Bitter political fight in Bolivia is paralysing the government as unrest boils over economic crisis

Bolivia's financial quagmire stems, at least in part, from an unprecedented rift at the highest levels of the governing party.

President Luis Arce and his one-time ally, leftist icon and former President Evo Morales, are battling for the future of Bolivia's splintering Movement for Socialism, known by its Spanish acronym MAS, ahead of elections in 2025.

The political fight has paralyzed the government's efforts to deal with the deepening economic despair and analysts warn that the social unrest could explode in the historically turbulent nation of 12 million people.

Cracks in the governing party opened in 2019, when Morales, then Bolivia’s first Indigenous president, ran for an unconstitutional third term. He won a contested vote plagued by allegations of fraud, setting off mass protests that caused 36 deaths and prompted Morales to resign and flee the country.

After an interim government took control in what MAS called a coup, Morales' chosen successor, Arce, won election on a campaign promise to restore prosperity to Bolivia, once Latin America’s mainstay source of natural gas.

Arce had been Morales' finance minister who oversaw years of strong growth and low inflation, but assuming the presidency in 2020, he encountered a bleak economic reckoning from the coronavirus pandemic. Diminished gas production sealed the end of Bolivia's budget-busting economic model.

Still hugely popular among Bolivia’s Indigenous communities, coca growers and union workers, Morales saw an opportunity. After returning from exile, the charismatic populist announced plans last year to run in the 2025 vote — setting himself on a collision course with Arce, who is expected to seek re-election.

“Bolivia has an Indigenous majority and people will instinctively support someone like Morales based on what he represents,” said Diego von Vacano, an expert in Bolivian politics at Texas A&M University and former informal adviser to Arce. “Now they have the push factor, the lack of success of the Arce administration."

Earlier this month, Morales drew tens of thousands of loyalists to Cochabamba southeast of La Paz, galvanizing his rural stronghold.

“We're going to win the elections and we're going to save Bolivia,” a triumphant Morales bellowed in a stadium filled with cheering supporters waving wiphalas, the checkerboards of bright colors to represent Bolivia’s many peoples.

Arce disputes the legitimacy of Morales' campaign, arguing a 2023 constitutional court ruling bars him from running.

Legal experts say it’s not so clear-cut.

“We've seen both the politicians manipulate the courts to decide political issues that have major bearing on the constitution,” said Eduardo Rodríguez Veltzé, a Bolivian judge who served as president in 2005-2006.

Morales, who proclaimed in his speech that “we have complied with the rules,” has threatened to unleash mass unrest if he is disqualified from running.

Meanwhile, with the cash crunch denying access to dollars to pay suppliers abroad, Bolivian merchants have produced extraordinary scenes on the border with Brazil and Peru by clamoring to buy the U.S. currency at inflated prices in the neighboring countries.

When exchange shops in La Paz ran dry last year, Bolivians waited in line all night outside the Central Bank to get hard currency.

It's a striking contrast to Bolivia's boom at the turn of the 21st century. Buoyed by a windfall of export revenue, Morales' government pulled the poverty rate down to 15%, expanded the middle class and built up sprawling cities and roads.

Trouble began in 2014 when commodity prices plunged and the government dipped into its currency reserves to sustain spending. Then it drew on its gold reserves and even sold its dollar bonds locally.

“We ate up the savings and now we are scraping the pot,” said Gonzalo Chávez, economics professor at Bolivia's Catholic University.

With the government forking out $2 billion a year to import heavily subsidized gasoline in an effort to quell public discontent, the squeeze has tightened. The Fitch rating agency in February downgraded Bolivia’s debt deeper into junk territory, assigning it a CCC rating.

And the fight over MAS is exacerbating economic woes.

Morales’ allies in Bolivia's Congress have consistently thwarted Arce's attempts to take on debt that would relieve the pressure. Bolivia sits on a treasure trove of lithium, but lawmakers won't give Arce approval to let foreign companies extract it.

Arce calls the gridlock an “economic boycott" aimed at subverting his presidency.

Seeking to ease investor fears, Finance Minister Marcelo Montenegro denies there is any crisis. But the long lines of frustrated motorists outside gas stations suggest otherwise. In recent days, angry truckers have blocked roads and burned tires.

“Arce has dismantled our social organizations while abandoning his management of the economy,” said Jorge Cucho, an Indigenous leader and activist. “Prices have increased by 70%. Our salaries are no longer enough to go to the market.”

The tensions tearing at MAS offer Bolivia's opposition its first real shot at power since Morales won an unprecedented electoral majority in 2005. Centrist and conservative politicians have jumped into the field. But the opposition is fractured and its legitimacy is in question, with dozens of its politicians behind bars.

“The opposition has far more opportunities now due to the division," said Fernando Mayorga, a sociologist at Bolivia’s public university in Cochabamba. “So far, we've seen no signs that it can act on them.”

Bolivians who are incensed by Morales but disappointed by Arce say the country stands at a perilous crossroads.

“The people are asleep,” said Ibáñez, the union leader. “Soon they'll begin to rise up.”