6. Financial Sector
Capital Markets and Portfolio Investment
The government’s general attitude toward foreign portfolio investment is neutral. Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities. Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments. Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets. However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions). The amount of total transactions in 2020 was around 35 percent of GDP.
From 2008-2019, the financial markets experienced high liquidity, which led to historically low interest rates. However, liquidity has been more limited in recent years, and there are some pressures to increase interest rates. The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.
In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York Stock Exchange. The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion. U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal. In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years. HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal. In 2017, Bolivia sold another USD 1 billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal. The resources gained from the sales were largely used to finance infrastructure projects. A sovereign bond issuance of up to $3 billion was approved by the National Assembly for 2021 but had not yet occurred as of May 2021.
The government and central bank respect their obligations under IMF Article VIII, as the exchange system is free of restrictions on payments and transfers for international transactions.
Foreign investors legally established in Bolivia are able to get credits on the local market. However, due to the size of the market, large credits are rare and may require operations involving several banks. Credit access through other financial instruments is limited to bond issuances in the capital market. The 2013 Financial Services Law directs credit towards the productive sectors and caps interest rates.
Money and Banking System
The Bolivian banking system is small, composed of 16 banks, 6 banks specialized in mortgage lending, 3 private financial funds, 30 savings and credit cooperatives, and 8 institutions specialized in microcredit. Of the total number of personal deposits made in Bolivia through December 2020 (USD 29 billion), the banking sector accounted for 80 percent of the total financial system. Similarly, of the total loans and credits made to private individuals (USD 28 billion) through December 2020, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.
Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms. The banking sector was stable and healthy with delinquency rates at less than 2.0 percent in 2020. In 2020, delinquency rates rose after the government permitted clients to defer bank loan payments until June 2021 without penalty as a mitigating measure for the COVID-19 pandemic. While delinquency rates still remain relatively low, there are concerns this measure could potentially harm the banking sector’s stability.
In 2013, a new Financial Services Law entered into force. This new law enacted major changes to the banking sector, including deposit rate floors and lending rate ceilings, mandatory lending allocations to certain sectors of the economy and an upgrade of banks’ solvency requirements in line with the international Basel standards. The law also requires banks to spend more on improving consumer protection, as well as providing increased access to financing in rural parts of the country.
Credit is now allocated on government-established rates for productive activities, but foreign investors may find it difficult to qualify for loans from local banks due to the requirement that domestic loans be issued exclusively against domestic collateral. Since commercial credit is generally extended on a short-term basis, most foreign investors prefer to obtain credit abroad. Most Bolivian borrowers are small and medium-sized enterprises (SMEs).
In 2007, the government created a Productive Development Bank (Banco de Desarrollo Productivo) to boost the production of small, medium-sized and family-run businesses. The bank was created to provide loans to credit institutions which meet specific development conditions and goals, for example by giving out loans to farmers, small businesses, and other development focused investors. The loans are long term and have lower interest rates than private banks can offer in order to allow for growth of investments and poverty reduction.
In September 2010, the Bolivian Government bought the local private bank Banco Union as part of a plan to gain partial control of the financial sector. Banco Union is one of the largest banks, with a share of 10.8 percent of total national credits and 12.7 percent of the total deposits; one of its principal activities is managing public sector accounts. Bolivian government ownership of Banco Union was illegal until December 2012, when the government enacted the State Bank Law, allowing for state participation in the banking sector.
There is no strong evidence of “cross-shareholding” and “stable-shareholding” arrangements used by private firms to restrict foreign investment, and the 2009 Constitution forbids monopolies and supports antitrust measures. In addition, there is no evidence of hostile takeovers (other than government nationalizations that took place from 2006-14).
The financial sector is regulated by ASFI (Supervising Authority of Financial Institutions), a decentralized institution that is under the Ministry of Economy. The Central Bank of Bolivia (BCB) oversees all financial institutions, provides liquidity when necessary, and acts as lender of last resort. The BCB is the only monetary authority and is in charge of managing the payment system, international reserves, and the exchange rate.
Foreigners are able to establish bank accounts only with residency status in Bolivia.
Blockchain technologies in Bolivia are still in the early stages. Currently, the banking sector is analyzing blockchain technologies and the sector intends to propose a regulatory framework in coordination with ASFI in the future.
Three different settlement mechanisms are available in Bolivia: (1) the high-value payment system administered by the Central Bank for inter-bank operations; (2) a system of low value payments utilizing checks and credit and debit cards administered by the local association of private banks (ASOBAN); and (3) the deferred settlement payment system designed for small financial institutions such as credit cooperatives. This mechanism is also administered by the Central Bank.
Foreign Exchange and Remittances
The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies. A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 14 percent of total deposits). Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax. However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources. Until specific implementing legislation is passed, it is unclear how this provision will be applied. In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of 2 percent. This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.
Any banking transaction above USD 10,000 (in one operation or over three consecutive days) requires a form stating the source of funds. In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office. Amounts between USD 20,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance. The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found. The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.
Administrative Resolution 398/10 approved in June 2010 forces Bolivian banks to reduce their investments and/or assets outside the country to an amount that does not exceed 50 percent of the value of their net equity.
The Central Bank charges a fee for different kinds of international transactions related to banking and trade. The current list of fees and the details can be found at:
Law 843 on tax reform directly affects the transfer of all money to foreign countries. All companies are charged 25 percent tax, except for banks which can be charged 37.5 percent, on profits under the Tax Reform Law, but when a company sends money abroad, the presumption of the Bolivian Tax Authority is that 50 percent of all money transmitted is profit. Under this presumption, the 25 percent tax is applied to half of all money transferred abroad, whether actual or only presumed profit. In practical terms, it means there is a payment of 12.5 percent as a transfer tax.
