Bolivia ends 15-year dollar peg and shifts to flexible exchange rate | Ukraine news

The government introduced a flexible exchange regime to address a critical dollar shortage, setting off political tensions and urgent IMF negotiations.

La Paz, June 26: Bolivia introduces a flexible exchange-rate system, effectively scrapping a 15-year dollar peg, in a sweeping move of economic policy aimed at restoring macroeconomic stability.

This shift will be overseen by the Central Bank of Bolivia; the government said its goal is to strengthen macroeconomic stability, preserve external competitiveness, and foster balance of payments, according to a corresponding decree from the Ministry of Economy.

The decision is part of a broader strategy to normalize currency markets and boost investor confidence in Bolivia, which is negotiating financing of at least $2.5 billion with the International Monetary Fund and facing a severe dollar shortage.

Until recently, the official rate remained nearly unchanged since 2011: 6.86 bolivianos per dollar for buying and 6.96 per dollar for selling. However, declines in currency reserves and a growing dollar shortage have led to the emergence of a parallel market where the dollar has sometimes traded at around 20 bolivianos.

Recently, the government has applied an approximate rate of around 9.90 bolivianos per dollar, covering most trade and financial operations.

According to the decree, after its adoption the central bank updated its website and displayed the official rate at 9.73 bolivianos per dollar as of Monday, indicating roughly a 30% devaluation of the currency compared with the previous buying rate.

The International Monetary Fund did not immediately respond to requests for comment on this step.

The IMF had previously recommended Bolivia to end the peg in its annual review. The anticipated new regime and discussions with the IMF bolster the potential for a support program, estimated at around $3 billion.

At the same time, economist Gonzalo Chavez noted: by allowing the transition to a flexible rate, it is important to continue attracting dollars and to build stable international reserves at the central bank.

When this is done, the main thing is to continue attracting dollars and to maintain international reserves at the central bank.

– economist Gonzalo Chavez

Years of talks with the IMF have also faced opposition from unions: since May they have blocked major roads, protesting against the government of President Rodrigo Paz. One of the key groups is the Bolivian Workers’ Center, which demands that authorities abandon IMF conditions as a precondition for lifting the blockades, fearing possible economic consequences. The government argues that external financing is needed to replenish reserves, stabilize public finances, and ease the transition to the new exchange-rate regime.

Last week, President Rodrigo Paz declared a state of emergency, allowing law enforcement to unblock roads and restore daily economic activity after nearly two months of blockades.

This step in Bolivia’s transition to a flexible exchange-rate regime underscores the country’s commitment to restoring financial stability and strengthening confidence in its economic strategy amid IMF talks and domestic challenges.