Bolivia's Central Bank (BCB) announced on Thursday, July 30, that it will actively intervene in the foreign exchange market to stabilize the flexible exchange rate by buying and selling dollars. This decision comes one month after the country transitioned to a flexible exchange-rate system on June 29, ending a 15-year fixed exchange rate policy. The initial official rate was set at Bs 9.73 per dollar, but by July 30, it had risen to Bs 11.89 per dollar, marking an increase of Bs 2.16 (or roughly 22%) since the implementation of the new system. This also represents an accumulated increase of Bs 4.93 per dollar compared to the historical fixed rate of Bs 6.96 for selling.
The adoption of the flexible exchange rate has led to a significant devaluation of the Bolivian currency, reportedly by 72% according to some sources, and has coincided with an agreement between Bolivia and the International Monetary Fund (FMI). This technical agreement, announced shortly before the BCB's intervention plan, involves a $1.9 billion financing program over 36 months, with the potential to unlock a larger package of up to $5 billion with additional funding from institutions like the World Bank and the Inter-American Development Bank (BID).
This FMI program is crucial for supporting President Rodrigo Paz's economic reform plan, which aims to address Bolivia's macroeconomic challenges, including fiscal deficits, declining oil production, severely contracted international reserves, and rising inflation. The FMI agreement also includes conditions such as governmental transparency, optimized public investment, and anti-money laundering measures. The financing package, which represents 570% of Bolivia's quota with the FMI, is designed to provide stability amid the new exchange rate regime and has a four-and-a-half-year grace period before amortization payments begin.
