11
The Economist
April 22nd 2023
Leaders
F
or several
weeks extraordinary scenes have been taking
place in Bolivia. As we report (see Americas section), last
month the central bank started selling dollars directly to the
public after it appeared that exchange houses had run out of
greenbacks. The queues to buy them stretched along the streets
of La Paz, the capital. The central bank has stopped publishing
data on its foreigncurrency reserves, suggesting that it has
perilously little hard cash left. The price of government bonds
has collapsed as investors flee: a bond due in 2028 is now trading
at just 48 cents on the dollar.
Bolivia’s nightmare reflects several shortterm problems,
such as a rise in interest rates around the world and higher fuel
prices because of the war in Ukraine. These
have made it more expensive to borrow and in
creased the cost of imports. But the real cause of
its predicament is a reckless economic model
that has been in place ever since leftwing pop
ulists took control nearly two decades ago.
When Evo Morales, a former coca farmer, was
sworn in as president in 2006 he declared an
end to “the colonial and neoliberal era” and
hung behind his desk a portrait of Che Guevara, a violent Marxist
revolutionary, made out of coca leaves. Today the full cost of eco
nomic populism is becoming clear, as are three lessons for the
many other Latin American countries tempted by it.
The first lesson is an old one: don’t count on commodity
booms. Mr Morales hit the jackpot when he arrived in office, as
naturalgas prices soared, providing a windfall for the country,
which produces 0.4% of global gas even today. Exports rose. Bo
livia was able to accumulate the largest foreign reserves in its
history: they jumped from the equivalent of 12% of
GDP
in 2003
to 52% by 2012. Mr Morales and Luis Arce, who is now president
but who was the finance minister, used the proceeds to spend
profligately, including on fuel subsidies, which were worth al
most 4% of
GDP
in 2022. Unfortunately gas prices and produc
tion have been falling and the cash gusher is running dry.
The second lesson is to beware of currency pegs. In 2008 a
fixed exchange rate was introduced, which since 2011 has been
set at 6.96 bolivianos per dollar. For a while this kept inflation
low and provided an anchor for an economy with a history of
turbulence. But over time the peg has proved exorbitantly costly.
Instead of providing stability it has bottled up problems.
Finally, hostility towards private capital eventually comes
back to bite you. Bolivia went on a nationalisation spree that in
cluded the gasfields and electricity grid. Its government has
treated business with contempt. Unsurprising
ly, investment has shrivelled. The flow of long
term investment by multinational companies
has dropped from a peak of 12% of
gdp
in 1999 to
an average of just 0.1% in the past five years. To
tal investment is likely to be just 14% of
gdp
this
year, the lowest rate in South America. There
are no big listed companies.
Mr Arce’s talk of attracting entrepreneurs is
too little, too late. He has only bad options left. His government
could impose austerity, try to borrow even more from multi
lateral lenders, default or sell some of its ample lithium deposits
to China, whose governmentbacked firms are relaxed about fla
ky property rights but will demand firesale prices.
Few other Latin American countries have currency pegs. But
many depend on commodities of one kind or another. And the
region is experiencing a new “pink tide”, with leftleaning gov
ernments in power, most of which are debating just how much
to indulge their instinct for heavy state intervention. The mes
sage from Bolivia, a country that is literally running out of mon
ey, is that there are limits.
n
Dostları ilə paylaş: