Bloomberg Bolivia's precarious financial situation worsened Friday with Moody s Investors Service downgrading its debt and Congress failing to reach a deal to sell gold for much-needed dollars.
The South American country has been under pressure due to a shortage of foreign currency that has caused Bolivians to line up daily outside the central bank in La Paz to withdraw greenbacks.
Moody s said that low levels of foreign reserves could affect the country's macroeconomic stability and may affect its ability to service debt payments. The ratings agency cut the country two notches to Caa 1, on par with Nigeria, and placed it on review for further downgrades.
A bill in Congress that would have allowed the central bank to sell some of its gold reserves to give it a cash cushion didn't advance after more than seven hours of debate.
That is the truth, said opposition lawmaker Walthy Eg ez Paz.
It is not clear how much cash the central bank has left. The bank last reported holdings on February 8, when $372 million of its $3.5 billion in reserves was in dollars. At the peak in 2014, reserves were above $15 billion.
The central bank has been involved in a number of ways to keep the currency stable since 2008, which has resulted in burning reserves to prevent a devaluation.
The textbook balance of payments crisis is caused by an overvalued fixed exchange rate and persistent fiscal deficits, according to a report Friday by EMFI Group Limited analyst Matias Bensousan. The exchange rate is not protected by the fact that authorities refuse to abandon the peg and sell FX to protect the exchange rate despite the currency crisis turning into a bank run. Bolivia has made a $22.5 million coupon on its 2028 dollar bond this week, after the nation's debt started trading at distressed levels.
Money managers have ditched bonds due to the plunge in reserves, which raises concerns about its ability to keep payments. The yield has fallen 22 cents to 59 cents on the dollar this year, and the 2028 notes have fallen 22 cents to 17%, according to indicative pricing data collected by Bloomberg.
Fitch Ratings cut Bolivia's credit score last week, saying that the drop in reserves had prompted a confidence shock. S&P Global Ratings put Bolivia on a credit watch negative, signaling that the nation could be downgraded due to dollar outflows and a current-account deficit. Both credit assessors rate the country as B --, one level higher than Moody's score.
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