The Political and Economic Crisis in Bolivia
On 26 June, a column of soldiers and armored vehicles led by General Juan José Zúñiga, who was later dismissed and arrested, staged an attempted military coup against President Luis Arce's government in Bolivia. The event lasted around five hours, during which an armored vehicle attempted to smash through the gates of the palace at Plaza Murillo, where the main government buildings, including the presidency and Congress, were located. It ended when President Arce released a video message urging citizens to support him, and after a short confrontation between President Arce and General Zuniga, which led to the latter's arrest. Even though General Zúniga claimed that President Arce had instructed him to organize the coup in order to boost his own popularity, President Arce promptly dismissed these claims. President Arze immediately appointed General José Wilson Sanchez as new Army Chief.. The coup attempt received international condemnation. Regional leaders declared the General's actions unconstitutional. Leaders from Chile, Ecuador, Peru, Mexico, Colombia and Venezuela condemned the attempt and urged upholding democracy.
While Bolivia is not new to coups, recent attempts can be seen in the context of the country's underperforming economy and deep divisions within the ruling political party, the Movement Towards Socialism (MAS). The country is experiencing an economic crisis, with high inflation, low employment, and a shortage of essential goods such as fuel and consumer goods, as well as a low foreign exchange reserve. This political schism between factions within MAS, led by former president Evo Morales and current president Luis Arce, has led to administrative difficulties and an inability to alleviate the economic crisis. In this regard, the paper examines the roots of the attempted coup, which can be attributed to the increasing political divide within MAS and the worsening economic situation in Bolivia.
The Presidency of Evo Morales
To understand the political divide within the MAS and the recent economic crisis, it is necessary to trace it back to the presidency of Evo Morales. Evo Morales won presidential elections in 2005, 2009, and 2014, which cemented his position in the political landscape of the country. These presidential terms should not, however, be seen as mere political victories, but rather in the broader context of social movements in Bolivia, where racial, economic, and political differences dominate. Evo Moralez's presidential terms started with a financial program to benefit indigenous people, coca growers, and the informal sector. He also improved Bolivia's infrastructure and introduced generous welfare programs, mostly funded by revenue from natural gas exports. This led to a significant reduction in poverty, increasing Bolivian financial reserves.. Bolivia's economy depended on the export of natural gas and other primary resources, and after becoming President in 2005, Evo Morales nationalized the hydrocarbons sector, which significantly boosted the state's resources and encouraged its expansion. However, economic growth was short-lived, as the country failed to diversify economically and was too dependent on the exportation of natural gas.
Since 2014, the Bolivian economy began to falter as its export revenues fell by one third due to reduced international prices of natural gas. This led to difficulty in reviving and diversifying the economy, and instead, the government attempted to compensate with a large public investment program. However, these investments did not lead to long-term profit due to several factors, such as rising costs and low returns, and private investment did not increase as much. The sectors that benefitted most during this time were imports and credit consumption, which contributed to a weaker currency, trade imbalances, and a balance of payments crisis. Consequently, Evo Morales's presidency from 2015 to 2020 faced an increasing economic crisis and public unrest.
The onset of the Political Rift within the MAS
Despite the challenges, Evo Morales sought a third term in October 2019, winning despite allegations of electoral fraud that sparked riots, killing 36 people. Faced with mounting pressure from people, opposition and military, he resigned, leaving a political vacuum behind and paving the way for conservative leader Jeanine Áñez to assume office as interim president. Following a brief period under Áñez's interim presidency, during which there was political unrest in a deeply divided country, elections were held in October 2020. The results were a landslide victory for the Movement for Socialism (MAS), led by Luis Arce. Arce was the former Economy Minister, and had expectations to recalibrate Bolivia's faltering economy.
The seeds of a political rift between President Luis Arce and Evo Morales were sown during the 2019 elections, which gradually widened due to the deepening economic crisis. When Luis Arce became president, he was determined to reduce Evo Morales' influence within MAS and the government. Meanwhile, Evo Morales intended to maintain his own influence and returned from exile in October 2020, announcing his intention to run for office in 2025, leading to a political conflict with Luis Arce. This political divide is based on differences in leadership style, voter base, and personality. Arce, an economist, enjoys popularity among urban voters, while Morales has greater appeal and support among rural workers, who supported him through the coca growers' union.. While President Arce sought to attract more private investment, diversify the economy beyond the sale of natural resources, and balance public spending, he encountered difficulties in convincing representatives aligned with Evo Morales. Evo's allies in Bolivia's Congress have regularly opposed President Arces efforts to borrow money to alleviate pressure. Bolivia has the largest lithium reserves, but Evo's supporters oppose international companies investing there. President Arce has authority over government institutions, while Evo controls the party structure and apparatus. This leads to a growing divide between them as both seek to exert influence on the party.
For instance, in October 2023, President Luis Arce and 20 other deputies were expelled from the MAS party at its 10th Party Congress led by Evo Morales. This led to clashes between factions, following which, in December 2022, the Bolivian Constitutional Tribunal passed a decision denying a candidate the opportunity to serve more than two consecutive terms. This effectively rendered Evo Morales ineligible.
