Reportage • Huascar Salazar and Dawn Marie Paley • March 31, 2023 • Leer en castellano

Since mid-March, the first block of Baptista street in Cochabamba has transformed into an unusual social space.

The change began when the line of people hoping to trade bolivianos for dollars led into the street behind the back door of the main branch of Banco Unión in the Bolivian city.

The previously simple action of changing currency has become something much more complex. Though the front entrance of Banco Unión appears normal, with clients coming and going while an armed guard looks on, behind the bank, on Baptista street, the scene is anything but normal.

The line-up is almost 100 meters long, all the way down the block. There’s hundreds of people waiting, each representing a larger group of 10 to 20 people. 

“I’m here because I have kids, I’m a mother and I want to have something to give to them,” said Shirley, who is a shopkeeper in the city. She’d been lined up for four days, and was just a few meters away from the gate when we spoke. She said she was afraid the boliviano would be devalued, and she wanted to change part of her savings into dollars. “I want to get in, I’m going to get in today,” she said.

Behind Shirley, the lineup extended to the end of the block. Each person had their own plastic or wooden bench, and sellers wandered up and down selling cuñapés and soft drinks. Some had even set up tents on the sidewalk. The air was tense, the mood was bored and tired. If indeed Bolivia is experiencing a run on the dollar, it feels more like a marathon than a sprint. 

At the end of last week, there were more than 150 groups waiting to access the bank. The groups are organized so that older people don’t have to overnight in the street, and so that group members can take shifts in line. At the end of the line up, those that were just arriving took advice from those who were already waiting: “you have to make a group, and then you organize shifts. It’s a four day wait to get in.” 

There are currently three locations where dollars can be legally bought in Bolivia at the official rate of 6.96 bolivianos per dollar: outside the main branch of Banco Unión in La Paz, and its largest branches in the cities of Santa Cruz and Cochabamba.

According to a communiqué from Bolivia’s Central Bank, the country doesn’t have a liquidity problem, rather what is taking place is a “speculative attack on our economy.” Some media outlets echo official discourse, claiming there is an “attempt to destabilize the country” through speculation.

Confusion reigns. But the lines keep growing.

The long road to today’s problems

Beyond the claims of Bolivia’s Central Bank, over the past months there have been all kinds of rumors about the lack of liquidity in state coffers, which have generated concern among the population.

What is known is that Bolivia’s Net International Reserves (NIR) in currency fell to US$372 million on February 8, when Bolivia’s Central Bank (BCB) updated its weekly information. Since then, the figure has not been updated. 

Of particular concern is the dramatic fall in these reserves: two weeks earlier, they were valued at near double (US$611 million). According to the BCB’s own data, the value of monetary reserves is a mere 2.8 percent of what it was in 2014, when it was $13.227 billion, dropping to $327 million this year.

The Bolivian government has been implementing measures to retain dollars since the end of January. It launched the Remittance Bond (Bono Remesa), which offers preferential interest rates in bolivianos when remittances are deposited in dollars. It also created a favorable exchange rate for exporters, to incentivize the sector to change their dollars to bolivianos.

In February, Fitch Ratings reduced Bolivia’s rating from B to B- due to the uncertainty generated by the government’s potential lack of external liquidity. It was through this report the population learned Bolivia had withdrawn the equivalent of  $300 million of the Special Drawing Rights (SDRs) it held in the International Monetary Fund.

These warning signs, which came to light in a disorganized and confused manner, contrast with official discourse, which continues to defend economic stability and the lowest inflation rates in the region as gains resulting from its economic management. 

Bolivia’s economic difficulties have been apparent for various years, and are related to a model that depends on the export of raw materials as its primary source of income. 

The pronounced drop in exports, the resulting deficit in the commercial balance and the precipitous drop in international reserves have been taking place since 2015, when commodity prices entered into free fall.

It’s worth noting that Bolivia’s international reserves grew between 2005 and 2014, as the international price per barrel of oil hit record highs, which pushed up the price of the natural gas Bolivia exports to Brazil and Argentina. 

Over this period, the volume of gas exported was massive, which meant the Bolivian government was able to retain more income. The stability of the local currency against the dollar was backed up by a large quantity of dollars entering the country.

This monetary stability meant the Movement Toward Socialism (MAS) government could promote a Bolivianization of the economy, encouraging savings and loans in the national currency.

Establishing a fixed exchange rate meant that the government could take greater control over the economy, and have access to a larger quantity of foreign currency. This situation contrasted with the legacy of hyperinflation in the 1980s, when the population of Bolivia kept their savings in dollars to protect the value of their money.

The fall in international oil prices since 2015 marked the end of Bolivia’s economic bonanza. 

The value of exports was affected in multiple ways. First, the fall in oil prices is indexed to gas prices, which also fell. Then, the volume of gas exported diminished from 13.4 million tons in 2014 to 7.6 million tons in 2022. In monetary terms, the value of natural gas exports fell from six billion dollars to 2.9 billion dollars over the same period.

