Event

Incumbent President Evo Morales – first elected in 2005 – has been declared the winner of the presidential elections that took place at the end of October. Morales secured 47% of the vote and a lead of 10.6 percentage points ahead of Carlos Mesa, who came second. With this election result, Morales has narrowly avoided a run-off. On top of that, Morales’ party (Movimiento al Socialismo) has won an absolute majority in both houses of Congress, but it has lost its two-thirds majority.
Since the presidential elections, the country has been paralysed by protests, road blockades and labour strikes. A suspicious 24-hour pause during the vote counting has fuelled accusations of fraud. On top of that, given that Morales lost a referendum in 2016 and defied the term limits by means of a decision by Bolivia’s constitutional court, there have been claims of creeping authoritarianism. Numerous countries and the Organization of American States (OAS) have expressed concerns about the elections.

Impact

Morales looks determined to cling to the presidency until 2025. The President has accepted an election audit by the OAS but it is unclear when the outcome of the audit will be announced. The ongoing unrest is unlikely to unseat Morales as he controls the main levers of power. However, the continuing political unrest is a threat to domestic economic activity. Real GDP growth (estimated at 3.9% in 2019) has already slowed in recent quarters as falling growth in Latin America has sapped demand for Bolivian exports. The political unrest will make it even more difficult to govern while important decisions have to be made. The large fiscal deficit is expected to swell to almost 8% of GDP this year, which is likely to increase public debt to an elevated 58% of GDP. Hence, fiscal consolidation will be key in the coming years while polarisation will render policy-making difficult. Furthermore, in the past 5 years, foreign exchange reserves have decreased by a stunning 60% to roughly 5 months of import cover in September 2019. Although it is still a healthy level, the pace of the decline is putting strong pressure on the currency peg. In the coming years, the elevated current account deficits will continue to weigh on foreign exchange reserves and the currency peg. Economic diversification away from gas (which accounts for about a third of total export revenues) will therefore be important as well.

Given the political unrest and continued decline in foreign exchange reserves, Credendo’s outlook for Bolivia for both short-term and long-term political risk is negative.

Analyst: Jolyn Debuysscher  – J.Debuysscher@credendo.com