International experts warn that Bolivia’s economy is in a fragile position

Experts and economic analysts from different countries say that the Bolivian economy is in a vulnerable position due to the possibility of not being able to repay its debts. Latin Finance Online Magazine An analysis of the economic situation over the past 10 years When gas export revenues start to decline.

Edwin Gutierrez, Abden’s head of emerging market sovereign debt noted that former President Evo Morales “did a good job in fighting poverty, but he took shortcuts.”

For example, according to the International Monetary Fund, Bolivia’s economy grew by an average of 5% between 2006 and 2015, while Morales, Energy industry distribution income Infrastructure and social welfare spending were nationalized. On the other hand, the Ministry of Economy and Finance reported that the poverty rate had been reduced by more than 40%.

But when inflation hit during the Covid-19 pandemic, the fixed exchange rate, fuel subsidies and food export restrictions largely protected Bolivians from rising prices.

What happened to the hydrocarbons?

After nationalization in 2006, investment in oil and gas exploration dropped sharply. This leads to a reduction in reserves Then produce.

Data from British energy consultancy Wood Mackenzie shows that natural gas exports to Argentina and Brazil will fall from 1.6 billion cubic feet per day in 2015 to 1.1 billion cubic feet per day in 2022.

“Our analysis suggests that the rate of decline in Bolivia’s deposits is accelerating,” said Amanda Bandara, research analyst at Wood Mackenzie.

Recently, the national government stated Conditions are improving, spurring drilling, But it may be too late, as Argentina and Brazil are no longer “enthusiastic” customers.

Taking Argentina as an example, The development of the Vaca Muerta gas field is being accelerated. This is expected to make the neighboring country self-sufficient and potentially a global gas exporter. Negotiations have even begun to utilize spare capacity on the gas pipeline that passes through Bolivia to export gas from Vaca Muerta to Brazil.

On the other hand, energy consultant Alvaro Rios said the energy sector crisis poses a double risk to state finances. “It’s a black hole,” the analyst warned.

At the same time, as exports fell, The government will have less money to subsidize imports Fuel costs are estimated at around 10% of gross domestic product (GDP), according to a study by economists Mauricio Medinaceli and Marcelo Velázquez of the La Paz Institute for Advanced Development Studies.

Former President Morales’ response to falling gas production was lithium, Their use in batteries to power cars and electric motors, or to store energy generated by solar and wind power plants, makes them essential for the transition to net-zero CO2 emissions by 2050.

Bolivia has one of the world’s largest lithium reserves at the Uyuni Salt Flats and other similar areas, but its potential remains largely untapped.

Bolivia’s state-run lithium company YLB’s new plant is almost ready, but delays during the pandemic damaged the giant evaporation ponds needed to refine the brine. This year’s production is expected to reach 3,000 tons. This is far lower than Chile’s annual production of more than 200,000 tons.

Héctor Córdova, a former deputy mining minister, said it would take another three years and significant investment to reach a production capacity of 15,000 tonnes.

at the same time, Lithium carbonate prices plummeted from more than $80,000 per ton Oil prices are set to hit around $12,000 a tonne this year by the end of 2022, limiting potential gains for public finances and raising concerns that another ship could miss out on the recovery.

As fiscal problems worsen, politicians have been jockeying for power. Morales resigned in November 2019 after a questionable election and formed an interim government. A year later, Morales’ former economy minister, Luis Arce, was elected, and the interim government leader is now in jail.

After he came to power, Als and his former boss have always been at odds. The debate has deeply divided the ruling Movement for Socialism (MAS) party, mainly over whether Morales should run again.

On the other hand, when international reserves increase, a gradual decline in wealth leads to a rapid rise in bankruptcies. Falling below $2 billion It peaked at $15.1 billion a decade ago, according to the Bolivian Central Bank (BCB).

The news sparked a panic to get dollars, with hundreds of people queuing outside the BCB in La Paz trying to exchange any currency they could.

The government stopped the crisis by passing a law allowing the Brazilian central bank to buy gold from local producers, but not before one of the country’s largest banks, Banco Facil, collapsed.

Arce, a career economist, brokered a deal with business leaders that included reducing barriers to foreign trade. He also rescheduled the debt so that debt-service obligations for the remaining five years of his term were minimal. Coupon payments on two outstanding Eurobonds this year are just $54 million It will reach $100 million by 2025.

“They are in a very vulnerable position and every dollar counts for them,” said Pilar Navarro, an analyst at investment firm EMFI Securities.

Although international reserves have stabilized, gold’s weight makes it less liquid than cash. Of the 8 tonnes purchased since May last year, less than 3 tonnes have been added to the approved reserves of international banks.

“When you rely on this model where you have to buy gold, refine it and then sell it, “You may be experiencing synchronization issues.”said Christopher Dychala, associate director of sovereign debt at Fitch Ratings in New York.

Fitch Ratings downgraded Bolivia to CCC in January, signaling a possible default, and Moody’s Investors Service did the same in April.

At the same time, agricultural and mineral exports also declined.

The government could easily raise the necessary funds by cutting some subsidies or other spending, but because of divisions within the MAS, it lacks the votes needed to push through adjustments.

According to the BCB, the political conflict has even prevented multilateral lenders from providing loans worth up to $3.5 billion.

replace, The government is trying to balance the budget by reducing key imports. That has sparked a black market in dollars, fuel and medicine, fuelling inflation and protests.

“They’re ultimately going to say, ‘Do we import medicine and gasoline, or do we pay our debt?'” said Ricardo Penfold, a portfolio manager at Seaport Global Holdings in New York.

But the big question is what happens when the bond capital comes due in 2026. Arce and Morales face off, with opposition leaders both in jail until now. No presidential candidate has promised such a radical fiscal overhaul. Necessary to avoid non-payment.

If Bolivia can’t pay, the adjustments could be painful. While Western investors could be persuaded to accept deep cuts in a country as poor and volatile as Bolivia, Chinese banks have shown less flexibility towards defaulters. Perhaps that’s why Arce traveled to Russia in early June, where he met with that country’s president, Vladimir Putin, to discuss investment and trade opportunities, including supplying Bolivia with much-needed fuel.

“A default would mean currency devaluation and economic recession, with vulnerable groups suffering,” Gutierrez de Abourdon added.