Bolivia's gas boom collapses as inflation hits three-decade high

Economists blame rentier-state model and offshore capital flight

At La Paz’s Rodríguez market, vegetable seller Felipa Huanca said some imported staples have roughly doubled in price. “Because prices are so high, people are buying less and switching to the cheapest options,” Huanca said. “Wages just aren’t keeping up.”

Bolivia’s downturn is rooted in the boom that began in 2006, when Evo Morales took control of the hydrocarbons sector and renegotiated contracts with foreign companies. The move coincided with high global fuel prices and brought an economic windfall to one of the poorest nations in the Americas. Flush with cash, the country expanded social programs, halved poverty rates, commissioned the Casa Grande del Pueblo — a $34m presidential skyscraper inaugurated in 2018 — and installed the world’s longest urban cable car network in La Paz.

But rather than investing in industrial diversification, successive governments channeled profits into heavy state spending, costly fuel subsidies, and a fixed currency exchange rate pegged to the U.S. dollar, economists said.

Experts say sustained prosperity would have required investment in core economic pillars: steel and aluminium plants, agriculture, education, and healthcare. Diversifying revenue away from a single commodity was equally essential.

“We failed to take advantage of a historic opportunity that brought in immense revenue,” said Luis Fernando Romero, the former head of an association of economists in southern Bolivia.

The pattern left Bolivia in what economists describe as a classic rentier-state model, in which state revenues depend on exporting raw natural resources rather than building domestic industries. Andrés Arauz, a former chief operating officer of the Central Bank of Ecuador and a senior research fellow at the Center for Economic and Policy Research, said the comparison with Qatar and Norway illustrates the stakes.

“If you compare other petrol states like Qatar and Norway, it’s not the fact of having a large and state-owned hydrocarbon industry that determines your fate,” Arauz said. “It’s whether the private sector development, diversification, domestic market and poverty alleviation efforts are accompanying that.”

In Bolivia, those parallel investments never materialized, the economists said. While some economists blame hydrocarbon nationalisation for Bolivia’s decline, Arauz noted that the failure to regulate offshore capital is often ignored. Arauz pointed to an estimated $10bn in capital held by Bolivian elites offshore — roughly an eighth of the country’s GDP, which he called an underestimate. “It’s not that poor people have a little bit more money,” Arauz said, referencing the macroeconomic stability that state hydrocarbon control brought. “The bigger factor is that rich people are taking their money out and that there is no response from the domestic elites in establishing an industrial economy.”

After the 2014 commodity crash, Bolivia’s foreign reserves dwindled as the government sustained fuel subsidies and the dollar peg, printing money to cover deficits. The fixed exchange rate boosted cheap imports and consumer power but hurt local industry by fostering import reliance, according to Carlos Arze, a Cedla hydrocarbons expert. Cheap dollars also grew the informal labor sector to 84% in 2024, the highest in Latin America, Arze said.

Dollar shortages and a parallel exchange rate continue to discourage industry. “Speculating on the exchange rate can be more profitable than legitimate business,” Arauz said.

A $1.9bn loan from the International Monetary Fund in July has mostly serviced debt or added reserves rather than supporting economic diversification, Romero said. Foreign investors remain wary of Bolivia, he added, citing the country’s regulatory complexity, technological hurdles, and dollar shortages.

In June, the government lifted the 15-year-old peg on the dollar exchange rate; in December, it cut fuel subsidies with little support for vulnerable households. After austerity and agroindustry-favoring land reforms, protesters called for President Rodrigo Paz’s resignation. His government has since announced that the state hydrocarbons firm will pivot to focus on exploration, extraction, and refining.

With estimates that Bolivia will become a net fossil gas importer by about 2030, the growing goldmining and agroindustry sectors are becoming the country’s next frontiers in an export-oriented rentier model. “It’s a repeating story of natural resource dependence,” said Carlos Arze, the Cedla hydrocarbons expert. Bolivia exported £145m worth of Brazil nuts in 2024, double the value of its timber sector; gold exports were reportedly worth £890m in 2025, though far more was trafficked illegally.

In Bolivia’s Amazonian lowlands, Indigenous and peasant communities have long practiced an alternative economic model based on harvesting wild Brazil nuts, açaí, and cacao — non-timber forest products that thrive without clearcutting. Vincent Vos, a biologist who has lived and worked in the Bolivian Amazon since 2002, said these “bioeconomies” can generate income while leaving forests intact.

“Each dollar you invest benefits a lot of different people,” Vos said. “You can harvest soya for about 10 years and then your land is destroyed. But when you harvest Brazil nuts, you can do it until eternity.”

Vos cautioned that mining and agroindustrial lobbies hold increasing power over a government that has sidelined environmental policy. “Cacao and açaí don’t have any power whatsoever compared to that,” he said.

Arauz also cautioned against dependence on exporting yet another commodity. “To just continue exporting raw materials — whether they are more niche-based or even fair trade-based — is not enough to transform a national economy,” he said. “You can’t just bet everything on export markets without consciously and proactively transforming domestic ones.”

For vendors like Rosmery Vega, another seller at La Paz’s Rodríguez market, the diagnosis is more pointed. “Our politicians are to blame — they’ve failed to manage this country,” Vega said. “They’re financially comfortable, but it’s us ordinary people who suffer.”