In Bolivia, an escalating economic crisis is testing the durability of an economic model that once promised stability but now struggles to meet the basic demands of a modern economy. The lack of fuel and dollars, along with weak growth, threatens to unravel the country’s social and economic fabric, forcing the government into a precarious balancing act.
Once hailed as a model of economic growth and stability in Latin America, Bolivia’s resource-driven economy has been running on borrowed time. The Movement to Socialism (MAS) party, in power since 2006, built its economic strategy on the foundation of subsidized fuel, controlled food prices, and dollar-pegged stability. These policies were financed largely by exporting natural gas to Brazil and Argentina, with high global commodity prices driving Bolivia’s growth. But the end of the commodity boom has left Bolivia increasingly vulnerable, and reserves have dwindled. In 2014, Bolivia held $15 billion in international reserves; today, that figure has shrunk to around $2 billion, with only a fraction in U.S. dollars.
The economic ramifications are severe. The official and black-market exchange rates have diverged significantly, creating inflationary pressures that are difficult to ignore. Supermarket shelves stand half-empty, with prices rising as businesses struggle to replace inventory in a scarce-dollar environment. The International Monetary Fund projects that Bolivia’s GDP will grow by only 1.6% this year, marking one of the slowest rates in the past two decades.
In response to this spiraling crisis, President Luis Arce’s government faces pressure from all sides. Private sector players urge the government to liberalize agricultural exports and incentivize investment in gas production, while labor unions push for policies that would mandate exporters to repatriate more foreign currency. Despite reassurances from Arce to the business sector, his public stance on these issues remains ambiguous, which has only fueled speculation and uncertainty.
The core of Bolivia’s troubles lies in an unsustainable economic structure. To keep fuel prices stable, the government has maintained subsidies that fixed petrol prices at about $0.50 per liter since 2004. This price control, coupled with a dollar shortage, has compounded the crisis. Experts argue that addressing the exchange rate disparity, reducing fuel subsidies, and possibly seeking financial assistance from the IMF are essential steps to avert a more severe collapse. However, such measures contradict the MAS party’s principles, creating a political deadlock.
Adding to the complexity is political instability. The recent coup attempt and the ongoing rivalry between President Arce and former President Evo Morales have weakened the MAS government’s legislative power. Key development loans, amounting to roughly $1 billion and equivalent to 2% of Bolivia’s GDP, remain tied up in congressional gridlock.
As the crisis deepens, Arce appears to be trying to hold the line until the upcoming election, hoping to avoid drastic measures. Yet, rising poverty, inflation, and declining purchasing power may soon ignite public discontent, transforming economic frustration into street protests. Bolivia’s path forward requires tough choices—and time is running out.