Bolivia - Economy
While Bolivia remains the poorest country in South America, during Morales's tenure its economy had grown at a steady average of 4.6 percent annually - more than double the Latin American average - according to the World Bank. The poverty rate had almost halved, plunging from 60 percent in 2006, to 36.4 percent in 2018, World Bank figures show.
Bolivia enjoyed over a decade of strong growth under Morales (2006-2019), who nationalized the gas sector and ploughed the proceeds into anti-poverty programmes. But underinvestment in exploration caused gas revenues to implode, eroding the government's foreign currency reserves and leading to acute shortages of imported fuel, widely-used dollars and other basics. Inflation rose to 24.8 percent year-on-year in July 2025, its highest level since at least 2008, causing voters to desert the left in droves.
The country remained engulfed in a prolonged economic crisis characterized by severe gasoline and diesel shortages and a pronounced lack of dollars to pay for foreign goods and services. Bolivia had a state-run economy characterized by import substitution, numerous stateowned companies, and heavy subsidies that would be difficult to scale back. Many state-owned enterprises were inefficiently managed, and the economy is fragile and vulnerable to external shocks.
After two decades of leftist governments, the center-right politician Rodrigo Paz Pereira threatened to reopen the old wounds of the neoliberal model in Bolivia and jeopardize the advances won by popular movements since the 2000s. It was in these last two decades that the Andean nation established itself as an example of self-determination and resistance in Latin America, defeating the model imposed by the Washington Consensus since 1985. That experience, born from the streets and collective effort, redefined the meaning of popular sovereignty.
By 2025, that cycle seemed to have come to an end. The victory of the center-right candidate Rodrigo Paz Pereira, ending almost 20 years of leftist governments, marked a political turning point. With the promise of “capitalism for all” and an economic opening celebrated by figures like Javier Milei and the US Secretary of State, the shadow of Neoliberalism in Bolivia threatened to return.
Bolivia’s legal framework and judicial system were not investor friendly. Enforcement of laws regarding dispute settlements, intellectual property, and real property is lacking, creating legal discrepancies and inconsistent enforcement, and therefore, an uncertain investment climate. Furthermore, Bolivia’s judicial system is increasingly undermined and unreliable, making judicial recourse for investment disputes or missed payments challenging. Globally, Bolivia ranks near the bottom in rule of law indices, and partisan interests heavily influence judicial appointments. Bolivia’s weak judicial security, complicated regulatory systems, cumbersome bureaucratic procedures, and corruption adversely affect the private sector and impede investment in Bolivia.
Multiple rating agencies downgraded Bolivia in 2023 and 2024 due to its low reserves and the government’s poor fiscal policies. Fitch Ratings downgraded the country’s default rating to CCC- from CCC in January 2025, citing low international reserves and continued balance of payments pressure. Moody’s also downgraded Bolivia to Ca from Caa3 in April 2025 and S&P downgraded Bolivia in November 2023 for similar reasons. As a result, speculation had led to dollar scarcity in the formal financial system, placing pressure on the foreign exchange rate. A parallel market had emerged for dollars at an exchange rate more than 95 percent higher than the official rate of 6.96 bolivianos per dollar, as of May 2025. Banks were facing liquidity issues acquiring and supplying dollars. Due to the increasing spread between the two rates, importers and companies seeking to repatriate their U.S. dollar profits out of Bolivia via the financial sector must contend with fees that exceed 100 percent per transaction.
Bolivia now imports more than half of its gasoline and 86 percent of its diesel. Gas price increases coupled with the continuous decrease in Bolivia’s production and investment in exploration were factors. Bolivia also maintains extremely high fuel subsidies which, along with certain food subsidies, help keep consumer prices low, but at a significant fiscal cost. In 2024, more than half of Bolivia’s fiscal deficit stemmed from fuel subsidies alone. Since 2023, Bolivia had experienced several shortages of diesel and gasoline supply to the internal market, generating long lines and some social unrest.
Agriculture is a growing sector in Bolivia, with 2022 exports increasing by 27 percent from 2021 and more than doubling since 2020. A growing market opportunity is biotechnology, spurred on by recent legislative changes that have softened the government’s opposition. Nonetheless, droughts, fires, and floods in recent years have affected production.
By 1984 the government was completely immobilized and incapable of defining effective economic policies. The result was the transformation of a severe economic crisis into a catastrophe of historic proportions. During the first half of 1985, inflation reached an annual rate of over 24,000 percent. In addition, Bolivia's debt servicing payments reached 70 percent of export earnings. In December 1984, lacking any authority to govern because of the conflict with Congress, labor, the private sector, and regional groups, the Siles Zuazo government reached the point of collapse. As the crisis intensified, the opposition forced Siles Zuazo to give up power through a new round of elections held in July 1985.
