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Bolivia's central bank plans to put gold reserves at risk

Section: Daily Dispatches

Bolivia's Central Bank Will Invest Gold Reserves in International Markets

By Walter Vasquez
El Deber
Santa Cruz de la Sierra, Bolivia
Sunday, May 15, 2022

The Central Bank of Bolivia has as one of its objectives for this year to gain approval of laws that authorize it to buy local gold and carry out financial operations with international gold reserves in international markets, an action that no government has done before and is "a terrible signal for the Bolivian economy," according to analysts.

The bank's 2022 Initial Public Rendering of Accounts report realizes that among the tasks the institution has this year is "continuing the procedures for the approval of the proposed regulations that allow the strengthening of international reserves ," a proposal whose purpose is "to authorize the bank to purchase nationally produced gold and carry out financial operations with international gold reserves in international markets."

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During the accountability report, the president of the bank, Edwin Rojas, said that this year, in an environment of high volatility and uncertainty caused by the pandemic and the war between Russia and Ukraine, the net international reserves will continue to be invested, taking precautions for the security and liquidity of these investments.

"We are going to continue our efforts so that our bills to strengthen international reserves can be approved. On is the bill we have proposed during the past administration that seeks the purchase of nationally produced gold and allows a more modern management of reserves, strengthening their level as well as the liquidity they must have so that our economy can carry out its international financial operations without any limit," Rojas said.

The economist Napoleon Pacheco said: "That the central bank is deciding to make use of the gold reserves expresses a much more serious situation than the one we know. The situation must be extremely complicated to reach that level, because no government before the Movement for Socialism in critical situations proposed using the country's gold reserves. It is a bad sign for the Bolivian economy."

To "sell the gold or leave it as a guarantee or collateral abroad," Pacheco added, requires not only a law passed in the Legislative Assembly, where the Movement for Socialism has a majority, but also international certification of the degree of purity of each ingot. "Without that requirement, only clandestine operations can be carried out," he said.

The reserves as of May 9 last total $4.596 billion, 56.6% of which ($2,602 billion) is in gold .

"In the net international reserves, what counts is cash, and that cash is currently not enough for two months of imports," Pacheco said.

On March 15, the financial analyst Jaime Dunn indicated that there are three ways to attract more foreign currency to the country (for the payment of foreign debt and for imports): increase exports, which cannot be done due to the recently approved restrictions; borrow more, through bilateral and multilateral credits and bonds, "in which we are doing very badly"; and the attraction of foreign investment, which the country is not achieving either.

"If this gets more complicated, what they are going to have to do is start selling gold . I hope they don't get to that , because if that's the case, they would show that they really are in greater trouble," Dunn said. 

The intention to buy local gold to increase reserves is not new. In 2010 the government created the Bolivian Gold Co. to exploit part of the gold wealth. The state company also had the objective of selling the mineral to the central bank, something that was already authorized in 2011, through Law 175 . At the moment there are no known details of the amount of gold that the bank sold in these years.

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