Currency is freely convertible at Bolivian banks and exchange houses. The Bolivian Government describes its official exchange system as an “incomplete crawling peg.” Under this system, the exchange rate is fixed, but undergoes micro-readjustments that are not pre-announced to the public. There is a spread of 10 basis points between the exchange rate for buying and selling U.S. dollars. The Peso Boliviano (Bs) has remained fixed at 6.96 Bs/USD 1 for selling and 6.86 Bs/USD 1 for buying since October 2011. The parallel rate closely tracks the official rate, suggesting the market finds the Central Bank’s policy acceptable. In order to avoid distortions in the exchange rate market, the Central Bank requires all currency exchange to occur at the official rate ±1 basis point.
Each remittance transaction from Bolivia to other countries has a USD 2,500 limit per transaction, but there is no limit to the number of transactions that an individual can remit. The volume of remittances sent to and from Bolivia has increased considerably in the past five years, and the central bank and banking regulator are currently analyzing whether to impose more regulations sometime in the future. Foreign investors are theoretically able to remit through a legal parallel market utilizing convertible, negotiable instruments, but, in practice, the availability of these financial instruments is limited in Bolivia. For example, the Bolivian Government mainly issues bonds in Bolivianos and the majority of corporate bonds are also issued in Bolivianos.
The official exchange rate between Bolivianos and dollars is the same as the informal rate. The government allows account holders to maintain bank accounts in Bolivianos or dollars and make transfers freely between them. Business travelers may bring up to USD 10,000 in cash into the country. For amounts greater than USD 10,000, government permission is needed through sworn declaration.
Sovereign Wealth Funds
Neither the Bolivian Government nor any government-affiliated entity maintains a sovereign wealth fund.
11. Labor Policies and Practices
Approximately two-thirds of Bolivia’s population is considered “economically active.” Between 70 and 75 percent of workers participate in the informal economy, where no contractual employer-employee relationship exists. Relatively low education and literacy levels limit labor productivity, a fact reflected in wage rates. Unskilled labor is readily available, but skilled workers are often harder to find.
Article 3 of the Labor Code limits to 15 percent the number of foreign nationals that can be employed by any business. Due to the limited number of labor inspectors, enforcement of the law is uneven.
The 2009 Constitution specifies that unjustified firing from jobs is forbidden and that the state will resolve conflicts between employers and employees (Articles 49.3 and 50). Bolivian labor law guarantees workers the right of association and the right to organize and bargain collectively. Most companies are unionized, and nearly all unions belong to the Confederation of Bolivian Workers (COB).
Labor laws, including related regulations and statutory instruments, provide for the freedom of association, the right to strike, and the right to organize and bargain collectively. The law prohibits antiunion discrimination and requires reinstatement of workers fired for union activity. The law does not require government approval for strikes and allows peaceful strikers to occupy business or government offices. General and solidarity strikes are protected by the constitution, as is the right of any working individual to join a union.
Workers may form a union in any private company of 20 or more employees, but the law requires that at least 50 percent of the workforce be in favor of forming a union. The law requires prior government authorization to establish a union and confirm its elected leadership, permits only one union per enterprise, and allows the government to dissolve unions by administrative fiat. The law also requires that members of union executive boards be Bolivian by birth. The labor code prohibits most public employees from forming unions, but some public-sector workers (including teachers, transportation workers, and health-care workers) were legally unionized and actively participated as members of the Bolivian Workers’ Union without penalty.
Freedom of association is limited by the government and under-resourced labor courts. Moreover, the 20-worker threshold for forming a union proved an onerous restriction, as an estimated 72 percent of enterprises had fewer than 20 employees. Labor inspectors may attend union meetings and monitor union activities. Collective bargaining and voluntary direct negotiations between employers and workers without government participation was limited. Most collective bargaining agreements were restricted to addressing wages.
Originally passed in 1942, Bolivia’s labor law has changed frequently due to new regulations. Labor attorneys estimate that the law has been amended over two thousand times, with many amendments directly contradicting others. Attorneys comment that it is virtually impossible to understand the rules clearly, creating significant uncertainty for both employers and employees.
Bolivia has no unemployment insurance or employment-related social safety net programs. However, if an employee is laid off due to economic or technical reasons, employers are required to pay three months of salary as compensation. Nevertheless, employees generally have more negotiating leverage in Bolivia than employers, and many employers choose to pay additional compensation in order to avoid retaliation.
The Ministry of Labor has labor-related conflict resolution mechanisms, but in reality these processes are skewed towards employees. If parties cannot reach an agreement, employees are able to initiate legal proceedings, with appeals to Bolivia’s Supreme Court possible.
The National Labor Court handles complaints of antiunion discrimination, but rulings generally take a year or more. In some cases, the court rules in favor of discharged workers and requires their reinstatement. Union leaders state that problems are often resolved or are no longer relevant by the time the court rules. For this reason, government remedies and penalties are often ineffective and insufficient to deter violations.
Violence during labor demonstrations continues to be a serious problem. In August 2016, striking miners kidnapped and murdered Vice Minister Rodolfo Illanes during a conflict between miners and the government on the La Paz-Oruro highway. Several miners were also shot and killed. The case is still under investigation.