In 1985, Supreme Decree 21060 opened the neoliberal era under the government of Víctor Paz Estenssoro. The “relocation” of between 20,000 and 30,000 miners symbolized the dismantling of the workers’ movement and the country’s total subordination to the prescriptions of the International Monetary Fund. The promises of prosperity quickly faded. Between 1985 and 1997, the “capitalization” model promoted by Gonzalo Sánchez de Lozada, a disguised privatization, handed over public companies to foreign consortia.
Instead of development, mass impoverishment arrived: 63% of the population ended up below the poverty line. The country lost nearly 400 million dollars and, above all, the state’s capacity to decide over its own resources.
The Bolivian Government signaled its intent to nationalize all companies that were previously privatized in the 1990s under the process of capitalization. In this process, state-owned companies were privatized up to a 50% interest (the state controlled the other 50% interest). The government nationalized all hydrocarbons transport and sales (private and foreign state-owned firms remain in production and services), part of the electricity industry, the biggest telecommunications company, a tin smelting plant, and a cement plant. To take control of these companies the government forced private entities to sell shares to the government, but often at below-market prices. Some of the affected companies have cases pending with international arbitration bodies.
Hydrocarbons, primarily natural gas, account for just over 6 percent of Bolivia's gross domestic product, 30 percent of government revenues, and 45 percent of total exports. Though Bolivia exports natural gas to Brazil and Argentina, continued questions about the actual size of its proved natural gas reserves have contributed to skepticism about the country's potential to be a significant fossil fuel producer and regional energy hub. Bolivia's known fossil fuel endowment was largely concentrated in southern and eastern departments, which have been controlled by opposition parties that demand greater autonomy from the federal government — partly in order to increase investment in and revenues from the hydrocarbon sector.
On January 25, 2009, Bolivians approved a new Constitution, which was enacted on February 7. The Constitution stipulates that Bolivian investment would be prioritized over foreign investment (Article 320) — a potentially important change in terms of foreign investment that established that Bolivia would no longer recognize international arbitration courts; economic activity cannot damage the collective good (Article 47); transferring national resources that were the social property of the Bolivian people in favor of companies, people, or foreign states can be considered an act of treason (Article 125); and Bolivian constitutional law supersedes international law and treaties (Article 410), the latter of which led the Bolivian Government to revoke the bilateral investment treaties (BIT) with the United States and other countries in order to be in compliance with the new Constitution.
The Constitution specified that all hydrocarbon resources were the property of the Bolivian people and that the state would assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351). The state-owned and operated company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), manages hydrocarbons transport and sales and was responsible for ensuring that the domestic market demand was satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports.
YPFB benefitted from government action in 2005 that required operators to turn over all of their production to it and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and LPG to gas stations. The law allows YPFB to enter into joint venture contracts for limited periods with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives. For companies working in the industry, contracts were negotiated on a service contract basis, and there were no restrictions on percentage of ownership of the companies providing the services.
Morales and his Movimiento al Socialismo (MAS) party's nationalization of the energy sector was atypical. Morales sent the military to oil and gas sites but seized no foreign assets, unfurled Bolivia's national flag but replaced no foreign companies. The decree did increase taxes and royalties by 32% on the two largest producers (Petrobras and Repsol YPF), grant formal ownership of oil and gas reserves to state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB), and offer companies 180 days to renegotiate contracts; however, companies' operations and autonomy went largely unhindered. Since the decree, Morales had renegotiated contracts with foreign firms, but with less demanding terms than expected and nationalized Bolivia's own partially privatized companies: Andina, Chaco, and Transredes. Additionally, Morales had offered tax and compensation incentives to foreign companies to increase exploration and production.
As of 2012 the future of new nationalizations was not clear, as there were still some capitalized companies that were under private control, including the railroad, airport services, and electricity transport and distribution companies. There have been no nationalizations of companies that were, from the start, privately owned. The nationalization process had not discriminated by country; some of the countries affected were the United States, France, the U.K., Spain, Argentina, and Chile, among others.
Exports rose by more than 30% between 2010 and 2011 to $9.1 billion, due mostly to increased commodity prices, not increased volume. In 2011, Bolivia’s top export products were: hydrocarbons (45% of total exports), minerals (27%), manufactured goods (24%), and agricultural products (4%). Bolivia’s trade with neighboring countries was growing, in part because of several regional preferential trade agreements. Bolivia’s top trading partners in 2011 in terms of exports were Brazil (33%), Argentina (11%), United States (10%), Japan (6%), Peru (5%), South Korea (5%), Belgium (4%), China (3%), and Venezuela (3%).
Bolivian tariffs were low; however, manufacturers complain that the tax-rebate program that allows some companies to claim refunds of import taxes on capital equipment was inefficient, with many companies now owed millions of dollars by the Bolivian Government, which can take years to recover.
