The “socialism of the XXI century” decided to nationalize and appropriate the funds for the future of millions of people to obtain new resources to finance the bulging fiscal deficit.
At the same time, the run against the peso and the shortage of foreign currency intensified.
The relative macroeconomic stability that Bolivia maintained in the last decades seems to be slowly ending.
Entirely overwhelmed by fiscal problems, the Government of President Luis Arce announced the appropriation of the resources of the Pension Fund Administrators (AFP).
This capitalization system allowed Bolivians access to the right to a guaranteed retirement after the bankruptcy of the pay-as-you-go system in 1996.
The Bolivian Government pursued an extremely irresponsible fiscal policy in recent years.
The fiscal deficit has remained above 7% of GDP since 2016 and reached an all-time high of up to 12.7% of output during the pandemic.
Most of the financing was public debt (internal and external). However, a significant part was successfully monetized due to the solid demand for money that was maintained thanks to the country’s exchange rate system.
The violent run against the peso led thousands of people to go to the banks to convert their savings into dollars, fearing a possible devaluation and a regime change in the country’s monetary system.
In this situation, the monetization of the deficit becomes inflationary (there is no demand against which to counteract the issuance), and socialism bets on using the funds accumulated in the pension funds.
President Arce ordered the issuance of 20, 30, and up to 50-year sovereign bonds with interest rates fluctuating between 4.8% and 5.1% per annum, which will be used to progressively consummate the nationalization of the pension system by May 2024.
Bolivia will once again resume the state pay-as-you-go system, whereby social security contributions will cease to be accumulated in pension funds and will be used to support current pensions according to the standards set by the State.
In the same way that Kirchnerism did in Argentina during 2008, the Arce Government is making use of a vital fund of resources with which it will be able to continue financing the deficit, at the cost of giving up the future and the effort of years of contributions for millions of people.
However, despite the measures, the exchange rate front remains adrift.
The international reserves of the Central Bank of Bolivia have fallen by US$11.585 billion since 2015.
The monetary authority has maintained a fixed exchange rate free of significant restrictions since 2009, at around Bs6.9 per dollar.
The stable parity allowed anchoring inflationary expectations and creating a counterpart in peso demand for every time the Government had to monetize large amounts of fiscal deficit.
However, the lack of monetary and fiscal discipline was covered with reserves, which fell to the lowest level in the last 16 years.
More and more savers are deciding to dollarize in fear of possible retaliation by the Government, fearing a possible devaluation of the official exchange rate (denied by the Government) or the introduction of restrictions on the purchase of foreign currency (a response similar to the one Argentina gave in 2011).
With information from Derecha Diario