Morales condemned this decision, arguing that it was influenced by President Arce, who had been accused of orchestrating the coup. His supporters clashed with security forces, even in the context of the recent attempted coup. Morales and Arce continued to trade accusations, with Morales alleging that the coup had been orchestrated to boost Arce's popularity and distract from the economic crisis. Clashes also occurred between supporters of both factions outside the Supreme Electoral Tribunal in July 2014.
Bolivia’s Worsening Economic Crisis
President Luis Arce took office in 2020, as Bolivia's economy showed signs of an impending crisis, characterized by rising inflation, fuel shortages and other essential commodity shortages, and dwindling foreign exchange reserves. This was in contrast to the previous decade, when the country experienced rapid economic growth and its GDP increased by over 4% until the coronavirus pandemic threw it into turmoil. However, difficulties began in 2016 when commodity prices fell and the government had to draw on its foreign exchange reserves in order to continue spending. It then drew on its gold reserves and even issued dollar-denominated bonds domestically. As a result, Bolivia faces a shortage of foreign exchange needed to make payments for imports. Moreover, the country has seen a decline in natural gas production and exports, leading to a decrease in revenue receipts.. Lack of foreign investment in the natural gas sector, coupled with failing maintenance and upgrading of infrastructure, were the main reasons for Bolivia's struggling natural gas production. Currently, Bolivia imports energy and needs $2 billion annually to meet its energy needs, which causes a significant strain on the economy. According to the International Monetary Fund, growth in 2024 will be 1.6%, the lowest in 25 years without considering the pandemic. The Central Bank of Bolivia had over $15 billion in foreign reserves ten years ago; today, this figure has dropped to $2 billion. Importers are feeling the effects of a shortage of dollars, as they struggle to purchase goods from other countries. These issues may become more acute if the government restricts access to foreign currency.
Meanwhile, the increasing demand for dollars has led to unofficial currency exchanges, where one dollar is worth significantly more than its official value. Signs of an impending balance-of-payments crisis abound, and the paucity of dollars has resulted in scarcity of drugs, medical supplies, agricultural and mining equipment. Bolivia has abundant gas and lithium reserves that have not yet been tapped to their full potential, but these incidents and political issues discourage investors.
Hence, the problems facing President Arce are not just limited to economic crisis. The Morales faction within MAS holds significant influence and could pose challenges, even though Evo Morales has been banned from contesting elections scheduled to be held in 2025. Political infighting and an economic crisis have created opportunities for the conservative opposition, which will seek political gain. As a result, in addition to dealing with the political crisis in MAS, stabilizing the economy is also a priority for the current government.
Conclusion
Political instability coupled with prolonged economic crisis and internal fragmentation within MAS, the ruling party were reasons for attempted coup. Although President Arce and his cabinet averted it with the help of widespread public mobilization, government still faces challenges to address. These include ironing out fissures in ruling party and addressing economic crisis. In addition, conservative opposition will try to turn tables in upcoming elections in 2025, and electoral challenges are growing. What remains is how President Arces addresses these challenges, and whether there's a possibility of political reconciliation with Evo Morales, who still has significant influence within MAS.
*****
*Dr. Arnab Chakrabarty, Research Fellow, Indian Council of World Affairs, New Delhi.
The views expressed are personal.
The Presidency of Evo Morales
To understand the political divide within the MAS and the recent economic crisis, it is necessary to trace it back to the presidency of Evo Morales. Evo Morales won presidential elections in 2005, 2009, and 2014, which cemented his position in the political landscape of the country. These presidential terms should not, however, be seen as mere political victories, but rather in the broader context of social movements in Bolivia, where racial, economic, and political differences dominate. Evo Moralez's presidential terms started with a financial program to benefit indigenous people, coca growers, and the informal sector. He also improved Bolivia's infrastructure and introduced generous welfare programs, mostly funded by revenue from natural gas exports. This led to a significant reduction in poverty, increasing Bolivian financial reserves.. Bolivia's economy depended on the export of natural gas and other primary resources, and after becoming President in 2005, Evo Morales nationalized the hydrocarbons sector, which significantly boosted the state's resources and encouraged its expansion. However, economic growth was short-lived, as the country failed to diversify economically and was too dependent on the exportation of natural gas.
Since 2014, the Bolivian economy began to falter as its export revenues fell by one third due to reduced international prices of natural gas. This led to difficulty in reviving and diversifying the economy, and instead, the government attempted to compensate with a large public investment program. However, these investments did not lead to long-term profit due to several factors, such as rising costs and low returns, and private investment did not increase as much. The sectors that benefitted most during this time were imports and credit consumption, which contributed to a weaker currency, trade imbalances, and a balance of payments crisis. Consequently, Evo Morales's presidency from 2015 to 2020 faced an increasing economic crisis and public unrest.