From 2010 to 2011, Bolivian imports rose by 41% to a total of $7.6 billion. Bolivia imports many industrial supplies and inputs such as replacement parts, chemicals, software, and other production items (31% of total imports), capital goods (21%), fuel (13%), and consumer goods (10%). Top import products within these categories were machinery and mechanical appliances (17% of total imports), chemical products (14%), fuels and oils (14%), vehicles (13%), minerals (8%), and food (7%). Bolivia also imports significant quantities of steel, electrical machinery equipment and parts, and plastics and plastic products.
While Bolivia's trade with the United States increased in 2011, the U.S. remains Bolivia's third-largest trading partner behind Brazil and Argentina, due to the large exports of Bolivian gas to those two countries. The U.S. supplied 11% of Bolivia's imports and received 10% of its exports. Bolivia had a total trade surplus of $1.5 billion, of which the U.S. accounts for $44 million. Bolivia’s major exports to the United States were tin, silver and silver concentrates, petroleum products, Brazil nuts, quinoa, and jewelry. Its major imports from the United States were airplane parts, electronic equipment, chemicals, vehicles, wheat, and machinery.
Bolivia’s estimated 2011 gross domestic product (GDP) totaled $23.3 billion. Economic growth was estimated at about 5.1%, and inflation was estimated at about 6.9%. The increase in GDP primarily reflected contributions from oil and gas production (7.9%); electricity, water, and gas distribution (7.6%); construction (7.2%); transport and communications (6.0%); and financial services (5.5%). However, some sectors lost momentum during 2011; this was especially notable in oil and gas production (from a 15.1% growth rate in the first quarter of 2011 to 7.5% in the fourth quarter of 2011), and electricity, water, and gas distribution (from 8.9% to 7.7%). Only manufacturing and mining continued to improve in performance numbers throughout the year.
Despite the real challenges to investing in Bolivia, investors who adequately assessed the risks could find many profitable opportunities. With real GDP growth of 6.7% in 2013, Bolivia experienced an 11% increase in nominal per capita GDP; similar growth was projected for 2014. This increased wealth led to a 30% increase in imports from the US. Sectors such as heavy construction equipment, hydrocarbon and mining machinery, and telecommunications all benefitted from Bolivia's strong economy.
The Bolivian Constitution allows the government to expropriate property for the public good or when the property does not fulfill a “social purpose" (Article 57).In the case of land, this social purpose was understood as"sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner." In all other cases where applied, the GOB had no official definition and makes decisions on a case-by-cases basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage was cause for reversion, at which point the land passes to "the Bolivian people" (Article 401).
Approximately two-thirds of Bolivia’s population of 10.4 million was considered “economically active.” Bolivian labor law restricts child labor and provides for worker safety. Overall, between 60 and 65% of workers participate in the informal economy, where no contractual employer-employee relationship exists. Relatively low education and literacy levels tend to limit labor productivity, a fact reflected in wage rates. Unskilled labor was readily available, but skilled workers were often harder to find.
Bolivia’s gross domestic product (GDP) in 2013, which was valued at $30.6 billion, increased by 6.8%; this growth rate was second only to Panama in the Latin America region and double that of the GDP growth rate of South America as a whole. The hydrocarbon sector led the economic growth in Bolivia followed by the communication, storage, and transportation sector. According to estimates for 2012 and 2013, the value of activity in the natural gas and crude petroleum sector accounted for about 14% of the country’s GDP in 2013 compared with 14.7% in 2012, and the value of metallic and nonmetallic minerals accounted for 2.9% in both years. The industrial manufacturing sector accounted for 6.1% of the GDP in 2013.
The Bolivian government signaled that its upcoming [as of June 2014] legislative agenda would include new mining, hydrocarbons, electricity and arbitration regulations. Such regulations have been in the works for years, with frustratingly little progress. However, there was hope, as a new investment law was passed in early 2014 (Law 633). While the investment law suffers from a lack of specificity and any mention of arbitration, many Bolivians hope its passage indicates a change in the government’s attitude towards investment. Aspects of the law that may improve the investment climate were that it recognizes foreign investment (Article 4); it recognizes legal security for national and foreign investment (Article 3); says that the government would establish incentives for investment in key sectors within three months; and an arbitration law would be enacted within three months.
The Cochabamba Water War (2000) confronted and defeated the transnational corporation Aguas del Tunari, opening a deep crack in the system. Three years later, the Gas War of 2003 ended with the flight of Sánchez de Lozada after a popular insurrection that left 67 dead. These milestones not only overthrew a government: they shifted the country’s political axis and reinstated the idea that the people can decide their own future. With the fall of Carlos Mesa in 2005 and the expulsion of the French company Suez, Bolivia hit rock bottom and was reborn.
