nearly two decades of economic mismanagement, the country’s international reserves were depleted, and the fiscal deficit was rising. The country faced not just a downturn, but a full-fledged debt crisis and balance-of-payments crisis that merited exceptional measures.
Five months later, however, the response has fallen short.
The administration pledged a three-part stabilization strategy: fiscal consolidation, exchange-rate flexibility, and a new growth agenda. After Paz took office, the administration also began negotiating an IMF program. To date, only partial progress has been made—and not nearly at the pace required. Fiscal adjustment has been limited, the exchange rate remains rigid, and the future of Bolivia’s growth remains elusive. While negotiations with the IMF are well underway for a $3.3 billion program, talks are stalling.
Sounding the alarm may seem strange as Bolivia was able to meet a $388 million interest payment just last month, and its two bonds — the 2028 and 2030 — trade near par. Yet it has stayed current on its debt service not through structural reform, but through stopgap measures. Bond prices do not necessarily reflect the country’s strength: They reflect the likelihood that more stopgap measures may materialize, even if they cost Bolivia in the long run.
