Bolivia’s Financial and Regulatory Landscape Amid Economic Turbulence

Bolivia recently underwent a landmark election process aimed at selecting a new president and members of Congress who will serve for the next five years. The results were particularly significant, as the majority of elected officials represent political movements distinct from the left-wing administration that had governed the country for the past two decades.

The prevailing view is that this political shift was largely driven by the ongoing economic crisis. Indeed, there is currently a widespread shortage of fuel, particularly diesel, which has negatively affected all sectors of industry and, naturally, the population at large, as it has triggered a sharp increase in the prices of basic goods across local markets.

However, the fuel shortage appears to be a symptom of a deeper structural issue: the government’s excessive spending relative to its income. This imbalance has constrained the state’s capacity to meet its financial obligations, particularly those denominated in US dollars. Since Bolivia’s government holds a legal monopoly over the fuel supply, and these fuels are largely imported, payment delays in this sector have been especially significant.

In its efforts to secure the much-needed US currency, the government has effectively drained liquidity from the financial system. As a result, banks and other financial institutions have struggled to meet market demand for US dollars, facing challenges in executing international transfers and cash withdrawals. To address these issues, both de facto and formal restrictions have been imposed by banks and Bolivia’s financial regulator.

For instance, banks have implemented de facto limits on withdrawals and intra-bank transfers. Similar restrictions have been applied to the use of debit and credit cards abroad. These measures have heightened tensions between banks and their clients, many of whom argue that such limitations infringe upon their contractual and property rights.

At the same time, Bolivia’s financial regulator has introduced market control mechanisms that allow banks to charge transaction fees and rates for international transfers that are partially linked to the price of US dollars in the unregulated (or parallel) market. Naturally, this rate diverges significantly from the official selling exchange rate of BOB6.96 per USD, which remains mandatory for regulated financial institutions.

Impact on the banking sector and financial operations

The current liquidity shortage and regulatory uncertainty in Bolivia have had profound effects on the banking and financial markets. Financial institutions face increasing pressure to manage foreign currency exposure while ensuring compliance with central bank directives and prudential requirements. These challenges have reshaped lending practices, risk management and client relationships across the sector.

Cross-border operations, trade finance and syndicated loans have been particularly affected. Borrowers and lenders frequently seek to renegotiate payment terms or include hardship clauses to mitigate currency risk. For international investors, restrictions on US dollar withdrawals and transfers, combined with limited convertibility of the Boliviano, have heightened sovereign and transfer risk, prompting more cautious lending policies and stricter due diligence procedures.

From a legal standpoint, disputes have emerged over whether payments can be validly made in local currency when contracts stipulate US dollar obligations, and whether exchange-rate adjustments constitute a breach. These issues have emphasised the critical importance of precise contract drafting, including governing law clauses, arbitration provisions and well-structured force majeure terms.

Banks are also navigating a delicate balance between regulatory compliance and client relations. De facto restrictions imposed without formal regulatory backing have triggered litigation by depositors and corporate clients, raising questions about the scope of banks’ duties and their discretionary powers during financial emergencies.

Rise of crypto-assets as alternative means of payment

The shortage of US dollars has led consumers and businesses to seek alternative instruments for cross-border transactions. In practice, this has accelerated the adoption of widely known cryptocurrencies, particularly stablecoins such as USDT (ie, Tether) and USDC, which can be easily converted into US dollars through crypto-friendly accounts, thus enabling the Bolivian public to fulfil payment obligations abroad.

Unsurprisingly, this shift has raised a number of legal and regulatory challenges. To address them, Bolivia has taken steps to explicitly regulate services related to crypto-assets (eg, digital wallet services) and other emerging fintech activities. A dedicated anti-money laundering (AML) framework now applies to entities conducting the following types of activities in Bolivia:

• exchange between cryptocurrencies and fiat currencies;
• exchange between different types of cryptocurrencies;
• transfer of cryptocurrencies;
• custody or administration of crypto-assets or instruments granting control over them; and
• participation in or provision of financial services related to the offer or sale of cryptocurrencies.

In general terms, the framework requires entities to register with the local AML authority and extends its reach even to those conducting cross-border business. It is expected that the regime will include specific reporting and due diligence obligations, which will need to be further clarified through secondary regulations issued by the authority.

Additionally, a licensing regime has been introduced for entities engaging in these and other fintech-related activities (eg, blockchain-based solutions, crowdfunding platforms). Applicants must comply with specific requirements, including minimum capital thresholds, security and data protection protocols, and other operational standards.

However, the scope of this licensing regime remains somewhat unclear, particularly in relation to entities operating on a cross-border basis. While the prevailing interpretation among practitioners is that such provisions do not extend to offshore operators, some have argued that certain elements of the regulation could be construed otherwise, thereby introducing an element of legal uncertainty.

It is worth noting that the law governing the licensing regime expressly recognises the possibility of operating within a regulatory sandbox, which allows for the testing of innovative technological solutions under the supervision of local authorities. Broadly speaking, such framework authorises limited-time operations with predefined user caps, providing a controlled environment for regulatory experimentation.

Moreover, the use of crypto-assets has raised significant challenges in the legal and, particularly, fiscal realms. Questions remain regarding the applicability and impact of taxes such as VAT, the Transaction Tax (IT), and other obligations on the holding, sale and services related to cryptocurrencies. In addition, it is not yet entirely clear which accounting standards should govern the proper recording of these assets, creating further uncertainty for both businesses and financial institutions.