The streets had won. And with them, the possibility of a sovereign national project emerged, driven by the popular majorities who demanded the recovery of natural resources and the democratization of wealth. The electoral victory of Evo Morales in 2006 and the rise of the Movement Towards Socialism (MAS) marked the beginning of an era of transformation. For the first time, social struggles moved from the streets to the ministries. The nationalization of hydrocarbons and the call for a Constituent Assembly reconfigured the foundations of the Bolivian state.
For nearly twenty years, MAS governments reduced poverty, expanded state investment, and placed natural resources at the center of the productive model. GDP grew steadily and Bolivia achieved financial independence from the IMF. It was, without a doubt, a stage of unprecedented economic dignity.
Under Morales, average per capita income rose from $873 to $3,119 and a new indigenous bourgeoisie was born. Benefiting from the commodity boom, Bolivia achieved strong economic performance and poverty reduction over the decade 2005-2015. Real GDP growth averaged about 5 percent since 2006, and the poverty ratio declined by 16 percentage points. However, given Bolivia’s dependence on commodities, lower commodity prices posed significant challenges to deliver the objectives in the Patriotic Agenda 2025, while maintaining debt and external sustainability.
Real GDP growth was projected to stay relatively strong at 4.1 percent in 2015, despite the sharp decline in oil prices that was starting to have an impact. A sizable public investment budget, strong credit growth to the private sector, and robust private consumption were expected to support activity. Growth was expected to decelerate to 3.5 percent over the medium term, as the full impact of the new commodity price normal was felt and given impediments to enhancing private investment. The fiscal deficit was projected to widen and the current account balance to swing into deficit in 2015, and twin deficits were expected to persist over the medium term. The authorities were finalizing a 5-year development plan (Plan Quinquenal), including public investment projects in a number of areas to catalyze growth.
While headline financial indicators were solid, the 2013 Financial Services Law was affecting the allocation of credit flows. Minimum credit quotas to productive and social housing sectors accelerated loans to those sectors. Key external risks included a slowdown in key trading partners, additional softness in oil prices, and further dollar strength. Bolivia-specific risks centered on uncertainties related to natural gas reserves and long-term export contracts, and large credit cycles under the new financial services law.
The likelihood of a protracted period of depressed export prices posed challenges to the outlook and risks were tilted to the downside. They noted, however, that the sizable policy buffers built during the commodity upcycle allowed for a gradual approach in adjusting to a less favorable external environment, and provided a strong base for further structural and institutional reforms.
However, the process stagnated. As economic growth became the priority, structural transformations, especially in banking, mining, and the agro-export model, remained unfinished. Historic social organizations denounced the decline in popular participation as the state apparatus became bureaucratized. This exhaustion was reflected in 2019 with the coup that interrupted Morales’s government and, later, in the successful campaigns of the moderate right, which channeled economic discontent and the lack of political renewal within the MAS. Fuel crises, inflation, and dollar shortages weakened the credibility of a project that, despite its achievements, seemed to have stopped listening to the pulse of the people.
Approximately two-thirds of Bolivia’s population was considered “economically active.” More than 80 percent of workers participate in the informal economy, where no contractual employer-employee relationship exists. Relatively low education and literacy levels limit labor productivity, a fact reflected in wage rates. Unskilled labor is readily available, but skilled workers were often harder to find. The government encourages hiring of nationals by limiting the number of foreign nationals employed by any business to 15 percent and requires foreign workers to register their employment agreement with the labor authorities and comply with local regulations regarding benefits, payroll, and taxes within 90 days of arrival. Bolivia had no unemployment insurance or employment-related social safety net programs. However, if an employee is laid off due to economic or technical reasons, employers were required to pay three months of salary as compensation.
The government of Rodrigo Paz not only inaugurated a new political stage but also a profound challenge for the Bolivian left and social movements. On the horizon, the possibility of a return to the neoliberalism that prevailed between 1985 and 2005 loomed.
Union and peasant sectors warned about the reactivation of capitalization policies and the possible sale of state shares in strategic companies. All this is part of what Paz called “a productive and popular capitalism,” a familiar rhetoric in which the term “popular” often gets reduced to a slogan. If these plans were fulfilled, economic sovereignty could be at risk again. Public services, energy, and mining, recovered at the cost of repression and bloodshed, were once again in the sights of foreign capital.
If 1985 represented the defeat of the working class, 2025 could become the beginning of a new market offensive. The regional context was also unfavorable. The neoliberal shift sweeping part of Latin America, driven by right-wing governments in Argentina, Ecuador, and Paraguay, creates a favorable environment for the pro-market reforms that would drive re-privatization under the discourse of “efficiency and modernization.”
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