Thursday, April 30, 2026
News and Views from the Global South
ECONOMY-BOLIVIA: Morales to Shake Free of IMF Yoke
Franz Chávez
- After two decades as one of the IMF’s most dedicated pupils, Bolivia is now preparing to follow in the footsteps of Argentina and Brazil, and free itself of the corset imposed by the multilateral lender.
The economic team of President Evo Morales, who heads the leftist Movement Towards Socialism (MAS), announced that the government would not renew the country’s three-year stand-by loan with the IMF (International Monetary Fund), which expired on Mar. 31.
However, unlike Argentina and Brazil, Bolivia does not have plans to pay off its entire debt to the IMF (which amounts to 13.9 million dollars) ahead of schedule.
Morales, who is opposed to the “neoliberal” free-market policies followed in the 1990s in Bolivia, South America’s poorest country, took office in January.
One of his aims is to put an end to 20 years of dependency on the IMF and its economic policy prescriptions.
The indigenous president’s landslide victory in the first round of elections on Dec. 18, when he garnered nearly 54 percent of the vote, and his current 80 percent popularity rating have made it possible for him to adopt such a drastic economic measure, Javier Gómez Aguilar, an economist with the La Paz-based Centre for the Study of Labour and Agrarian Development, told IPS.
The timing is also favourable. The IMF is now facing blame for a number of financial crises that have broken out around the world since 1997, such as the debacles in Asia in 1997 and 1998 and the late 2001 collapse in Argentina, where the multilateral financial institution will soon be closing its offices.
In December, the Argentine government paid off its 9.8 billion dollar outstanding debt to the IMF, while Brazil repaid the 15.44 billion dollars it owed the lender.
But so far, Bolivia’s refusal to renew its agreement with the IMF merely sends out a “political message,” as long as there is no shift in direction in the economic policy prescribed by the IMF, said Gómez Aguilar.
Planning Minister Carlos Villegas recently explained to reporters that the government will keep a close eye on macroeconomic equilibrium and that it is taking advantage of the current international economic conditions, including the boom in commodity prices.
“These favourable circumstances have allowed us to reach a decision: we will not break off ties with the IMF, but we will not sign any letter of intent with that institution,” said the minister. This way, he added, the government will be free to implement economic policies that will benefit vulnerable sectors of society, and not only maintain stable indicators.
Gómez Aguilar, who supports that strategy, said “economic stability cannot be separated from the microeconomy, protection of labour, and support for the productive apparatus.”
He proposed broader margins of flexibility for inflation and a reduction in interest rates, which would give producers greater access to credit.
June 1986 marked the renewal of IMF aid to Bolivia, which was taking its first steps after a chaotic period in which inflation skyrocketed to 25,000 percent a year and the economy was virtually in ruins.
The runaway inflation was curbed by the “shock treatment” applied by then president Víctor Paz Estenssoro in his third and last term (1985-1989), which freed up the market and cut public spending, leading to the layoffs of some 30,000 public employees.
Since then, according to Central Bank figures, the country has taken part in six IMF programmes, which included the disbursement of 891 million dollars in aid.
The Morales administration has not stated that it plans to repay its outstanding debt to the IMF ahead of schedule. Among other challenges, the government has pledged to fight the poverty that afflicts 67 percent of the country’s nearly nine million people.
With a stable national currency, inflation of 4.91 percent in 2005 and net international reserves of 2.1 billion dollars and rising, Bolivia’s healthy macroeconomic picture hides the massive social debt that has accumulated over the years, creating a climate of recurrent political turmoil.
Savings account holders have greater trust in the national currency, the boliviano, and deposits in private banks now total around three billion dollars, as compared to just 275 million during the first half of the 1980s, according to studies by the Economic Policy Analysis Unit.
One of the people responsible for the macroeconomic stability is the president of the Central Bank, Juan Antonio Morales, who will soon be stepping down from the post to which he was designated by the Bolivian Congress 11 years ago.
Bank president Morales believes that the announcement made by the government of President Morales is “somewhat risky,” given the difficult of gaining the backing of donor countries and international agencies that trust in the quality of IMF monitoring.
“The agreement with the IMF is not as important for the money that it may provide us, which was never very much, as for the backing of the policies that are being implemented,” he commented.
In the meantime, Gómez Aguilar believes that it is the crisis facing the IMF itself, as a consequence of its role in promoting structural adjustment policies, that has led the new Bolivian government to forego the aid it offers.
Since the renewal of IMF aid to Bolivia, the results as reflected by the statistics have been dramatic, with encouraging figures such as those for non-traditional exports, which soared from barely 34 million dollars in 1985 to almost 2.8 billion in 2005.
Imports totalled 2.34 billion dollars in 2005, and for the second year in a row, the balance of trade was in Bolivia’s favour, with a trade surplus of 454.2 million dollars, as compared to a trade deficit of 15.5 million in 2003.
With regard to Bolivia’s massive debt, the reestablishment of order in the country’s public finances has allowed it to negotiate debt relief and buy-back from private creditors of around 600 million dollars. Nevertheless, the country currently owes some 4..65 billion dollars to multilateral agencies and friendly countries, according to the Central Bank.
Bolivia received 1.5 billion dollars in debt relief under the two stages of the Highly Indebted Poor Countries (HIPC) initiative, and a similar amount from the World Bank, along with the cancellation of 200 million dollars in debt by Japan and an equal amount by the IMF itself.
However, this relief will not be reflected immediately in Bolivia’s total debt burden, but will take effect gradually over the next 15 to 40 years.
Nevertheless, economist Alfred Gugler stressed that the announcements of debt cancellation will reduce annual interest payments by some 130 million dollars as of 2007. Bolivia paid 370 million dollars to its creditors in 2005 alone.
Bolivia’s foreign debt is equal to almost half of its gross domestic product, which now stands at 8.758 billion dollars, according to the National Statistics Institute.
Catholic priest Gregorio Iriarte, who has been at the forefront of the movement for the cancellation of Bolivia’s external debt, told IPS that “the debt is illegal and illegitimate not only because the capital has already been paid off, but rather because of the political conditions imposed by the indebtedness and the high rates of interest.”
The efforts undertaken by Iriarte and others have already been successful in curbing the annual “bleeding” of Bolivia through debt service payments, which had climbed to 400 million dollars a year, he added.
While waiting for the Inter-American Development Bank to agree to forgive another 1.5 billion dollars in debt, Iriarte reported that the Catholic Church will continue to work towards the reduction of Bolivia’s financial obligations and the reorientation of financial resources towards social programmes.
A spokesman from the Central Bank told IPS that Bolivia still faces the pending challenge of reducing its fiscal deficit, which fell from 4.5 percent to 2.1 percent last year as a result of strict policies to control public expenditure.
The difference between fiscal income and expenditure is currently covered by support from international agencies through credits and donations totalling almost 400 million dollars a year, the weak point of the Bolivian economy. ***** + ARGENTINA: Kirchner Pays Off IMF (https://www.ipsnews.net/africa/interna.asp?idnews31656) + ECONOMY-ARGENTINA: The Social Debt Will Have to Wait (https://www.ipsnews.net/news.asp?idnews=31463)
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