Bolivia officially plans its own recession as GDP contracts loom.

The 2027 General State Budget, unveiled this week by Rodrigo Paz's government, contains an admission that would have been unthinkable just two years ago under the doctrine of the "Bolivian economic model": the executive itself projects a 1.5% GDP contraction for next year, sets the official exchange rate at 12 bolivianos per dollar — a level that already reflects parallel-market reality — and leaves fuel subsidies fully intact, a fiscal burden the country cannot afford but which no government has had the political nerve to dismantle. The combination of these three variables in a single budget document is, in itself, the story of the day: Bolivia is officially planning its own recession.

The diagnosis surrounding that budget is devastating in its consistency. The Bolivian economy contracted 3.27% in cumulative terms through June, with nine of eleven sectors in contraction during the second quarter, according to official data compiled by El Deber. The IMF projects a roughly 3% decline for the full year, which would make Bolivia the only South American economy in negative territory in 2025, confirming ECLAC's warning that the country ranks last in regional growth. The central bank, for its part, estimates a 3.6% contraction. Cochabamba, the country's third-largest economy, projects a 4.15% plunge with only 14.6% of its working-age population in formal employment. Cumulative inflation through October reached 6.03% according to the INE, with bread prices rising to one boliviano in Cochabamba — a symbolic data point that nonetheless captures the pressure facing low-income households.

Faced with this picture, Paz's government has rolled out a stabilization agenda built on external financing, a partial dismantling of the state apparatus, and signals to the market. The Inter-American Development Bank approved a $750 million loan to support economic stabilization, an injection that comes on top of the staff-level agreement with the IMF whose ten structural conditions — including the rationalization of state-owned enterprises and tax reform — are beginning to materialize. Finance Minister Christian Morales, appointed after the parliamentary censure of his predecessor José Gabriel Espinoza, announced the imminent closure of between eight and ten state-owned enterprises, a decision the previous government had systematically dodged. The central bank, in parallel, authorized the return of dollar deposits of up to $50,000 to savers, a measure aimed at reviving confidence in the banking system after months of FX restrictions. According to the Ministry of Economy, country risk has fallen to 364 basis points, below Argentina and Ecuador, and Moody's upgraded the sovereign rating to Caa2 with a positive outlook — signals the government points to as evidence that the adjustment is gaining international credibility.

Internal friction, however, is intense. Seven of the nine governors have rejected the executive's proposal to allocate them 1% in tax revenue sharing under the 2027 budget — equivalent to just $45 million for all the regional governments combined — and are demanding a broader fiscal pact, with greater autonomy and direct investment. The construction sector broke off dialogue with the government, demanding contract adjustments and payment of outstanding debts for public works. The Federación Nacional de Cooperativas Mineras (Fencomin) rejected the new Mining Code and demanded that its socialization be halted, while the proposed text loosens contract terms but excludes the sectoral tax reform that analysts had deemed indispensable for attracting investment. The Santa Cruz-based business chamber Cainco warned that attracting capital requires clear laws and legal certainty, and put forward ten concrete measures to tackle the crisis.

On the external front, Bolivia reappeared in Madrid with "Bolivia Day," an event that according to Los Tiempos filled two investor halls and secured a commitment for a new edition in 2027. President Paz met with Repsol executives during the trip, seeking to reactivate gas exploration in a country whose hydrocarbon exports have collapsed. Silver and gold today generate seven out of every ten additional dollars of exports, illustrating the growing dependence on precious metals as gas declines. The reopening of the cotton market — Bolivia will export cotton to Paraguay for the first time in 15 years and Peru has authorized imports of Bolivian product, with projections of up to $260 million — adds a note of diversification that the context makes urgent but that will take years to acquire real macroeconomic weight.

What captures the Bolivian moment most clearly is the closure of Manaco, Bata's historic footwear plant, with 86 years of operations and accumulated losses of 130 million bolivianos. Its 600 workers, now on emergency footing, embody the structural difficulty of sustaining manufacturing in an environment of high prices, falling sales, and scarce dollars. The company will continue selling in Bolivia, but will no longer manufacture in the country.

Three things merit close tracking in the coming weeks: first, whether the new Mining Code can muster enough consensus to advance in the Legislative Assembly, given that the sector is today the country's main source of foreign currency; second, whether the World Bank's projection of a 4% rebound in 2027 will materialize — a scenario that depends on reforms being executed before the social and political contraction overwhelms the Paz government's capacity to hold minimal coalitions together; and third, whether the IMF agreement advances toward a formal program that unlocks more multilateral financing and consolidates the reduction in sovereign risk. The 2027 budget that plans for a GDP contraction is, in the best case, an honest starting point. In the worst, it is the formalization of a decline that no one can deny any longer.