BOLIVIA: An Introduction

End of political unrest 

In October 2020, Bolivia held a general election in which the Movimiento al Socialismo (MAS) won a landslide victory against political opponents, with presidential candidate Luis Arce clasping victory in the first round.

Thereafter, on 7th March 2021, Bolivia held regional and municipal elections in which the opposition won 6 of 9 regional governments by a large margin. However, MAS won in most municipalities, underscoring the party’s political concentration in rural areas.

The appointment of the newly elected local officials in 2021 ended Bolivia’s unpredictable political environment, which began in November 2019 when former president Evo Morales resigned in the midst of protests claiming electoral fraud.

It is expected that the new political landscape, with opposition members holding 45% of Congressional seats (as opposed to 30% in the previous cycle) and governing in most strategic regions will result in more collaboration between the MAS government and the opposition parties, thus providing more political stability through checks and balances.

Economic recovery with looming crisis 

Following an 8% economic contraction in 2020 due primarily to COVID-19 related expenditures and subsidies, in 2021 Bolivia’s economy grew 6.1%, the fastest pace seen since the height of the most recent commodities boom.

In 2022 growth is likely being supported by the recent surge in commodity prices, especially in base metals, energy and grain, which have boosted the recovery of the mining, hydrocarbons and agricultural sectors. According to the International Monetary Fund (IMF) Bolivia’s Gross Domestic Product (GDP) is expected to increase by 4.2% in 2022.

On the downside, Bolivia’s fiscal deficit has been increasing in recent years, projected to reach 8% in 2022, up 3% as compared to 2021. According to the government, the unexpected increase of the fiscal deficit in this year’s budget is the result of policies aimed at high public spending and growing domestic credit to maintain economic growth.

On the other hand, Bolivia’s international reserves have been affected because of the lingering fiscal deficit, the political crisis during the 2019-2020 period and the effect of the COVID-19 pandemic. In the past decade, Bolivia’s large international reserves were instrumental in managing its exchange rate. However, with depleted international reserves it remains to be seen if policies related to the foreign exchange rate, which have remained unchanged since 2011, will shift. Such a shift would affect the country’s inflation rate, which reached 0.9% in 2021 (the lowest in the region), possibly causing political and social unrest.

Bolivia -A country with enormous potential

Although Bolivia has had issues historically, it is not only transitioning but, for a variety of reasons, including the political situation of neighbouring countries (Argentina, Chile and Peru), it is turning the corner quickly, with the government announcing its intention to include the private sector in the development of strategic industries so that it plays a more active and sustained role in the expansion of the economy.

For example, the country’s reduced gas reserves have caused state-owned YPFB to assume an aggressive approach to seek new investment to boost the hydrocarbons sector. Thus, in July 2021, YPFB announced its Upstream 2021 Reactivation Plan, which incorporates new exploration areas in 7 of Bolivia’s 9 regions. While introducing its reactivation plan, the company entered into agreements with Repsol and Canacol Energy.

In April 2022, YPFB entered into a gas supply agreement with Argentine IEASA for the supply of up to 14 million cubic metres of gas per day, guaranteeing such supply until 2025. Similarly, in March 2022 YPFB entered into a gas supply agreement with Brazil´s energy trader Tradener to supply it with 2.2 million cubic metres of gas per day.

Another example is state-owned YLB’s (Yacimientos del Litio Boliviano) efforts to develop Bolivia’s lithium reserves, which are the largest in the world with at least 24 proven million tons. In May 2021, in coordination with the government, YLB selected eight companies from Argentina, China, Russia and the United States to carry out pilot tests with different technologies for direct lithium extraction in the flats of Uyuni, Coipasa and Pastos Grandes.

YLB will evaluate the proposals based on the percentage of lithium extracted from the brine and the environmental impact. It intends to make a decision on the technology later this year and is targeting production of cathodes for lithium batteries by 2024.

In the past five years the mining sector has experienced a massive increase of foreign investment, with small, medium and large mining companies from around the world landing in Bolivia, increasing mining activity in 2021 by almost 50% as compared to the previous year, and representing approximately 6% by share of total national GDP.

Finally, the Arce government and the region of Oruro have demonstrated an interest in developing Bolivia’s clean energy capabilities and have vowed to approve regulations which will permit the production of such energies. Consistent with this, the government of Oruro has entered into a cooperation agreement with H2 Bolivia S.A. to build a green ammonia plant to produce up to 0.4 MTPA of green ammonia. The USD2 billion project is one of Latin America's largest and will help reduce CO2 emissions and will generate 10,000 new sustainable jobs.