Bolivia’s new President plans tax cuts

Bolivia President Rodrigo Paz of Bolivia said on Tuesday he planned to scrap a ream of taxes, in one of his first moves since becoming the nation’s first conservative leader in nearly two decades on a bid to rescue a crisis-stricken economy.

Just over two weeks since taking office, Paz also announced his Government would slash 30 per cent of total federal spending from Bolivia’s 2026 budget to reverse years of populist economic measures taken under the long-ruling Movement Toward Socialism, or MAS, party.

He did not give further details on how his Government would make such deep cuts.  Speaking to reporters on Tuesday, Paz said first said he was proposing to repeal Bolivia’s national wealth tax, arguing that it had crippled growth and discouraged billions of dollars in investments since being imposed by his left-wing predecessor, former president Luis Arce. 

Another levy on the chopping block is Bolivia’s 0.3 per cent tax on everyday financial transactions, Paz said, something that long motivated Bolivians to keep clear of the formal banking system and instead stash their savings under mattresses and floorboards.

“We are giving the first signs of security that the country requires,” Paz said. “We are paving the way for economic activity.” The bills to remove the taxes must be sent to Congress for approval before taking effect. Business leaders were already thrilled.  “The persecution of the private sector is ending,” said Klaus Freking from the country’s main agricultural chamber.

“It is the beginning of legal certainty.” But Paz and his Economy Minister José Gabriel Espinoza said Tuesday that, for now, their Government wouldn’t touch the pillars of Bolivia’s economic model under the MAS party — specifically, the country’s fuel subsidies that keep its retail price of gasoline among the world’s cheapest, as well as its

fixed exchange rate that became distorted as the country’s central bank ran out of US dollars. “The president is starting off on the right foot, aiming to generate better investments,” said Bolivian economic analyst Gonzalo Chávez. “But he’s not addressing the core problems.”

Paz is sticking to his campaign promise of deploying gradual measures — as opposed to a shock fiscal adjustment of the kind that Bolivians have known and feared since the 1990s — to dig Bolivia out of its worst financial crisis in four decades.

While major challenges remain and doubts linger, there are already signs that the medicine is taking effect. The endemic lines that snaked from fuel pumps across the country due to a severe shortage of gasoline have largely disappeared as Paz works to secure imports.

A friendly Congress has helped the Government take on a USD 3.1 billion loan from the Andean Development Corporation, USD 550 million of which has already been released.

Espinoza on Tuesday said the Government seeks to borrow up to USD 9 billion to stabilise the economy and plug the deficit for the next three years. He said he expected the package in 60 to 90 days, without naming the multilateral lenders involved in the deal.

The Government has also repaired relations with Washington after years of anti-American hostility dating back to when ex-President Evo Morales, a charismatic coca-growing union leader, kicked out the US Drug Enforcement Administration in 2008 and cozied up to Russia, Iran, and Venezuela.

The US State Department has already announced agreements on nuclear cooperation and security assistance, and Paz has said his administration will allow Elon Musk’s Starlink to operate in Bolivia for the first time, after his predecessor refused to give it an operating licence last year.

As Bolivia starts to regain credibility in the eyes of investors, sovereign bonds have risen in recent weeks and the chronically depreciating currency pared back some of its losses against the dollar in unofficial trading.