1012912017 {An adjustment othe exchange-rate regime is overdue Bolivia An adjustment to the exchange-rate regime is overdue ‘an Index forthe rel effective exchange-rate (REER) compiled by the Eanco Cental de Bolivia (ECB, the Central Bank) shows thatthe bolivano appreciated steally in 2014 resulting in a 9.38 increase In ts trade-welghted value over the fll yea, which followed a 9k increase in 2015. This Sucks a reglnal trend that has seen many malor currencies depreciating sharply in recent months, ang raises questions ove the sustalnabllly of the bolviane's erawling-peg exchange rate with the US dollar. ‘The Central tank has stood by is official policy of operating a rauling-pes exchange rate vithin 3 tracing band measures against the US dolar, This is designed to meet the in goals ‘of maintaining currency stabilty and expert competitiveness However, the monetary Authorty stopped adjusting te currency in Noversber 2011 and has kept the sell ate fixed Against the US daliar at Bs6.96:USS1 ever since. The change Instance was driven by the ‘goveroment, which has prlontsed its domestic policy agenda of contaling ination ané Boosting consumer purchasing power aver the need to maintain export competitiveness Peg sustainability in question The strong currency regime wa sustainable n the context of a weakening US dolar (owing £2 the ulra-loase monetary polcy employes bythe Federal Reserve—the US cental banke—since 2008) and a large balance-of- payments surplus (an average of 7.2% between 2005 and 2013) ‘that lea to Steady accumulation of net intermatonal reserves. However these tends are now being thrown ito reverse. The side in international pies for Bolivia's ll and exinerals “exports has rapicly shane the Wade surplus since the third quarter of 2014 3nd slowed reserves grow. Furthermore, tighter monetary policy ison the imminent horizon inte US, {riving up te value of the US dollar and witht the REER value ofthe boliano. Adaing to ‘these pressures is currency depreciation aiong some of Balva's mar trading partners, such as Argentina, rail and Venezuela, ‘The impact on Bolivia's export sector, particularly for manufactured gooes, has been die witha notable upturn in imports of cheaper Imported goods. Food products, textles, shoes find other consumer goods have laoded the local marke, uncermining local producers. A Toss of value-added manufacturing jobs Is already widely noted across the county. Business leaders have lng complained that government paliey was harming thelr ality to compete And export, but the amour fora renewal of the former system of gradual crawing-eg ‘deprecation has grown much louder since the start of 2015. ‘No immediate pressure to devalue Weak tks to international financial markets an a lack of short-term portfolio investment largely insulate Bali's currency from hot money flows that might otherwise bring pressure to bear onthe currency, especialy ering peviods af rik aversion to emerging markets. Tris rakes i relatively easy for the authorities fo continue to pursue a stong currency poi that in turn helps to keep the price of imported goods down. Given the boost to real incomes that ‘this provies, and in te context of slowing economic growth, the government and menetary uthorties wil continae to resist abandoning the strong currency fh ‘return to gradual currency depreciation after such along periogof stability would also cary polkical and fnancial-sector risk. The strong currency policy has proved popular, encouraging the growrh of savings depests in local currency anda steady de-dollaristion of the economy. Any change of tack could produce a backlash, with te sucden withdrawal of deposits and a spike in demand for US dois, as rumours ofa more marked devaluaton and 19805-sile exchange contols would inevitably emerge. However, urless the cutrences of olivia’ malor trading partners reverse ther recent depreciating trend or the US dollar weakens unexpectedly, neither of which form par of our central forecast, export “ompetitivenes wl continue tobe eroded. The loss of export iversty wl rise dependency ‘oman increasingly narow range of rv commodities exports, increasing exposure to commodity price weakness that wil eventualy aise balance-of-payments sks “The produ alenge in an Ameren Conese and La American fees hte hntpzcounty.ot.comartcle aspx atte 1073128691&Country=Bolwiatopie=Economy 421012912017 ‘An adjusiment othe exchange-rate regime is overdue hntpleounty. ot. comiartele.aspxartcloid=10731286918&Countty=GolliaBtope=Economy 22