Bolivia Will Cut Its State Wage Bill by 30 Percent
BOLIVIA · PUBLIC FINANCE
Key Facts
- —The cut Economy Minister Christian Morales confirmed a plan to reduce the state wage bill by 30 percent.
- —The frame A 36-month IMF programme targeting a fiscal deficit of 3.8 percent of GDP by 2028.
- —Also coming Fuel subsidy elimination, planned separately for 2027.
- —The currency The official rate fell for a third consecutive day, from Bs 12.64 per US$1 on 9 September to Bs 11.53 per US$1.
- —The measures Central bank dollar sales to the financial system, a suspension of new bank dollar purchases, and a restricted monetary reserve.
- —The reserve rule Three percent of certain local-currency deposits immobilised for 180 days, in force since 8 September.
Bolivia is cutting the state payroll by nearly a third and the official dollar has fallen four times in three days. Both are the same programme.
Bolivia’s government confirmed a plan to cut public sector wages by 30 percent under its IMF programme, as a series of central bank measures pushed the official dollar rate down for a third straight day.
The Wage Bill
Economy Minister Christian Morales confirmed the 30 percent reduction target, tied to a 36-month International Monetary Fund programme aiming to bring the fiscal deficit to 3.8 percent of GDP by 2028.
The plan also involves hiring less new personnel, which is the quieter half of any public-sector wage reduction and usually the half that delivers.
It is reported as related to but distinct from the elimination of fuel subsidies, planned separately for 2027. Bolivia has subsidised fuel for two decades and every previous attempt to remove the subsidy has produced serious unrest.
The Currency Moves
The official rate, quoted as bolivianos to one US dollar, went from Bs 12.64 per US$1 on 9 September to Bs 12.42 on the 10th, Bs 12.04 on the 11th and Bs 11.53 per US$1 on the reading reported that evening. A lower number means fewer bolivianos are needed to buy a dollar.
The central bank has been selling dollars into the financial system since 9 September, temporarily suspended new bank dollar-purchase operations, created a restricted monetary reserve, and since 8 September has required three percent of certain local-currency deposits to be immobilised for 180 days.
That is an aggressive package aimed at one variable. An official rate falling while the measures are running tells you the intervention is working on the official market, and not much about the parallel one.
What It Costs
Bolivia has spent years defending a fixed exchange rate with reserves it no longer had, and the adjustment now under way is what the deferral bought.
A 30 percent wage cut across the public sector is politically expensive in a country where public employment is a significant share of formal work, and the government of Rodrigo Paz Pereira is doing it inside its first year.
The sequence matters. Wage cuts first, subsidy elimination in 2027. Whether the second survives contact with the street is the open question, and it is the one previous Bolivian governments lost.
Why the Official Rate Was the Problem
Bolivia held a fixed exchange rate of Bs 6.96 per US$1 for more than a decade, funded by gas export revenue that has since declined sharply.
When the reserves behind that peg ran down, the official rate stopped being a price and became a rationing mechanism. Dollars were available at the official rate to those who could access them and at a much higher parallel rate to everyone else.
The official rate now quoted in the Bs 11 to Bs 13 range per US$1 is the product of that adjustment. A rate falling under central bank intervention is not the same as a currency strengthening, and the gap to the parallel market is the number that matters for anyone actually buying dollars.
What the Fuel Subsidy Costs
Bolivia subsidises diesel and petrol heavily, and because it now imports a large share of both, the subsidy is paid in dollars the country does not have.
That is the link between the currency measures and the 2027 subsidy plan. Removing the subsidy reduces the dollar drain, which is the binding constraint, and it is the reason the IMF programme treats the two as one problem.
It is also the most dangerous thing any Bolivian government can attempt. The 2010 attempt to raise fuel prices, the gasolinazo, was reversed within days after nationwide protests, and no administration since has tried again.
Doing the wage cut first and the subsidy in 2027 is a sequencing choice that puts the survivable measure ahead of the one that has toppled governments.
More: Latin America news in English, every day from The Rio Times.
Frequently Asked Questions
How much is being cut?
Thirty percent of the state wage bill, confirmed by Economy Minister Christian Morales.
Why?
A 36-month IMF programme targeting a fiscal deficit of 3.8 percent of GDP by 2028.
What happened to the dollar?
The official rate fell for a third consecutive day, from Bs 12.64 per US$1 on 9 September to Bs 11.53.
What measures did the central bank take?
Dollar sales to the financial system, suspension of new bank dollar purchases, a restricted monetary reserve, and immobilisation of three percent of certain deposits for 180 days.
What comes next?
Fuel subsidy elimination, planned separately for 2027.
Sources: El Dia, La Razon, Opinion Bolivia, La Patria.
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