Bolivia political tensions escalate due to credit rating downgrade

Tensions between Bolivia’s government and opposition in congress have been escalating since Moody’s downgraded the sovereign credit rating, among other reasons due to a legislative deadlock affecting multilateral loans to finance infrastructure and energy projects.

Moody’s downgraded the long-term local and foreign currency issuer and senior unsecured debt from 'Caa1' to 'Caa3' and raised the outlook from negative to stable. The main reasons were governance problems and a sharp decline in foreign currency reserves.

In a statement, the ratings agency said the deadlock in the senate “underscores Bolivia's elevated political risk and very weak institutions and governance framework,” adding that even if the loans were approved, they would provide only short-term relief without addressing long-term financing issues. 

President Luis Arce questioned the agency’s arguments regarding the country’s capacity to repay its long-term debt but also used the downgrade to attack the legislators who voted against the loans, saying they were strangling the economy.

“Nowadays we don't have the money we had before. Gas has run out. We're exploring again to see if there's more gas. We don’t have those resources,” Arce said during the opening of a local indigenous women's congress on Sunday. 

Last week, the senate voted against a US$62mn loan from the Inter-American Development Bank that was planned to finance an expansion of and improvements to La Paz’s Mi Teleférico cable car system. 

The senate has approved only two operations since March, when lawmakers authorized six multilateral loans worth over US750mn amid physical altercations and accusations of bribery. 

Five more operations are pending votes, but opposition senators signaled they won’t back more loans until a vote is held on a bill that voided a ruling that extended the terms of key judges following the legislature’s failure to create a list of candidates for the judicial elections last year.

The situation involves constitutional court judges who barred former president Evo Morales from running in the 2025 presidential elections. The decision also drove a wedge between factions within the ruling MAS party that support either Morales or Arce.

The tensions also triggered road blockades by Morales supporters earlier this year, causing around US$1bn in economic damage.

“This will only be resolved after the 2025 elections. In the meantime, the political climate will keep getting worse in two areas. First in the dispute for the control of [MAS], and then in terms of governance in the assembly, where the wing that supports Morales doesn't allow the approval of laws or other types of things,” Gonzalo Chávez, head of the productivity and competitiveness school at Bolivia’s Universidad Católica, told BNamericas.

He added that the MAS administrations led by Morales and Arce have damaged the economy by mismanaging gas resources and lithium plans.

On the other hand, the opposition, mainly represented by Carlos Mesa’s Comunidad Ciudadana coalition, is too fragmented to present a feasible response on economic issues, which benefits the government, Chávez said.