Nov 10, 2024 (MENAFN via COMTEX) --
(MENAFN - The Rio Times) Bolivia's recent attempt to loosen restrictions on its gold reserves highlights the country's dire economic situation. The Central Bank of Bolivia briefly introduced a measure allowing it to report gold holdings biannually, potentially enabling it to dip below the legally mandated minimum of 22 tons between reporting dates.
This move, quickly reversed due to concerns over economic speculation, reveals the depth of Bolivia's financial crisis. The country's foreign currency reserves have plummeted from $15 billion in 2014 to a mere $1.7 billion in late 2023.
This dramatic decline stems from a perfect stor of economic challenges. Bolivia's natural gas exports, once a cornerstone of its economy, have dwindled from $6 billion annually in 2014 to just $2 billion in 2023. This sharp decrease has left a gaping hole in the national budget.
For nearly 15 years, Bolivia maintained a fixed exchange rate of 6.90 bolivianos per US dollar. This policy, while providing stability, now strains the economy as foreign currency becomes scarce.
The shortage of dollars has cascaded through various sectors, making it difficult for businesses to import essential goods like medications, farming equipment, and mining supplies. Inflation has emerged as another pressing concern, reaching 7.26% by October 2024, more than double the government's initial projection.
This increase in prices affects everyday Bolivians, particularly in food and fuel costs. The government's fiscal policies, including a large public sector deficit of 7.3% of GDP in 2022, have contributed to the depletion of international reserves.
Bolivia's Currency Crisis: Gold Reserves in the Spotlight
Political tensions exacerbate these economic challenges. A power struggle between current President Luis Arce and former President Evo Morales divides the ruling party, hampering effective decision-making on crucial economic issues. This conflict has spilled onto the streets, with protests and roadblocks disrupting economic activities.
The international financial community has taken note of Bolivia's precarious situation. Fitch Ratings downgraded Bolivia's credit rating to 'CCC' from 'B-' in February, reflecting increased risk associated with the country's economic management.
Bolivia now faces difficult choices. The government must address the currency issue, potentially allowing the boliviano to depreciate. It also needs to tackle the fiscal deficit and reduce reliance on central bank financing. These challenges come as the country prepares for presidential elections in 2025, adding political pressure to economic decisions.
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COMTEX_459661033/2604/2024-11-10T13:00:08
