Bolivia's Paz tests fragile coalition with reform push, IMF deal

LA PAZ, Aug 11 - Just nine months after taking office as Bolivia's president amid a broader rightward shift in Latin America, Rodrigo Paz faces an uphill battle in winning backing for a package of market-oriented reforms even as his governing coalition fractures.

Paz, who took office in November, is expected to send an Investment Law to Congress on August 11. It is the first in a series of measures aimed at luring private firms to Bolivia through a more competitive tax and royalty regime.

The center-right government, which has forged close ties with U.S. President Donald Trump, also plans to loosen state control over the energy and mining sectors through a series of bills expected in the coming months.

The measure marks a historic shift in the country's energy policy, differing from leftist former President Evo Morales' state-centered development with his Movement Towards Socialism party, or MAS. Morales nationalized the sector between 2006 and 2012, affecting contracts held by foreign companies.

The legislation is central to Paz's efforts to revive growth, attract foreign investment and support a $1.9 billion IMF program designed to stabilize Bolivia's crisis-hit economy.

Under the broader reform package, the government plans to overhaul Bolivia's oil and gas sector, reducing the role of state companies and opening strategic industries to greater private investment after nearly two decades of state-led policies under the leftist MAS.

Officials have proposed to cap the combined tax and royalty burden on energy companies at around 50% to rival regional peers like Peru and Argentina, offer incentives for new exploration projects and reduce the role of state energy firm YPFB.

The administration also plans to strengthen legal protections for investors, respect existing contracts and allow greater private-sector participation in electricity generation and trade.

Analysts say the congressional debate will provide an early measure of Paz's political strength as his center-right alliance shows signs of unraveling. MAS was badly weakened in the 2025 election, but congress remains fragmented among six center-right blocs with uncertain priorities.

Building a coalition "is the government's challenge at this moment," said political analyst Andrés Gómez, an independent and professor at the Universidad Mayor de San Andrés in La Paz.

Lawmakers interviewed by Reuters said divisions between — and within — parties have left the government without a reliable legislative majority, forcing it to negotiate support on a bill-by-bill basis.

"All they do is ask for loans and more loans without changing the economic model that led the country into crisis," said Carlos Alarcón of the right-leaning Unity Alliance. The coalition, an early supporter of Paz that holds roughly a fifth of congressional seats, has become increasingly critical of his management of public finances.

Divisions have also emerged within the ruling Christian Democratic Party, or PDC, including tensions between Paz and Vice President Edmand Lara, while several former allies have left the cabinet.

Still, PDC lawmaker Claudia Bilbao said the government continues to negotiate across party lines.

"We are working with everyone, from the president to the last member of Congress, to help pull the country out of the bankruptcy-like situation we found it in," Bilbao told Reuters.

ROADBLOCKS

Paz's attempts earlier this year to cut public spending and roll back long-standing fuel subsidies triggered protests and roadblocks, exposing the limits of his political mandate.

Several groups have threatened to return to the streets from October, including transport workers, rural organizations and market traders from Bolivia's main cities.

Bolivia's economy, seen contracting 3.3% in 2026, has been hit by shrinking natural gas output, nearly exhausted foreign-currency reserves and fiscal deficits above 10% of GDP, according to the IMF.

The country's three-year IMF agreement reached in July is pending congressional and IMF Board approval. The $1.9 billion program would be Bolivia's first multi-year arrangement with the Fund since 2006 and could unlock at least $5 billion from multilateral lenders.

Senator Branko Marinkovic of the conservative Free Alliance said that fresh financing was necessary, but that the IMF funds alone wouldn't fix Bolivia's underlying problems.

"The IMF is an option we must take," said Marinkovic, whose alliance is led by one of Paz's 2025 election rivals. "The issue is what you do to put the economy in a position to repay those loans later," he added.

"The $1.9 billion does not fundamentally move Bolivia's solvency arithmetic," said Jonathan Fortun, senior economist at the Institute of International Finance.

Fortun said the IMF program would ease Bolivia's immediate financing pressures but would not by itself restore debt sustainability. He argued the government would need to reduce fuel subsidy costs, curbing support for state-owned companies and narrowing the fiscal deficit, which has been largely financed by the central bank.

"What the program can do is anchor a framework and unlock the others," added Fortun.

MAS politicians and other left-wing lawmakers have voiced skepticism about the IMF program, arguing it could lead to further austerity measures and criticizing the government for negotiating with the lender without fully disclosing the terms.

"They are already doing everything the (IMF) is demanding of them," lawmaker Rolando Pacheco from the leftist Popular Alliance, which holds eight congressional seats, told Reuters. "More cuts to public spending, a flexible exchange rate, a new interest-rate policy, but they are negotiating quietly. Any agreement reached with the IMF has to go through Parliament. The president has to show us all the documents. We need to know what commitments he is making."

Opposition lawmaker Alejandro Reyes of the right-leaning Unity Alliance said congressional scrutiny of both the IMF program and reform package would be intense.

"There must be transparency and accountability," Reyes said. "We need to know, dollar by dollar, where the money goes." REUTERS