Bolivian government bonds rallied to their highest level in more than two years on Monday after two center-right candidates came out ahead in the country’s presidential election, fueling expectations of an overhaul of its crisis-racked economy after two-decades of leftist rule.
With roughly 50% of the ballots counted from Sunday’s vote, senator Rodrigo Paz obtained 30.4% and conservative former president Jorge Quiroga had 29.8%, according to the country’s electoral office. Samuel Doria, a businessman making his fourth bid for the presidency, picked up 21.4%. That compares with just 3.1% for Eduardo del Castillo, a lawyer and presidential candidate of the ruling leftist Movement for Socialism (MAS) party, which has won every election of the last 20 years. Given no candidate obtained more than 40% of the vote, there will be a runoff vote on October 19.
Bolivia went from boom to bust under MAS, but even with the economy in tatters, investors have been betting on a turnaround whoever wins the election, which fueled gains in government bonds in the run up to the vote. Foreign currency reserves dwindled under the country’s current leader, Luis Arce, whose administration kept up on bond repayments but cut back on fuel imports as dollars became scarcer, sparking social unrest in recent months.
The election result propelled the country’s bonds still higher on Monday. The price on Bolivia’s 7.5% 2030 global bonds soared to $81.62 from $77.47 on Friday, according to Bloomberg data. That is the highest level since March 2023, according to Luxembourg Stock Exchange data.
“Markets have reacted positively to the prospect of a shift in Bolivia’s economic model,” said Debora Reyna, an analyst at Oxford Economics. “Both candidates are center-right and therefore seen as an improvement toward market-friendly policies.”
REFORM DOUBTS
According to Juan Solá, an economist at BancTrust & Co, the key question is whether Paz, who had been polling at below 10% in recent weeks, will “move decisively to unwind the heterodox economic model” established by MAS should he win October’s runoff.
“His political track record and ties across the spectrum could help ease the transition but also raise doubts over the pace and depth of the reform,” Solá said in a note to clients. Either way, he added, “investors should expect a meaningful macroeconomic policy shift.”
Both leading candidates are in favor of curbing expenditure, addressing exchange-rate distortions and boosting the external sector, but Quiroga is “closer to the type of macroeconomic adjustment the country needs” due to his willingness to negotiate loans with multilateral organizations, Oxford Economic’s Reyna said via email.
“This is an undeniable reality, as Bolivia lacks access to international financial markets and would otherwise have no means to finance a gradual liberalization of the exchange rate,” she added.
Whoever wins will need to cut spending by at least 5% of GDP while “doing so carefully enough to avoid social unrest” and will need to build consensus under a divided Congress as no party will hold an absolute majority, Reyna said.
“It will also be necessary to improve the regulatory framework for private investment to attract foreign capital, but this requires establishing stability first,” she said.