Bolivia’s economic miracle, a late-twentieth-century boom that saw years of government spending lift millions of people into the middle class, screams, a warning sign for the wider region struggling with high inflation, shrinking government coffers and tepid growth.
For years, Bolivia has enjoyed one of the fastest rates of economic growth in South America as a surge in demand for natural resources, especially gas, helped the former leftist government of President Evo Morales to finance social programs and reduce poverty.
But over the past decade gas production has decreased by about a third, which led to a decrease in foreign currency reserves from more than 15 billion in 2014 to 3.5 billion in February, when the central bank suddenly stopped publishing Reserve data.
The depletion of hard currency sparked panic earlier in the year, as Bolivians formed queues outside banks to withdraw dollars.
Bond yields have risen sharply and in May the government was forced to sell half of its $2.6 billion gold reserves to raise liquidity.
The government of Bolivia reports relatively strong economic growth of 3.5% in 2022 and inflation still low at around 3%, partly due to expensive government subsidies for fuel.
But Bolivia’s dwindling reserves and exports highlight a common vulnerability in Latin America, where most economies rely heavily on commodities sensitive to changing global prices, weather events and the political mood.
A major drought in Argentina has hit grain production and reserves, jeopardizing a $44 billion debt deal with the International Monetary Fund.
In Peru, the world’s No. 2 copper producer, mining investment is set to fall by 19% this year, and production has stabilized amid ongoing political unrest.
Alberto Ramos, Latin American economist at “Goldman Sachs”, said that governments in Brazil, Chile and Colombia are also increasingly adopting policies of high taxes and public sector spending.
The Bolivian government has sought to diversify the economy away from its excessive dependence on gas by stimulating the production of soybeans and beef, while the sale of gold will help fill the public budget deficit, but only for a short time.
