The victory of Rodrigo Paz in Bolivia’s second-round presidential election ushers in a sharp change in the way the country is governed. For two decades, Bolivian politics have been dominated by the left-wing Movimiento al Socialismo (MAS) party, led for much of that time by Evo Morales, originally a leader of Bolivia’s coca farmers from the Chapare district of Cochabamba. Under Paz, a centre-right politician, policy will shift in a pro-business direction. On taking office on 8 November, he will announce a tough set of measures to tackle Bolivia’s economic problems, notably large fiscal and balance-of-payments deficits.

The MAS found itself trounced in the first round of election on August 17, with the official MAS candidate winning only 3 per cent of valid votes. This was largely due to the splits in its ranks caused by the feud between Morales and incumbent president Luis Arce Catacora, but exacerbated by the Arce government’s failure to resolve the country’s economic problems. Rising inflation and fuel shortages had angered voters. Also, to spite Arce, Morales appealed to voters to nullify their ballot papers, a plea heeded by 22 per cent of them. Many former MAS voters appear to have opted for Paz as preferable to his harder-line right-wing opponent Jorge ‘Tuto’ Quiroga.

Paz beat Jorge ‘Tuto’ Quiroga by a margin of 55 to 45 per cent, having emerged surprisingly from relative obscurity in the first round on 17 August, with both men beating the pollsters’ favourite, Samuel Doria Medina, a prominent businessman. Paz is the scion of an important political family, the son of Jaime Paz Zamora, president from 1989 to 1993. He is also the grand nephew of Víctor Paz Estenssoro, the leader of the 1952 Bolivian revolution, who occupied the presidency for three terms (1952-56, 1960-64 and 1985-89). For his part, Quiroga was president between 2001 and 2002. As vice-president to Hugo Banzer Suárez, a former dictator (1971-78) elected in 1997, Quiroga succeeded Banzer when the latter retired due to ill health.

Since 2005, when Morales was elected in a landslide election, Bolivia (renowned for its turbulent political history, peppered with military coups) has enjoyed relative stability. Morales was himself toppled in a right-wing power grab in 2019, but this regime proved short-lived. The MAS returned to office in 2020 with Arce, Morales’ long-serving finance minister, at the helm. Under Arce, however, rifts quickly emerged between himself and Morales that fatally weakened its authority. His government was hobbled by growing economic problems and the exhaustion of the state-led model espoused by Morales since his first election in 2005.

Under Paz, economic policy will swing back to a more liberal, less interventionist model, probably starting with a stabilisation package involving a devaluation, monetary reforms, and cuts in public spending. Unlike Quiroga, he has promised not to seek an IMF loan with accompanying policy conditions. It is far from clear, however, whether the central bank has sufficient hard currency to stabilise the economy without such external support. He has promised a formula of ‘capitalism for all’, in which pro-business policies will bring benefit to the population as a whole. However, ‘trickle down’ mechanisms in Bolivia are notoriously weak.

Despite improvements under the MAS, Bolivia remains one of Latin America’s poorest countries and one of its more unequal. Poverty rates are particularly high in rural areas where social divides are reinforced by ethnicity. According to the 2024 census, 38 per cent of the population self-identify as ‘indigenous’. Rural poverty has fuelled massive urban migration in recent decades, as well as migration from the traditionally poverty-stricken Andean highlands in the south and west towards the more prosperous northern and eastern lowlands. For the first time, the census shows the population of Santa Cruz, the country’s economic hub, exceeding that of La Paz.

Bolivia has seen notable shifts in the direction of economic policy since the 1950s when the 1952 revolution ushered in a tide of state-led developmentalism based on import substitutive policies. This was abandoned in the mid-1980s when, in the wake of the Latin American debt crisis, the Paz Estenssoro government ushered in radical policies to liberalise the economy and to promote private investment. The victory of the MAS in 2005 underscored the failings of those policies to improve living standards for Bolivia’s poor majority.

The MAS administration, distrusted by the business community, sought to increase the role of the state and to direct available resources towards boosting employment and wages. It was greatly helped by the boom in world commodity prices in the decade between 2004 and 2014 which boosted tax returns from the export of natural gas to neighbouring Brazil and Argentina. However, the decline in prices since then – and the cut-off in exports to Argentina following the discovery of large reserves of gas there – reduced these fiscal inflows while the lack of investment led to a sharp decline in gas reserves. At the same time, both the Morales and Arce governments maintained a costly system of subsidies on imported petrol and diesel. The Paz administration needs to find a way of cutting these subsidies while encouraging private investment in gas production as well as in other sectors.

One area of development will be in the production of lithium, a key mineral for the global energy transition. Bolivia is believed to have the world’s largest lithium reserves in the immense salt flats of the high Andes. It has been slow to develop these under the MAS administration, hampered by lack of finance and technology. Recently deals have been reached with Chinese and Russian firms, but the contracts have been much criticised in the main producer departments (Potosí and Oruro) for failing to take local needs into account.

During the election campaign, Paz promised a new deal for sub-national government, responding to longstanding claims that Bolivia’s regions receive unfair treatment in the distribution of fiscal resources. Since the 1950s, departmental authorities in Santa Cruz have sought to claim a larger slice of government revenues, initially claiming its role as the main provider of hydrocarbons. Political divisions between the more conservative east of the country and leftward-leaning western regions erupted in 2008. The eastern departments of Santa Cruz, Beni, Tarija and Pando (known as the ‘half-moon’) rose in violent conflict against the MAS government in La Paz, demanding much greater autonomy. Paz has offered what he calls a 50-50 solution in which tax receipts would be shared equally between the central government and those of departments and municipalities. With sub-national elections due in April 2026, redistribution is likely to be a major issue.

Paz has also promised to restore full diplomatic relations with the United States. These were broken in 2008 following Bolivia’s decision to expel officials from the Drug Enforcement Administration (DEA) and subsequently those of USAID. It was the so-called ‘war on drugs’ conducted against coca producers in the Chapare in the 1990s that led to the emergence of the MAS, with Morales as its foremost leader. Anti-American nationalism has a long history in Bolivia, beginning in the 1930s with the nationalisation of Standard Oil’s operations. It remains a powerful ingredient in local political culture. However, given its distance from the United States and the relatively small volume of US trade and investment, Washington has tended to lack leverage over the country. An agreement with the IMF, however, would require support from the US Treasury. Bolivia will also want to keep open its trade and investment ties with China.

A key problem facing the new government will be how to respond to likely opposition to its economic policies, especially if these involve substantial hardship for the majority of the population. Although the MAS no longer enjoys any substantial parliamentary representation, the social movements on which it has long been based remain active, and the rifts caused by the leadership split in the party, will close in defence of the popular economy. Specifically, Paz will need to decide how to respond to the likely challenge from Morales, who remains the leader of the coca farmers of the Chapare and will be defended by them.