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Socialists Retake Bolivia a Year After Morales Was Ousted

Bloomberg logo Bloomberg 10/19/2020 Matthew Bristow

(Bloomberg) -- Bolivia’s socialist movement is set to return to power a year after its leader Evo Morales was ousted and driven into exile. The nation’s bonds dropped after the surprise result.

a group of people posing for the camera: Bolivia Holds First Round Of Presidential Elections © Bloomberg Bolivia Holds First Round Of Presidential Elections

Luis Arce, center, and his supporters celebrate during a news conference at the party’s headquarters in La Paz, on Oct. 18.

Photographer: Marcelo Perez del Carpio/Bloomberg

Morales’s ally Luis Arce, a U.K.-educated economist, won the presidential election on Sunday, as his main rival, Carlos Mesa, conceded defeat.

“We accept the result and given the difference between the two candidates, don’t expect the tendency to change with the final official results,” Mesa said Monday.

The nation’s dollar bonds maturing in 2028 tumbled 4.6 cents on the dollar to 82.75, in the biggest daily decline since the first wave of the coronavirus pandemic hit in April. The notes now yield 7.77%.

chart: Nation's bonds sink most since April after Arce's decisive win © Bloomberg Nation's bonds sink most since April after Arce's decisive win

Arce claimed victory on Sunday night after an exit poll predicted he would win in a landslide -- with with 52.4% of the vote, compared with 31.5% for Mesa.

If confirmed by the official results, Bolivia’s socialist movement will reclaim power a year after Morales was driven out in what they regarded as a coup. Arce, 57, told supporters that Bolivia had recovered its democracy.

As of 5 p.m local time, results from fewer than 30% of voting stations had been tallied.

Bondholder Reaction

Arce, who studied at the University of Warwick in England, oversaw one of the region’s fastest growth rates as Morales’s finance minister from 2006 to 2017. That performance was at first underpinned by rising revenues from natural gas exports, but when gas prices fell in 2015, Arce ramped up spending, and the current account surplus turned into a deficit of more than 5% of gross domestic product.

Arce will have a harder task than he did when he was finance minister, though the likelihood of a debt restructuring is low in the short-term, said Claudia Calich, a London-based money manager at M&G Ltd., the fourth-largest reported holder of Bolivian bonds.

“This isn’t an Ecuador or Argentina for the next six to 12 months, but there could be greater challenges if they don’t put the proper policies in place and reassure investors,” Calich said in an interview.

Arce has said he will seek to renegotiate billions of dollars in loans with multilateral lenders such as the Inter-American Development Bank and the World Bank, while avoiding a default on the country’s bonds.

Read More: Socialist Frontrunner Seeks Debt Relief for Crisis-Hit Bolivia

He has also pledged to defend the currency peg of around 7 bolivianos per dollar, but said that this may depend on whether Bolivia’s neighbors allow further devaluations in their own currencies.

“His campaign policy was a continuity of what he did as economy minister. It was a state-centric, public investment-led, policy agenda,” said Filipe Gruppelli Carvalho, a Washington DC-based associate at Eurasia Group. “The thing that concerns me the most is that Arce is still going to promote the public investment-led economy that Evo had championed -- but with a much more challenging fiscal outlook.”

The economy, one of the poorest in the Americas, will contract 7.9% this year, according to a forecast from the International Monetary Fund.

Sunday’s vote was the first since last year’s chaotic election, which led to weeks of violent unrest. Since then, Bolivia has been run by Jeanine Anez’s unelected transition government, which Arce and his supporters have regarded as illegitimate.

(Updates with comment from bondholder in ninth paragraph)

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