Economy Minister's Ouster Signals Fiscal Adjustment Cracking Under Pressure

The dismissal of Economy Minister José Gabriel Espinoza, finalized after a censure motion approved by the Plurinational Legislative Assembly, is no mere episode of political turbulence in La Paz: it is the clearest signal yet that the fiscal adjustment which Rodrigo Paz's government pledged to implement gradually and without anesthesia is running into resistance that threatens to derail the process before it can consolidate results. President Paz appointed Óscar Mario Justiniano as interim minister, and the speed of the handover, reported simultaneously by El Deber, Los Tiempos and France 24, suggests the executive branch has no room for an orderly transition at a moment when multiple economic fronts are ablaze at once.

The epicenter of the immediate crisis is Supreme Decree 5676, which eliminated the diesel subsidy for large consumers and set a reference price of 18 bolivianos per liter, versus the subsidized price that had prevailed until now. The reaction was immediate and cut across sectors: the Cámara Agropecuaria del Oriente declared a state of emergency, the Federación Nacional de Cooperativas Mineras demanded the decree's repeal, transporters and tanker operators announced a national strike —provisionally suspended after agreeing to technical roundtables with YPFB—, and the construction sector warned the price hike opens a hole in existing contracts that could paralyze projects nationwide, according to El Deber. The Asociación Nacional de Productores de Oleaginosas rejected the measure, and the Servicio Departamental de Caminos del Beni entered emergency status due to a lack of fuel for road maintenance. The government responded by arguing that the increase "should not affect" the household basket, a claim that economists interviewed by local media received with skepticism. Economist Gonzalo Chávez was categorical in his diagnosis: "There is no easy, painless, magical or quick solution to the crisis."

Beneath the decree lies a merciless arithmetic. YPFB explained that the diesel subsidy for the productive sector had become unsustainable in the context of an acute foreign currency shortage; the Economy Ministry itself acknowledged that the system was operating with an exchange-rate gap that El Deber puts between the 6.96 bolivianos per dollar of the previous official rate and the more than 11 bolivianos at which the currency trades in the parallel market, a tension that translated directly into freight rates negotiated between YPFB and tanker operators. With the abandonment of the fixed exchange rate and the adoption of a flexible regime, the boliviano has lost roughly 25% of its value in five weeks, according to Los Tiempos, and the dollar in the formal market was trading this weekend at around 11.50 bolivianos, though the BCB signaled it would hold that parity through Monday. An international rating agency voiced concern about Bolivia's capacity to accumulate international reserves, a warning that lands after the Central Bank projected a GDP contraction of 3.6% for 2026 — the most pessimistic forecast issued by a Bolivian public authority in many years.

Country risk, which had fallen from 2,000 to 407 basis points in the preceding months —a decline that reflected the optimism generated by the IMF's US$1.9 billion credit, a US$1 billion sovereign bond issuance and CAF's US$3.1 billion line—, could reverse part of that improvement if ministerial instability erodes the credibility of the reform program. The removal of Espinoza, who had been the public face of the adjustment before markets and multilateral organizations, raises a question El Deber poses bluntly: can the government sustain the reforms and credit commitments with an interim minister at the helm? The new incumbent, Justiniano, immediately announced a "Productive Triangle" as the guiding concept of his tenure, but without specifying instruments or concrete timelines.

Mining offers the only genuinely positive counterpoint in today's landscape. The sector's exports have grown in value, driven by gold and silver prices, which continue to benefit from the global bull cycle in precious metals. But El Deber warns that this bonanza is superficial: Bolivia exports more value without investing proportionally, and gold taxation is minimal according to Fundación Jubileo, meaning the mining boom is not generating the fiscal space the crisis demands. Soy, the other major export pillar, has fallen to fifth place among regional producers for lack of biotechnology, according to Los Tiempos, further eroding the outlook for foreign-exchange earnings via the agricultural channel.

Against that backdrop, the digital economy is expanding —driven, according to El Deber, by Bolivians' need to access dollars outside the formal system—, contraband is growing at twice the pace of GDP, and a study released today indicates that 48% of Bolivians view contraband as legitimate because they consider it important for the national economy, a figure that starkly illustrates the degree to which the informal economy has colonized everyday normality.

Three things bear watching closely in the coming days: the speed with which new minister Justiniano confirms —or qualifies— the commitments made to the IMF and multilateral organizations; the evolution of the technical roundtables between YPFB and tanker operators, whose suspended strike could reactivate if there is no agreement on freight rates and five months of pending debts; and the behavior of the flexible exchange rate, which will determine whether inflation —projected at up to 17% for 2026— becomes the vector that destroys the incipient purchasing power of the very sectors the government pledged to protect.

**SOBOCE (not internationally listed)** — The Bolivian cement producer warned about the economic impact of a potential arbitration ruling against it, invoking effective judicial protection; the case could affect the financial stability of one of the country's largest infrastructure operators at a moment when the construction sector is already facing higher diesel costs.

**Boliviana de Aviación — BoA (state-owned, not publicly listed)** — The flag carrier has accumulated 4,825 delayed flights and is operating with a reduced fleet, an operational deterioration that coincides with the start of the authorization process for a new airline backed by Potosí-based capital, opening for the first time in years a window of competition in Bolivia's domestic market.