CAPITAL FLIGHT IS THEFT OF SOCIAL WEALTH
Matthew Bristow and Sydney Maki
Mon, November 30, 2020
(Bloomberg) -- Bolivia’s international reserves plunged in recent weeks as wealthier locals and corporations bought dollars and moved money out of the country after the socialist movement returned to power.
Reserves dropped to a 13-year low of $5.1 billion on Nov. 20, down $1.3 billion since the end of September, according to data from the central bank. The bank says the drop was a temporary phenomenon related to the elections in October, and that demand for dollars has since returned to normal.
Socialist leader Luis Arce defied polls and won a surprise landslide in the Oct. 18 vote, and has pledged to impose a wealth tax on the Andean nation’s richest citizens. He was sworn in as President on Nov. 8, a year after his ally Evo Morales was forced out of the presidency after weeks of protests and after losing the support of the military.
As of Nov. 25, the most recent date for which the bank has published data, reserves had recovered to $5.4 billion, equivalent to seven months of imports. A gradual increase of inflows from sources such as tourism and remittances will continue to strengthen Bolivia’s reserve buffer, it said.
To read the central bank’s full statement, click here.
Some of the capital exodus was likely triggered by the plans for a wealth tax said Napoleon Pacheco, an economist who teaches at the Universidad Mayor de San Andres in La Paz.
Arce’s victory, followed by the announcement of the wealth tax, “created uncertainty and fear among people who have a significant amount of savings, and obviously they decided to get their money out of the country,” Pacheco said in a phone interview.
Not only have wealthy people with foreign bank accounts sent money abroad, but smaller, middle-class savers are also withdrawing smaller sums in dollars from the financial system Pacheco said.
Confusion over who will pay the wealth tax, or under what conditions, and this has amplified fear and uncertainty, he said.
Election Jitters
The “particularly pronounced” drop in reserves in recent weeks is “likely due to jitters surrounding the elections”, said Fitch Ratings analyst Todd Martinez.
A similar drop occurred around the previous elections, in 2019, which triggered mass unrest and accusations of fraud.
When Bolivians send money abroad, their banks buy the dollars from the central bank, causing reserves to drop. But the economy’s recovery from the pandemic is also contributing to the fall in reserves, according to Martinez.
“A renewed decline in Bolivia’s foreign reserves was foreseeable in part, given that imports are recovering post-lockdown but exports are doing so more slowly, in large part due to still-depressed gas prices,” he said.
The government has pledged to defend the currency peg of about seven bolivianos per dollar, which Arce helped introduce when he was Morales’ finance minister.
At the moment, Wall Street doesn’t appear to share the nervousness over Arce’s victory. The extra yield investors demand to hold Bolivian sovereign debt over U.S Treasuries fell to 5.2 percentage points last week, down from 6 percentage points before the election, according to data compiled by JPMorgan.
For more articles like this, please visit us at bloomberg.com
©2020 Bloomberg L.P.
Matthew Bristow and Sydney Maki
Mon, November 30, 2020
(Bloomberg) -- Bolivia’s international reserves plunged in recent weeks as wealthier locals and corporations bought dollars and moved money out of the country after the socialist movement returned to power.
Reserves dropped to a 13-year low of $5.1 billion on Nov. 20, down $1.3 billion since the end of September, according to data from the central bank. The bank says the drop was a temporary phenomenon related to the elections in October, and that demand for dollars has since returned to normal.
Socialist leader Luis Arce defied polls and won a surprise landslide in the Oct. 18 vote, and has pledged to impose a wealth tax on the Andean nation’s richest citizens. He was sworn in as President on Nov. 8, a year after his ally Evo Morales was forced out of the presidency after weeks of protests and after losing the support of the military.
As of Nov. 25, the most recent date for which the bank has published data, reserves had recovered to $5.4 billion, equivalent to seven months of imports. A gradual increase of inflows from sources such as tourism and remittances will continue to strengthen Bolivia’s reserve buffer, it said.
To read the central bank’s full statement, click here.
Some of the capital exodus was likely triggered by the plans for a wealth tax said Napoleon Pacheco, an economist who teaches at the Universidad Mayor de San Andres in La Paz.
Arce’s victory, followed by the announcement of the wealth tax, “created uncertainty and fear among people who have a significant amount of savings, and obviously they decided to get their money out of the country,” Pacheco said in a phone interview.
Not only have wealthy people with foreign bank accounts sent money abroad, but smaller, middle-class savers are also withdrawing smaller sums in dollars from the financial system Pacheco said.
Confusion over who will pay the wealth tax, or under what conditions, and this has amplified fear and uncertainty, he said.
Election Jitters
The “particularly pronounced” drop in reserves in recent weeks is “likely due to jitters surrounding the elections”, said Fitch Ratings analyst Todd Martinez.
A similar drop occurred around the previous elections, in 2019, which triggered mass unrest and accusations of fraud.
When Bolivians send money abroad, their banks buy the dollars from the central bank, causing reserves to drop. But the economy’s recovery from the pandemic is also contributing to the fall in reserves, according to Martinez.
“A renewed decline in Bolivia’s foreign reserves was foreseeable in part, given that imports are recovering post-lockdown but exports are doing so more slowly, in large part due to still-depressed gas prices,” he said.
The government has pledged to defend the currency peg of about seven bolivianos per dollar, which Arce helped introduce when he was Morales’ finance minister.
At the moment, Wall Street doesn’t appear to share the nervousness over Arce’s victory. The extra yield investors demand to hold Bolivian sovereign debt over U.S Treasuries fell to 5.2 percentage points last week, down from 6 percentage points before the election, according to data compiled by JPMorgan.
For more articles like this, please visit us at bloomberg.com
©2020 Bloomberg L.P.
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