(Bloomberg) -- Bolivia’s socialist government is mending ties with business leaders it once snubbed as it grapples to prevent a dollar shortage from crashing the economy. 

Finance Ministry and other government officials met last week with representatives from sectors including finance, manufacturing, construction and pharmaceuticals, and agreed to many of their requests such as less onerous rules for exporters. 

The 10-point plan also included measures to address persistent fuel shortages, including investments in biodiesel, and tax breaks for electric vehicles. 

“The government is now taking us into account in its decision making,” said Pablo Camacho, the president of Bolivia’s National Chamber of Industries, who attending the meeting. “We have to recognize the speed with which these measures were approved. That commitment has surprised us.” 

The socialist MAS party, which has governed the Andean nation for most of the last two decades, has long had a strained relationship with private business. The administration often refuses to send anyone to events organized by the private sector, and takes decisions such as minimum wage increases without consulting employers. But the dollar shortage is bringing the two sides closer. 

Bolivia narrowly avoided a financial crisis last year by passing a law to allow the central bank to sell some of its gold pile. The most recently published foreign reserve figures showed the bank has now sold nearly all the metal made available by that law, and had just $166 million left in cash as of December. 

That leaves it with very little firepower with which to defend its 16-year-old currency peg of about 6.9 Bolivianos per dollar. That’s led to a black market in dollars and shortages of some basic goods, especially fuel.  

“The situation in the FX market has become alarming,” BancTrust & Co. wrote in a report published last week. “The official exchange rate is becoming increasingly irrelevant, as fewer agents have access to it.”

Drug Shortages

Businesses have struggled to pay for imports amid the lack of dollars. The pharmaceutical sector has warned of possible shortages of drugs and medical equipment due to the lack of foreign currency. 

The recent split between President Luis Arce and former President Evo Morales has divided the ruling socialist party, effectively depriving it of its congressional majority. That’s a big problem for the Finance Ministry, since even if could borrow from abroad, any loan would have to be approved by lawmakers.  

“The underlying issue is fiscal, and the government is reluctant to tackle it,” Seaport’s Ricardo Penfold wrote in a note. “Given Bolivia’s ongoing political crisis, addressing the fiscal matter seems unlikely.”

Arce was elected in 2020 and served as economy minister under Morales, during Bolivia’s boom years. 

After its meeting with business leaders, the government also agreed to issue bonds in dollars, though it is unclear how it will do this, since the nation’s distressed credit effectively cuts it off from global markets. Policymakers have sought ways to tap the so-called “Bank of the Mattress,” whereby Bolivians hoard greenbacks outside the financial system, including currency generated by the nation’s cocaine industry. 

The central bank didn’t reply to a request for comment.

Read More: Financial Chaos at 12,000 Feet: Dollars Are Vanishing in Bolivia

Further into Junk

Bolivia’s bonds were cut further into junk by Fitch Ratings in February, which wrote that falling international reserves threaten the nation’s ability to service its debt. 

Natural gas exports drove the nation’s economy earlier this century, but production dwindled due to a lack of investment in exploration, said Napoleon Pacheco, an economics professor at the Universidad Mayor de San Andrés. And it hasn’t yet found a new source of growth.

“The Bolivian economy is going through a process of significant deterioration,” he said.   

©2024 Bloomberg L.P.