Debt reclassification and a troubled bank trigger fear among savers in Bolivia

A line of people waits to buy dollars at the offices of the Central Bank of Bolivia, this March 10 in La Paz. JORGE BERNAL (AFP)

A bank run and a downgrade of the debt rating added to the turmoil facing Bolivia's economy, considered until last year one of the most stable in South America.

These potholes are added to the rationing of dollars that the country has suffered for a few weeks, in response to an "unusual demand" caused by the fall in reserves of this currency at the Central Bank.

On Tuesday, March 14, the Fassil bank, the third largest bank in the country, reported that it was suffering a “great irregular escalation of speculation and rumors about a supposed bankruptcy” and the “overreaction of savers who try to withdraw their deposits at our points of attention, with the consequent shortage of cash and saturation of our physical and digital systems”.

The queues in front of the offices of this bank were the news of the day in Bolivia.

The banking authorities and the Minister of Economy, Marcelo Montenegro, did not speak directly about the panic Fassil was facing, but implicitly denied that this bank was bankrupt.

“The financial system has solid solvency and liquidity fundamentals, so we are calm;

the financial system works well,” Montenegro told reporters.

The Financial Supervision Authority (ASFI) recalled that, by law, all bank deposits are insured, so no depositor would lose money in the event of a complicated situation.

Fassil, whose owners are important businessmen from the agro-industrial region of Santa Cruz, has placed loans for 3,000 million dollars, has deposits of 2,600 million, and has made strong real estate investments.

On February 2, he informed the Bolivian Stock Exchange that ASFI had asked him for a "regularization plan" to correct bad practices in the bank's management.

Fassil then processed a constitutional protection against this decision before the courts, which was denied.

In the process it was learned that, supposedly, the bank had granted lines of credit to people without sufficient solvency.

The bank's complaint that it had suffered a speculative attack was read in a political key and was inserted into the polarized logic that the country has had for years.

Social networks in Santa Cruz were full of messages of adherence to the financial institution.

They considered her the last victim of the supposed suffocation that the region would experience under the Government of the Movement for Socialism (MAS).

On the other hand, on the same day, the risk rating agency Fitch Ratings downgraded Bolivia's debt from "B" to "B- (B minus)" due to a "negative outlook" for its economy as a result of "a decrease in its liquidity reserves, which, in light of a de facto fixed exchange rate, has greatly increased uncertainty and risks to macroeconomic stability.

Fitch points out that Bolivia is not heavily indebted and that is why it can pay what it owes up to now, but it also notes the confidence problems that the country is facing as a result of the fall in the Central Bank's dollar reserves.

Currently, depositors who have accounts in this currency only receive 2,000 dollars a day from the banks,

Minister Montenegro criticized the Fitch Ratings report because it does not take into account that the shortage of dollars does not represent such an important risk in Bolivia, given that inflation is low and 90% of bank deposits are denominated in national currency.

So this is a problem limited to a relatively small group of foreign currency users.

Bolivia has seen its foreign exchange reserves decrease since 2014, when they amounted to 15,000 million, almost half of the gross domestic product.

Simultaneously, its gas industry, which was its main export to the world, has been losing volume, while its imports have maintained a similar level.

In addition, the rise in energy prices after the war in Ukraine has significantly increased the value of these imports,

a third of which are from fuels that the country no longer produces.

Currently, international reserves are the equivalent of just over 3,500 million dollars;

most of it is in gold.

The amount of cash reserves that Bolivia still has is not known.

Information on this indicator has been suspended.

Until now, President Luis Arce has not commented on the situation.

Meanwhile, the opposition, which until now had had to clash with the MAS almost exclusively in the political arena, because the national economy was doing very well, has turned entirely to the battle of economic opinions.

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