LA PAZ, June 26 - Bolivia said on Friday it will move away from a 15-year dollar peg and adopt a flexible exchange-rate system, a major policy shift intended to address acute dollar shortages and restore economic stability. A government decree handed responsibility for the transition to the central bank and said the change aims to "strengthen macroeconomic stability, preserve external competitiveness and contribute to the balance of payments equilibrium," the economy ministry said.
The decision forms part of a broader effort by authorities to normalize currency markets and to improve investor confidence while Bolivia negotiates a financing program with the International Monetary Fund worth at least $2.5 billion. The government has cited a severe scarcity of dollars as a key rationale for the change.
Bolivia had effectively held its official exchange rate steady since 2011, maintaining a buy rate of 6.86 bolivianos per dollar and a sell rate of 6.96. Falling foreign-exchange reserves and widening dollar shortages, however, contributed to the growth of a parallel market in which the dollar at times traded near 20 bolivianos.
In recent weeks the government had been using a reference rate of around 9.90 bolivianos per dollar for most commercial and financial transactions. Shortly after the decree was issued, the central bank updated its website to show the official exchange rate at 9.73 bolivianos per dollar as of Monday, a level that implies a loss of about 30% in the currency's value from the previous buy rate.
The IMF did not immediately reply to a request for comment.
Officials said the move is intended to bolster external competitiveness and to bring currency markets into a more orderly configuration as part of broader stabilization efforts. The change is also tied to ongoing talks with the IMF over a financing arrangement: observers note the fund had advised Bolivia to end the currency peg in last year's annual report, and the government's action will be seen as favorable for its bid for a fund-supported program expected to be for around $3 billion.
Still, challenges remain. Economist Gonzalo Chavez cautioned that obtaining dollars will be critical going forward. "Once you have this, the important thing is to continue getting dollars, to have international reserves in the central bank," he told local radio.
The prospect of moving to a flexible rate and the government's negotiations with the IMF have been a flashpoint for domestic opposition. Since May, labor groups have staged blockades of major roads in protest against President Rodrigo Paz's government. One of the principal groups, the Bolivian Workers' Central, has demanded the government rule out IMF borrowing as a precondition for lifting the blockades, citing concerns that an IMF-supported deal could result in austerity measures.
The government has countered that external financing is necessary to rebuild reserves, stabilize public finances and to facilitate the transition to the new exchange-rate regime. In response to prolonged unrest and its economic effects, President Paz declared a state of emergency last week, authorizing security forces to clear the roadblocks that had paralyzed parts of the economy for nearly two months.
This policy shift signals a decisive change in Bolivia's exchange-rate framework, with the central bank charged with managing the move to greater flexibility while authorities pursue international financing and seek to resolve domestic opposition to the IMF talks.