Recent measures by the outgoing government: Credit Deferral Law

In a final move before the change in administration, former President Luis Arce promulgated the Credit Deferral Law, which had been approved by the Legislative Assembly despite strong opposition from both the banking and business sectors. The law was promulgated following protests from social sectors over delays in its enactment.

The legislation mandates an automatic six-month deferral of payments for certain loans, primarily targeting social housing and microenterprise credits. This includes postponement of principal, interest and other related charges. In addition, all judicial actions related to debt collection, such as foreclosures, auctions, dispossessions and other enforcement measures, are suspended nationwide for the same six-month period.

Crucially, the law specifies that the deferral will not result in additional interest, penalties for late payment, compound interest or administrative costs. The government is required to issue a Supreme Decree within ten business days of the law’s publication to regulate its implementation.

The banking sector has voiced strong opposition, citing concerns that the measure will strain financial liquidity and limit their ability to extend new credit. Critics have also warned that the law may generate legal uncertainty, given its broad scope and the suspension of enforcement actions. Some political actors have expressed similar concerns, characterising the measure as potentially disruptive to the financial system and announcing intentions to reverse the deferral through future legislation.

Outlook: the financial system and the new administration

The new administration has announced an ambitious set of financial and economic measures aimed at restoring macroeconomic stability while promoting structural transformation and innovation. Chief among these is a proposal to introduce a managed exchange rate band system, which seeks to provide greater predictability to the US dollar market, mitigating the risks of abrupt devaluations while preserving a measure of monetary control.

Complementing this initiative is the creation of a Foreign Exchange Stabilization Fund. This fund would be financed through a combination of freely available resources negotiated with multilateral banks, debt relief mechanisms, and new capital inflows stemming from asset regularisation programmes. The latter would allow individuals to declare and repatriate assets, such as cash, bank accounts, real estate, vehicles, crypto-assets and credits, held domestically or abroad.

Although the new president initially stated that Bolivia would not resort to international credit, particularly from the IMF, to address the crisis, he has already secured a USD3.1 billion loan from the CAF. Government advisers have indicated that they will approach other similar multilateral institutions to complement the country’s financing needs.

Another key measure to face the crisis is the establishment of a Decarbonization Fund designed to support the transition towards a more sustainable energy matrix. The fund would finance household energy-efficiency projects, the replacement of urban transport units, and technical training programmes for workers and professionals involved in renewable energy and energy transition sectors. This measure is intended not only to reduce reliance on fossil fuels but also to stimulate new financing channels linked to environmental objectives.

Another notable policy proposal is the creation of a state-backed Mining Bank, aimed at formalising and integrating co-operative mining operations into the formal financial system. By offering direct credit facilities, this institution would reduce the sector’s dependence on foreign sources of financing, while broadening the state’s capacity for oversight and tax collection.

The government has also suggested a reduction of interest rates on commercial and consumer credit to below 10%, a move that could significantly alter the domestic credit market and the profitability structures of financial institutions.

Key takeaways

Bolivia’s recent political realignment reflects widespread public dissatisfaction with the previous administration amid an ongoing economic crisis. The scarcity of US dollars has created operational and legal challenges for banks, financial institutions and businesses. Lending practices have shifted, litigation has increased, and transfer and sovereign risks have grown.

Cross-border operations, trade finance and syndicated lending have been particularly affected. Financial actors are renegotiating terms, incorporating hardship clauses, and placing greater emphasis on precise contract drafting, including arbitration provisions and force majeure clauses. These measures are becoming essential for managing currency and operational risks.

The shortage of dollars has also accelerated the adoption of cryptocurrencies as alternative means of payment. Stablecoins such as USDT and USDC have become important tools for businesses and individuals to meet international obligations. Regulatory responses, including AML frameworks, licensing regimes and regulatory sandboxes, aim to encourage innovation while managing legal uncertainties.

At the same time, the use of crypto-assets has created significant legal and fiscal challenges. Questions remain regarding the applicability of VAT, transaction taxes, taxation on holdings and sales, and the accounting treatment of crypto-assets, which continues to be unclear.

Even traditional banks have been compelled to provide crypto-related services, offering custody, exchange and convertibility guarantees to facilitate international payments. This demonstrates how the crisis has pushed the entire financial sector to adapt and explore alternative instruments beyond conventional banking services.

Recent measures from the outgoing administration, such as the automatic six-month credit deferral for social housing and microenterprise loans, have raised concerns in the banking sector. These measures suspend loan repayments, judicial collections and related enforcement actions, potentially affecting liquidity and the capacity of banks to extend new credit. The financial sector has rejected these mandates, emphasising the operational and legal challenges of implementing such policies.

Looking ahead, the new administration’s proposed measures, such as the Foreign Exchange Stabilization Fund, the Decarbonization Fund, the state-backed Mining Bank, reductions in interest rates and a managed exchange rate band, seek to stabilise the economy and promote structural transformation. In addition, although the new administration initially expressed reluctance to rely on international credit, it has secured USD3.1 billion from the CAF and indicated plans to approach other multilateral institutions.

These initiatives present opportunities in fintech, green finance and expanded credit access. At the same time, they require careful risk management, regulatory compliance and proactive contract structuring. Market participants must remain attentive to evolving rules and market conditions to successfully navigate Bolivia’s complex and rapidly changing financial landscape.