Political gridlock: How the Bolivian govt rift threatens economic stability

Bolivia is going through a period of significant political uncertainty amid protests and roadblocks in support of former president Evo Morales, an economic crisis due to a lack of dollars and a government with little room to maneuver as it is unable to push through reforms.

The clashes between President Luis Arce and Morales have generated an internal conflict in the Movement Towards Socialism (MAS) party and, despite being the ruling party, it is no longer able to govern effectively because many of its legislators have allied with Morales to vote against the measures backed by Arce.

Bolivia's constitutional court recently confirmed that the former president will not be able to run in the 2025 presidential elections, which could exacerbate the protests after a brief truce announced last week.

According to representatives of the government, losses due to the roadblocks exceed US$2.1bn, and some sectors are being hit particularly badly, such as agriculture.

BNamericas speaks to Theodore Kahn, director of the consultancy Control Risks, about the ongoing situation in the country, the reasons that are aggravating the crisis and potential outcomes for 2025.

BNamericas: What is the current situation in Bolivia?

Kahn: Over the past two years, we’ve seen a de facto split within the Movement for Socialism party, where legislators loyal to Evo Morales are blocking President Arce's political agenda. Although they're part of the same party, they currently act as opposition.

This conflict has a history of disputes between Morales and Arce over the years, but it has recently intensified with serious incidents in the past two months, leading to blockades and protests.

BNamericas: Who is currently opposing the government?

Kahn: While MAS holds a simple majority in both the chamber of deputies and the senate, a faction loyal to Morales is aligning with the opposition. Without this group, the government lacks a majority. Together with the real opposition, they've managed to halt the government’s plans.

BNamericas: What projects and/or initiatives have been stalled by this dispute?

Kahn: The most important ones have been international loans. The government has sought multilateral bank loans, which require legislative approval, but these initiatives have failed due to opposition from Morales' allies.

Morales’ supporters have also led street protests, which, coupled with the government’s inability to access loans, create an environment where it’s challenging for the government to implement economic adjustments without an immediate backlash. Subsidies are now causing an unsustainable fiscal burden.

BNamericas: Does this also explain the dollar shortage in the country?

Kahn: Yes. Bolivia has maintained economic policies, like the fixed exchange rate, in a context where natural gas production and exports have sharply declined over the past six to eight years, especially recently. The government has had to import fuel, and these purchases require dollars. This, along with reduced gas revenue, has depleted international reserves, resulting in the dollar shortage.

I don’t believe the fixed exchange rate policy will change soon, so the currency will likely continue to weaken. There’s already a 40% gap between the official exchange rate, around 6.96 bolivianos per dollar, and the black-market rate, which fluctuates between 10 and 11 bolivianos per dollar.

BNamericas: What's the business outlook at the moment?

Kahn: Many companies, especially medium-sized ones, lack mechanisms to face a crisis like this and are doing all they can to stay afloat. Exporters and international companies with operations outside Bolivia are safeguarding their dollars, which gives them short-term protection. However, their main concern is that the government might impose more aggressive capital controls. So far, measures have been aimed at keeping dollars in the national economy without being overly aggressive. If that changes, it would significantly damage business confidence.

BNamericas: How will this play out in the August 2025 elections?

Kahn: The scenario is uncertain and dynamic, marking a turning point in Bolivia’s political landscape, where MAS has dominated for nearly two decades.

If I had to make a prediction, I'd say MAS will likely split before the elections. Morales might support his loyalists in congress or endorse an independent candidate, assuming he can’t run as the MAS candidate. For now, we’ll see street protests.

This division presents an opportunity for the opposition, but they’ll need to unite with centrist figures like former president Carlos Mesa, Santa Cruz’s voter base, and other right-wing parties. As the supporters of Arce and Morales drift apart – and both run in the election – the opposition has a chance.

BNamericas: What other factors do you foresee being significant next year?

Kahn: Both this year and next will likely remain volatile. We’re already witnessing serious political violence, which may worsen. The opposition has a real opportunity, but a crisis like the one six years ago, when Morales resigned amid electoral fraud accusations, can’t be ruled out.