Bolivia’s New ‘Shock’ Economy
Fuel subsidies have long been a point of contention in Bolivia; the new president plans to address them with economic ‘shock’ therapy
After just one month in office, newly elected Bolivian President Rodrigo Paz issued a “Decree for the Homeland,” declaring a state of “economic, financial, energetic, and social emergency,” leading to the end of Bolivia’s contentious fuel subsidy program. Fuel prices immediately spiked. Diesel prices jumped by 160%, and premium gasoline by 86%. Paz, who campaigned on ending the subsidies, argued this was necessary to stop the “looting” of public funds and to restore fiscal order.
“This does not mean abandonment, it means order, justice; redistribution that’s real, clear and transparent,” Paz said while addressing the nation.
For two decades, the Bolivian government resold imported fuel at fixed prices at a substantial loss to the government. In 2025, Bolivia was importing as much as half of its gasoline and up to 60% of its diesel. Exacerbating the issue is Bolivia’s revenue loss from its natural gas production, which has been declining since 2014. In 2024, fuel subsidies alone accounted for more than half of Bolivia’s total deficit, over 10% of the country’s gross domestic product (GDP).
The loss of income and constant spending on fuel resulted in a decrease in the amount of US dollars in Bolivia’s reserves. Without dollars to purchase more imported fuel, massive fuel shortages across the country became more common. Subsidies have become controversial due to the enormous losses the government has been taking with the program. However, previous attempts to end the subsidies, such as Evo Morales’ in 2010, were met with broad pushback.
Morales faced opposition from his own backers, including unions, farmers, and social groups, leading him to reinstate the subsidies. Today, Paz faces the same pushback. In 2010, the biggest complaint was that programs or assistance for people to sustain a massive increase in fuel costs weren’t implemented. In response to those concerns, on the campaign trail, Paz promised to institute programs to assist the public in enduring higher fuel prices.
To date, Paz increased the minimum wage by 20%, which many say isn’t enough, promised to maintain existing assistance for schoolchildren and the elderly, and kept subsidies in place for liquified petroleum gas (propane), which is widely used in people’s homes. Additionally, the Paz administration is reportedly negotiating a currency swap with the US, similar to the recent bailout of Argentina, and secured a $550 million loan from the Andean Development Corp.
All of this has manifested in heavy pushback from labor unions, transportation and agricultural sectors, as well as social and neighborhood groups, which characterized the move as an attack on food security. Bolivia’s Vice President, Edman Lara, broke with Paz and held a press conference alongside opposition party leaders to publicly denounce the measures, saying they would only lead to increased poverty. Calls for Paz’s resignation have already begun, with an ultimatum being issued: repeal the decree or face nationwide protests and economic disruption.
Meanwhile, the United States Secretary of State Marco Rubio celebrated Paz’s unilateral declarations and sweeping actions impacting Bolivia’s economy.
“The United States welcomes today’s announcement by President Rodrigo Paz of a significant economic reforms package aimed at restoring stability, prosperity, and investment to Bolivia after decades of failed policies.
“We recognize that the path ahead will not be easy. The Bolivian people have endured years of economic stagnation, corruption, and mismanagement. The reforms announced today are a necessary course correction that lays the foundation for a more prosperous and secure future for all Bolivians. The United States will work with the Government of Bolivia to ensure these reforms bring dividends for the Bolivian people in the shortest possible time.
“We applaud President Paz’s historic efforts to open Bolivia to the world by committing to meaningful reforms to attract international investment. Openness to investment, sound economic management, and respect for the rule of law are essential to unlocking Bolivia’s full potential. U.S. government officials are currently in Bolivia seeking to facilitate investments that will foster prosperity for both our nations.
“The United States stands ready to support Bolivia’s transition and to deepen our partnership.”
With Paz turning over state control of fuel imports to the private sector, rather than instituting recommended reforms, it’s no wonder the US is celebrating this move, especially given the recent rhetoric out of the White House regarding Venezuela’s oil sector. Many argue that ending fuel subsidies is necessary to end cross-border fuel smuggling operations and that relinquishing state control of oil imports to corporations will allow more fuel to enter the country.
But privatization doesn’t end there.
The administration is negotiating with private companies from the US and Israel to open Bolivia’s massive lithium reserves to foreign investment, and Paz has reportedly reached out to US oil and gas companies to revive exploration and production. There aren’t many details available about these negotiations, but how much Bolivia will receive from the extraction of its resources will be the difference maker in Bolivia’s economic future.
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Paz also plans a slash-and-burn strategy of cutting spending by more than 30%, wants to repeal taxes on the richest Bolivians, and launched at least ten “Truth Commissions” to investigate previous administrations for corruption. Those administrations represent the Movement Toward Socialism (MAS) party, which has dominated Bolivian politics for decades. In other words, he’s going after his opponents (much like Trump has been trying to do), leading to the arrest and detention of former Bolivian President Luis Arce.
Bolivia’s economy was fragile before Paz took office, but inflation is projected to reach 22%, and food prices are expected to increase by as much as 58% under his policies as the country continues to face severe shortages of US dollars. While Paz argues that these “historic decisions” are necessary to rescue the “fatherland,” the rapid shift to his model after two decades of state control will likely leave the nation in a tense and uncertain economic future.
Will the policies that have consistently failed Latin America finally succeed in Bolivia? It’s doubtful.
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