Jeanine Añez announcing her withdrawal from the October general election. She said: ‘If we don’t unite, Morales will return. If we don’t unite, democracy loses.’ (Photo Credit: Presidencia / AFP / Getty Images)

Bolivia’s Left Will Win But Hopefully With a Different Economic Strategy

The article was originally published in “The Musings Of A Politics Junkie & Closet Economist.” To read more, please visit the website.

As the covid-19 pandemic continues to unfold, its implications for democracy across the globe are of growing concern. The lack of clarity in election processes creates public mistrust. And the conspicuous ambitions of some leaders amid troubling times suggests the pandemic, at least for now, will not force good governance and cooperation. If anything, the pandemic provides an opportunity to test the boundaries of a country’s political and economic system.

The presidential campaign by Bolivia’s interim president, Jeanine Añez, was an opportunistic attempt by a leader to retrack on her promise to not run for president and take advantage of the uncertainty in the country caused by the covid-19 pandemic. Yet, unable to build momentum, she abandoned her election campaign last week with the hope of uniting the conservative base against the current front-runner, the leftist Luis Arce from Evo Morale’s Movimiento al Socialismo–Instrumento Político por la Soberanía de los Pueblos party (MAS).

The large-scale Jubileo Foundation poll, administered by universities and media organizations, shows the former economy minister Arce leading with 40% of the vote going into this year’s general election. To avoid a second round of voting, the election winner requires at least 40% of the vote in the first round and a ten-point advantage over the closest competitor. In the Jubileo Foundation poll, former president Carlos Mesa polled second with 26% of the vote.

Why are the polls relevant?

The recent polls are forcing President Añez to retreat to her original promises. When she assumed the interim presidency in November 2019, President Añez promised to hold presidential elections within ninety days. Provided no additional delays, the election is scheduled for 18th October which will be 11 months after Añez began her interim presidency. Her administration postponed the election twice, citing the risks of the covid-19 pandemic and an inability to safely hold in-person voting. Protests, street blockades by citizens, and the public’s vocal disdain for the power structure in the country, however, have forced an election to happen this year as well as stopped Añez’s potential candidacy to remain president.

Añez assumed power after the controversial Bolivian presidential election in 2019, where Evo Morales ran against Carlos Mesa for an unprecedented fourth term. Critics claim Morales leveraged political connections to gain approval from the constitutional court. Following Morales’ narrow margin of victory and the subsequent rumors of election fraud, an election audit was conducted by the Organization of American States (OAS) — with the approval of Morales — which found irregularities and declared the election results to be fraudulent. Although Morales accepted the findings in the report and called for a new election, threats of violence and public pressure forced Morales and his government officials to resign. Añez, as the second vice president of the Senate, was fifth in the line of succession. But with everyone ahead of her resigning, she declared herself interim president, which Morales’s supporters continue to view as “coup.”

How to think about Arce considering Morale’s record?

Morales reduced poverty from 60% in 2005 to 36% in 2017, relying on redistribution policies coupled with high economic growth. According to the World Bank, Bolivian GDP growth averaged 4.9% from 2006 through 2018, underwritten by an export boom particularly of natural gas and minerals. But, as prices have moderated, the success of redistributive policies have become limited, which is why the 30% poverty level in 2012 increased to 36% in 2017 and, amid the covid-19 pandemic, may be pushing 40% today.

Fiscal prudence has also struggled in a slower growth environment, with the expenses of 29 of 32 state-owned companies exceeding revenues in 2018. Under Morales’s administration, the size of the state increased astronomically with the budget allocated to state entities up nearly 40% in 2019 alone. As revenues from natural gas fell, Morales tried to increase revenue from agribusiness, biodiesel, and bioethanol but to little success. Covid-19 has not been nice to commodity prices with demand lagging below 2019 levels for the obvious economic reasons. Thus, while a new government will have to find a way to revitalize gas exports and investigate the potential exploration of new minerals such as lithium, such efforts to diversify the economy will remain at the mercy of the new administration’s ability to find the right buyers and contract prices.

Absent new money into the system, Arce will have to turn to managing expenses. Thus, it is little surprise that Arce previously said he would seek to renegotiate the nation’s $2 billion in international debt, while still avoiding a default on the country’s debt. Bolivia owes more than $7 billion to multilateral lenders as well as has outstanding bilateral debt facilities with countries such as China. Arce also believes he can engage the Corporacion Andina de Fomento (CAF), the Inter-American Development Bank, and the World Bank for additional funding.

But Arce’s perspective on engaging creditors remains incomplete. A deal to cut debt payments would initially help the currency peg — a mechanism introduced by Arce as Morale’s finance minister. That said, the strategy cannot fix a long-term problem. The central bank is already burning cash at a rate of $8 billion over the last five years to prop up its currency and underwrite the country’s socialist programs. Asking for debt relief sadly only feels like a request to shift monies from repaying debt to propping up the currency and providing greater welfare payments to the public despite the greater system’s inability to afford it. The more feasible scenario is an adjustment to the exchange rate, especially considering the weakening currency of Argentina and Brazil and potentially taking some of the hard economic decisions seen in Brazil (by Brazilian President Jair Bolsonaro). But Arce (and any other Bolivian politician) knows that devaluing the currency and shrinking the welfare state is not a winning campaign strategy in Bolivia.

What happens to Bolivia in the short term?

Bolivian debt is currently rated as junk by market analysts (and political analysts). Changing that storyline will be hard. The next leader must find a way to control government spending…turning the clock back on expansionary economic policy, however, may be a tough ask despite it being a necessity. Although the commercial dollar-denominated debt for Bolivia is small, there are not many people lining up to provide additional debt. Thus, the question for the new leader — Arce or the field — sadly becomes whether anyone is willing to fund Bolivia’s house of cards or should we expect another financial system in Latin American come tumbling down in the short term.

The article was originally published in “The Musings Of A Politics Junkie & Closet Economist.” To read more, please visit the website.

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Kurt Davis Jr.

Kurt Davis Jr.

Investor, Banker, Advisor, Writer / Speaker, Council on Foreign Relations, Chicago Booth MBA, UVA JD, Avid Traveler, Foodie, Politics Junkie & Closet Economist…