Bolivia is plunging into a balance of payments crisis amid a continued shortage of dollars, no recent official data on foreign currency reserves and a hefty fiscal deficit. Stirring the pot is former president Evo Morales, forced to flee the country in 2019. Morales has fallen out with President Luis Arce, his old finance minister, and said on September 24 that he would run for office in the 2025 election, as a result of what he sees as “attacks from the government”.
Even after a precipitous drop in its dollar bond prices in the last month and although Bolivia has no bonds maturing until March 2028, investors are failing to see any value in its debt.
The approval of a so-called ‘gold law’ earlier in the year has allowed the Bolivian central bank to sell some 17 tonnes of gold and raise just over $1bn of cash since May 5. This eased earlier concerns about a $183m bond maturity payment due on August 22, which was duly made. It is also likely to have temporarily reversed a fall in international reserves that has caused demand for dollars to surge across the country.
But this has cut Bolivia’s gold reserves from 43.5 tonnes to 26.1, according to a report from EMFI Securities published on Monday and — by law — the stock must not drop below 22 tonnes. The central bank stopped publishing weekly reserve data on February 8, but analysts believe the situation remains perilous.
“[This] is a textbook balance of payments crisis,” said Nathalie Marshik, managing director in Latin American fixed income at BNP Paribas in New York. “Arce has to balance political pressures, so subsidies will stay, the fiscal deficit will continue to be large, and meanwhile they’re holding an overvalued peg.”
Bolivia’s sovereign bonds, having recovered after the gold law was passed, are again trading at all-time lows in secondary markets. Its 4.5% March 2028 bonds were bid at 45 cents on the dollar on Tuesday — 15 percentage points lower than on September 22.
Bolivia’s fiscal deficit is likely to widen from 7.3% of GDP last year to 8% in 2023, according to EMFI, and political infighting will make any market-friendly measures even harder.
The three unofficial exchange rates operating in the country have tumbled to a range of 7.00 to 7.90 bolivianos to the dollar, while the official rate is 6.90.
There is little immediate repayment risk on Bolivia’s international bonds. But this is not enticing buyers. Marshik said it would be tough to find buyers in today’s market environment. “If Morales were to win you would start worrying about sanctions, and there’s still the risk of social unrest,” she said. “It would be a very big bet to make.”