Bolivia alone in South America facing 3% GDP contraction in 2025

Bolivia today became the only country in South America projected to see its economy contract in 2025, according to the International Monetary Fund, which estimates a 3% drop in GDP for the current year — a forecast that places the country in an isolated category within the regional context and lends political urgency to every economic decision emanating from La Paz. This distinction — the worst performance in the entire subcontinent — is the lens through which to read the torrent of measures and signals that President Rodrigo Paz's government is launching simultaneously across multiple fronts: electricity tariffs, fuel subsidies, gold regulation, state-owned enterprises in crisis, and an IMF agreement that redefines the rules of the fiscal game.

Decree 5770, enacted in recent days, is the most visible instrument of this reconfiguration. According to Los Tiempos, the regulation establishes that electricity tariffs will be updated taking into account three variables: the average exchange rate, inflation, and an efficiency factor. Hydrocarbons Minister Marcelo Blanco was quick to soften the political reach of the measure, ruling out immediate hikes in either electricity or LPG "in the short term," according to Opinión Bolivia. The government insists this is a structural reform that rationalizes price-setting without abruptly passing the cost on to consumers. The regulatory architecture, however, makes increases practically inevitable in the medium term: indexing tariffs to the dollar and to inflation in an economy that has just abandoned fifteen years of a fixed exchange rate is, in practice, an invitation to escalating energy costs.

More revealing is the confirmation, reported by El Deber, that the government agreed with the IMF to eliminate the gasoline subsidy in 2027. This concession, buried in the technical annexes of the $1.9 billion agreement the Fund approved for Bolivia, represents the most politically sensitive fiscal commitment of the program. Fuel subsidies were, under Luis Arce's economic model, an untouchable pillar of the social pact. That Paz's new government has formally committed to this with the IMF — albeit on a deferred timeline — signals the real reach of the conditionality implicit in the agreement, well beyond what official rhetoric has communicated to the public.

The agreement with the Fund is, in any case, the most relevant structural fact of the moment. The Ministry of Economy and Public Finance has stated that the program seeks to support economic reforms and help the country overcome the crisis inherited from the previous government, which left international reserves at critical levels and a fiscal deficit that El Deber reports could push public debt above 100% of GDP during this year. The government posted a fiscal surplus in the first five months of 2026, according to MEFP data, allowing it to present a stabilization narrative to international markets, further backed by the placement of $1 billion in sovereign bonds with demand five times greater than supply.

In parallel, the government is seeking to capture foreign currency through unconventional channels. El Deber and Los Tiempos report that a decree requires gold exporters to deposit 80% of the value of their foreign sales in the Bolivian financial system. The measure responds to an uncomfortable reality: gold mining has for years been a channel for capital flight, with much of the proceeds informally funneled abroad. Simultaneously, the Central Bank activated a new phase in the return of dollar deposits — enabling withdrawals of between $8,001 and $10,000 — indicating that the restoration of confidence in the banking system is advancing gradually but steadily.

The political dimension of the economic crisis is inseparable from the technical one. Bolivia fell 37 places in the global economic freedom index, according to El Deber, a signal that private businesses receive with alarm. The Santa Cruz Chamber of Industry, Commerce, Services and Tourism (Cainco) presented an investment law proposal and urged its approval before year-end. The private sector identifies five factors aggravating the crisis: legal uncertainty, restricted access to foreign currency, blockades that disrupt logistics chains, smuggling, and the energy deficit. Transport operators, for their part, are demanding a 45% increase in fares, while the Telecommunications and Transport Regulatory and Oversight Authority is offering just 15%, according to El Deber — another friction the government will have to resolve without fueling inflation.

The meeting between President Paz and Chilean Foreign Minister Richard Kast also opened a bilateral agenda that includes mining, energy connectivity, and crude oil transport, according to El Deber, a sign that Bolivia is seeking to reposition itself regionally as an economic partner in strategic sectors. In Santa Cruz, meanwhile, the bet on turning Viru Viru airport into a regional logistics hub is shaping up as the great promise of productive transformation for Bolivia's eastern region, though its viability depends largely on the macroeconomic environment stabilizing.

What to watch in the coming weeks is the reaction of the Central Obrera Boliviana, whose expanded assembly in Cochabamba is evaluating the government's economic measures, as reforms that directly affect workers' purchasing power advance. Equally critical will be the pace at which the Central Bank completes the return of dollar deposits and the response of the flexible exchange rate market, whose quote remains the most immediate thermometer of confidence in the Bolivian economy. The government has arguments to present a narrative of incipient stabilization — fiscal surplus, successfully placed sovereign bonds, falling country risk — but the 3% contraction projected by the IMF is unforgiving, and the gap between the official narrative and public perception is, for now, the main political risk of the economic program.