Bolivia Central Bank Says FX Reserves Are Enough to Defend Peg

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Bolivia’s central bank reiterated its commitment to the nation’s currency peg and said its $6.5 billion international reserve levels are adequate, in a statement rejecting comments made by a Fitch Ratings analyst to Bloomberg News earlier this week.

The nation’s foreign currency reserves “are at levels that are solid for covering internal and external payments in foreign currency under the existing currency regime”, the bank said in a document posted on its website. “The current level of international reserves allows us to maintain the existing currency regime, and we maintain that we’ll keep the exchange rate stable.”

The bank’s comments were a response to remarks made by Fitch Ratings analyst Todd Martinez, who told Bloomberg that reserves no longer appear to be at the levels needed to amply mitigate the higher risks Bolivia is exposed to as commodity exporter with a stabilized currency.

The reasons for the fall in Bolivia’s reserves --a large fiscal deficit due to increased public investment with a large component of imports, and of the current account deficit-- have been reversed by the government which took office in November, the bank said.

“With the adjustments made in the final months of 2019, we have seen a reduction in the fiscal deficit after five consecutive years of increases, and we deepened the reduction of the currency account deficit, signaling a correction of the disequilibria.”

The central bank has intervened to keep the currency stable near 7 per dollar over the past decade. Since prices fell for Bolivia’s natural gas exports five years ago, this has meant spending its reserves.

On Dec. 31, the nation’s international reserve level was equivalent to 16% of GDP, enough to cover six months of imports and five times the nation’s short-term foreign debt, the bank said. This “easily surpasses” levels recommended by international organizations, the bank said.

Interim President Jeanine Anez took power in November after socialist leader Evo Morales was ousted and fled the country. The country votes for a new president in May, with a possible run-off in June.

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