The onset of the Political Rift within the MAS
Despite the challenges, Evo Morales sought a third term in October 2019, winning despite allegations of electoral fraud that sparked riots, killing 36 people. Faced with mounting pressure from people, opposition and military, he resigned, leaving a political vacuum behind and paving the way for conservative leader Jeanine Áñez to assume office as interim president. Following a brief period under Áñez's interim presidency, during which there was political unrest in a deeply divided country, elections were held in October 2020. The results were a landslide victory for the Movement for Socialism (MAS), led by Luis Arce. Arce was the former Economy Minister, and had expectations to recalibrate Bolivia's faltering economy.
The seeds of a political rift between President Luis Arce and Evo Morales were sown during the 2019 elections, which gradually widened due to the deepening economic crisis. When Luis Arce became president, he was determined to reduce Evo Morales' influence within MAS and the government. Meanwhile, Evo Morales intended to maintain his own influence and returned from exile in October 2020, announcing his intention to run for office in 2025, leading to a political conflict with Luis Arce. This political divide is based on differences in leadership style, voter base, and personality. Arce, an economist, enjoys popularity among urban voters, while Morales has greater appeal and support among rural workers, who supported him through the coca growers' union.. While President Arce sought to attract more private investment, diversify the economy beyond the sale of natural resources, and balance public spending, he encountered difficulties in convincing representatives aligned with Evo Morales. Evo's allies in Bolivia's Congress have regularly opposed President Arces efforts to borrow money to alleviate pressure. Bolivia has the largest lithium reserves, but Evo's supporters oppose international companies investing there. President Arce has authority over government institutions, while Evo controls the party structure and apparatus. This leads to a growing divide between them as both seek to exert influence on the party.
For instance, in October 2023, President Luis Arce and 20 other deputies were expelled from the MAS party at its 10th Party Congress led by Evo Morales. This led to clashes between factions, following which, in December 2022, the Bolivian Constitutional Tribunal passed a decision denying a candidate the opportunity to serve more than two consecutive terms. This effectively rendered Evo Morales ineligible.
Morales condemned this decision, arguing that it was influenced by President Arce, who had been accused of orchestrating the coup. His supporters clashed with security forces, even in the context of the recent attempted coup. Morales and Arce continued to trade accusations, with Morales alleging that the coup had been orchestrated to boost Arce's popularity and distract from the economic crisis. Clashes also occurred between supporters of both factions outside the Supreme Electoral Tribunal in July 2014.
Bolivia’s Worsening Economic Crisis
President Luis Arce took office in 2020, as Bolivia's economy showed signs of an impending crisis, characterized by rising inflation, fuel shortages and other essential commodity shortages, and dwindling foreign exchange reserves. This was in contrast to the previous decade, when the country experienced rapid economic growth and its GDP increased by over 4% until the coronavirus pandemic threw it into turmoil. However, difficulties began in 2016 when commodity prices fell and the government had to draw on its foreign exchange reserves in order to continue spending. It then drew on its gold reserves and even issued dollar-denominated bonds domestically. As a result, Bolivia faces a shortage of foreign exchange needed to make payments for imports. Moreover, the country has seen a decline in natural gas production and exports, leading to a decrease in revenue receipts.. Lack of foreign investment in the natural gas sector, coupled with failing maintenance and upgrading of infrastructure, were the main reasons for Bolivia's struggling natural gas production. Currently, Bolivia imports energy and needs $2 billion annually to meet its energy needs, which causes a significant strain on the economy. According to the International Monetary Fund, growth in 2024 will be 1.6%, the lowest in 25 years without considering the pandemic. The Central Bank of Bolivia had over $15 billion in foreign reserves ten years ago; today, this figure has dropped to $2 billion. Importers are feeling the effects of a shortage of dollars, as they struggle to purchase goods from other countries. These issues may become more acute if the government restricts access to foreign currency.
Meanwhile, the increasing demand for dollars has led to unofficial currency exchanges, where one dollar is worth significantly more than its official value. Signs of an impending balance-of-payments crisis abound, and the paucity of dollars has resulted in scarcity of drugs, medical supplies, agricultural and mining equipment. Bolivia has abundant gas and lithium reserves that have not yet been tapped to their full potential, but these incidents and political issues discourage investors.
Hence, the problems facing President Arce are not just limited to economic crisis. The Morales faction within MAS holds significant influence and could pose challenges, even though Evo Morales has been banned from contesting elections scheduled to be held in 2025. Political infighting and an economic crisis have created opportunities for the conservative opposition, which will seek political gain. As a result, in addition to dealing with the political crisis in MAS, stabilizing the economy is also a priority for the current government.
Conclusion
Political instability coupled with prolonged economic crisis and internal fragmentation within MAS, the ruling party were reasons for attempted coup. Although President Arce and his cabinet averted it with the help of widespread public mobilization, government still faces challenges to address. These include ironing out fissures in ruling party and addressing economic crisis. In addition, conservative opposition will try to turn tables in upcoming elections in 2025, and electoral challenges are growing. What remains is how President Arces addresses these challenges, and whether there's a possibility of political reconciliation with Evo Morales, who still has significant influence within MAS.
*****
*Dr. Arnab Chakrabarty, Research Fellow, Indian Council of World Affairs, New Delhi.
The views expressed are personal.
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