Since 2022 Bolivia has become a net importer of petroleum products. Last year, it imported the equivalent of $4 billion in gas and diesel to cover national demand, and the Bolivian government had to pay more than $1.7 billion towards subsidies that have kept gas prices for consumers stable since 2005.

But the fiscal deficit isn’t only the result of gasoline subsidies. It is also linked to sustaining a growing state bureaucracy.

Government spending—not to be confused with public investment—grew from $3.9 billion in 2006 to $19.4 billion in 2022. Initially, there was a windfall available for government spending. But since state income fell, a deficit appeared which has been covered by Bolivia’s reserves and with record levels of internal and external public debt.

A collateral effect of the establishment of a fixed exchange rate, in a moment in which all other regional currencies have lost value, has been the propping up of boliviano. This has incentivized legal and illegal importation of products of all kinds, impacting Bolivia’s fragile and incipient national production. Today in Bolivia there are major contraband markets, through which escape of foreign currency is accented.

Even after almost 20 years of “progressive” administration of the economy, the economic model continues to be completely dependent on extractivism. What is taking place in Bolivia’s economy today is a consequence of this dependence. Over the past years the government has promoted the search for new oil and gas reserves as the only solution, suggesting that only more fossil fuel exploitation will resolve the current economic crisis.

Waiting for the inevitable?

Nobody knows exactly what is going to happen to the Bolivian economy, but there are three potential future scenarios: the devaluation of the boliviano with relation to the dollar; a gasoline price hike—the favored policy of the IMF, which would doubtless provoke an explosion of anger and protest—or the negotiation of an enormous new loan.

It’s not clear if the country will face a devaluation of the boliviano, which would lead to a sharp loss in purchasing power for the population. The possibility of a gas price hike has also been floated, which would reduce the pressure on government coffers but would also spark an inflationary spiral that would also drive down purchasing power.

In the least catastrophic case over the short term—which would see the current problems pushed further down the road—the government could try and finance the economy with new loans. 

But Bolivia’s low ranking internationally makes this possibility both more expensive and less likely to occur. Relief through new loans would continue to put off the inevitable, unless a structural solution reducing dependence on extractivism is found. 

Over the past days, the government of Luis Arce Catacora and the legislators that support him attempted to pass a law that would allow the Bolivian state to sell its international gold reserves, which are worth around $2.5 billion, in order to achieve liquidity. That would give some relief to the national economy.

But the proposal to sell off Bolivia’s gold has accentuated the dispute inside the MAS. The “Evista wing” (supporters of party leader Evo Morales) of legislators voted against the proposal together with members of right wing opposition parties. Legislators who voted against the proposal suggested it would take away the legislative assembly’s control over the sale of gold reserves.

Over the coming weeks, the economic conflict in Bolivia could become cannon fodder for political actors within the state who are seeking to gain ground on the eve of the 2025 elections. Irresponsible management of this crisis is a latent possibility, similar to what took place with the catastrophic management of the pandemic, which was instrumentalized as part of the dispute for political power.

In the meantime, for the people lined up outside the Banco Unión, the lack of trustworthy information and doubts about the sustainability of the economic model are enough to justify lining up day and night.

Some of those lined up are small-time importers and sellers who need dollars to buy products produced internationally. Others are trying to protect part of their life savings. Others yet are considering traveling abroad and need dollars. At the beginning of March it was possible to buy up to $20,000 at the Banco Unión, by the end of the month the maximum was $3000.

“I’m an enemy of line-ups,” said Juan Carlos, a 61 year old man who recently retired. He was waiting to change a bonus his son received the month prior. He was farther back in line, sitting on his little bench. It was his third day waiting. “But my son is in La Paz, and I’m doing this as a favor to him.”

His attitude was a good indicator of the mood on Baptista street. “Like the popular saying goes, ‘when the river runs, there’s rocks below,’” he said. “Something’s going to happen.” He wasn’t panicking, or even upset. Instead, he was resigned to doing something he had always avoided.

Juan Carlos still had another day to wait before he would make it inside the bank. Never in his life had he lined up for so long. But he was worried enough to wait for days, together with many others, behind the only bank that sells dollars at the official rate in Cochabamba. The other option is to trade on the black market, where the price of the dollar has risen (it was at 7.30 bolivianos on March 28) at the hands of speculators.

Huascar Salazar Lohman
Is a Bolivian economist and author of Se han adueñado del proceso de lucha. He recently participated in the edited volume Pensando la vida en medio del conflicto. He is a researcher at the Center for Popular Studies (CEESP).

Dawn Marie Paley
Has been a freelance journalist for almost two decades, and she’s written two books: Drug War Capitalism and Guerra neoliberal: Desaparición y búsqueda en el norte de México. She’s the editor of Ojalá.