Bolivia started with its exchange rate fixed and limited monetary policy. It then had a period of frequent exchange rate adjustments plus ineffective monetary policy, before a long period of more or less managed floating, dollarisation and some fiscal dominance, with slow and erratic monetary and financial reforms producing limited improvements in policy effectiveness.
|Years||Targets and attainment||Classification|
|1974-79||exchange rate fixed to USD from February 1973, central bank participates in many forex transactions and sets rates for others; some basic monetary policy operations including setting of reserve requirements and interest rates but monetary policy largely accommodative; fiscal deficit varies, much of it financed from abroad; 1973-4 rises in global oil and metal prices lead over period to expansion but growing fiscal and balance of payments deficits and then rising inflation; some deposit dollarisation, also exchange-rate guaranteed deposits||augmented exchange rate fix AERF|
|1980-88||official peg formally suspended November 1979 but in practice continued until large devaluation early 1982 followed by short-lived dual exchange market (in attempt to control growing parallel market) and then repeated further nominal devaluations, large but not large enough to offset very high inflation (especially 1985), with soaring parallel market premium; exchange controls from mid-1981; various attempts at monetary tightening including end of exchange rate guarantee on deposits, but heavy central bank credit growth; short-lived attempt to enforce ‘de-dollarisation’ late 1982, with heavy costs to banks; from mid-1985 partly successful attempts at stabilisation, including repeated devaluations, daily forex auction by central bank (which mostly eliminates parallel market premium), end to central bank financing of nonfinancial public sector and currency reform 1987, but widening current account deficit, plus some financial liberalisation||unstructured discretion UD|
|1989-2017||1989-2008 managed float with continual depreciation, close to de facto crawling peg, roughly offsetting inflation initially of 15-20%, but later below 10% and later still 5% (but more volatile and sometimes > 5% post-GFC); main monetary instrument is placement of central bank certificates of deposit (and later Treasury notes) with banks at varying interest rates, in context of very high dollarisation with most financial operations in USD, which limits role for monetary policy; some further financial sector reform; fiscal deficits and their monetary financing vary but are sometimes important; by mid-2000s inflation low, financial markets more developed and dollarisation declining; mid-2005 crawl reversed to produce limited appreciation; de facto peg to USD for two years from late 2008 in response to GFC, then small appreciation, then stability; use of central bank for developmental financing; rapid monetary response to food price hikes post-GFC; in later years authorities resist IMF pressures for smaller fiscal deficits, more flexibility of exchange rate (which IMF now believes is overvalued), more central bank independence, and end to central bank funding of SOEs||loosely structured discretion LSD|
Selected IMF references: RED 1975 pp22-5; RED 1976 p58; RED 1977 pp17-18; SR 1979 pp1-4, 8; RED 1982 pp23-4, 34-6; RED 1984 pp30-2, 43-7; SR 1985 pp9-10; RED 1986 pp1-4, 30-7, 53-6; SR 1988 pp4-8; RED 1991 pp31-2, 38-41, 56; RED 1994 pp32, 36-9, 54-5; RED 1996 pp28, 33; SR 1996 pp2-5, 46-51; SR 1997 pp14, 19-20; SR 1999 p10; SISA 2003 pp15-20; SI 2007 pp35-6, 46-54; SR 2007 pp6, 10-11; SR 2009 pp8-13; SR 2011 p12; SR 2012 pp10-11; SR 2013 pp11-12; SI 2015 pp16-19; SR 2015 pp6, 14; SR 2016 pp14-15, 20; SR 2018 pp22-3.
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