LatinNews Daily - 16 March 2023

BOLIVIA: Looking to the IMF as dollar reserves dwindle

On 15 March Bolivia’s Finance Minister Marcelo Montenegro said that the central bank had used its special drawing rights (SDR) arrangement with the International Monetary Fund (IMF), amid continued concerns over Bolivia’s dwindling reserves of hard currency.


For the past two weeks a confidence crisis has been mounting in Bolivia, where rumours of US dollar shortages have been fuelled by the central bank’s failure to update figures on its international reserves. The bank has not updated its weekly bulletin since 17 February, when it said that it had dollar reserves of US$372m, down nearly 70% compared with the same month last year. The central bank has begun directly selling dollars to citizens to quell concerns that a currency devaluation could be required to enable Bolivia to meet its debt repayments. However, long lines outside the central bank show that those fears are not dissipating. Montenegro’s acknowledgement that the central bank had resorted to its SDR arrangement with the IMF will only fuel speculation and pile further pressure on the boliviano.

  • Questioned yesterday as to whether monetary authorities had used the SDR arrangement, Montenegro said “yes… it’s one of the attributions of the central bank”. He added that “SDR holdings are freely available… their use does not amount to a loan and is not subject to any sort of conditions”.
  • Although Montenegro did not specify how much Bolivia had drawn from the SDR, international credit ratings agency Fitch reported on 14 March that Bolivia “recently” exchanged SDRs for US$300m.
  • The acknowledgement that Bolivia had drawn on its SDR arrangement came as two credit ratings agencies voiced concern about Bolivia’s ability to weather the storm. On 14 March Fitch downgraded Bolivia’s long-term foreign currency and local currency issuer default ratings from ‘B’ to ‘B-’, and downgraded its ratings outlook from ‘stable’ to ‘negative’. Fitch attributed this to “the depletion of external liquidity buffers”, noting that “the continued fall in international reserves at low levels has rendered them vulnerable to risk of a confidence shock, which has materialised in recent weeks”. Fitch also highlighted “heightened uncertainty around the authorities’ ability to manage this situation, as well as around its severity given an ongoing delay in publication of international reserves data”.
  • Standard & Poor’s (S&P) also changed Bolivia’s credit outlook to negative yesterday, but maintained the country’s ‘B’ credit rating.
  • The finance ministry released a statement on 14 March saying Fitch’s downgrade did not take into account Bolivia’s economic resilience, which it said had been demonstrated by Bolivia having one of the lowest inflation rates in the region. The statement also said that Bolivia’s international reserves are expected to rise this year due to factors including increased export of lithium and urea, import substitution, and new electricity export contracts.
  • The government has insisted that it will defend Bolivia’s fixed exchange rate of B$6.96/US$1, although long queues outside the central bank and branches of state-owned Banco Unión reflect fears that a currency devaluation could be imminent.
  • A bond repayment of US$183m is due in August, and this is likely to determine how long the central bank is able to continue depleting its dollar reserves by exchanging bolivianos. Ending the direct sale of dollars to citizens would fuel a growing black market for dollars, which are reportedly already selling for over B$7.2/US$1, triggering a de-facto devaluation.

Looking Ahead: Most of the central bank’s reserves are stored in gold deposits amounting to US$2.59bn. Whilst liquidating some of these assets should enable the government to make its debt payments and ease the pressure on the boliviano, accessing the gold would require a change in the law.

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