“Killing the goose that laid the golden egg”: Professor Ricardo Hausmann explains Bolivia’s economic crisis

Bolivians are experiencing an economic crisis. Fiscal challenges had been brewing for years, and came to a head in 2023 with recession, high inflation, a distorted exchange rate, fuel shortages, and a depleted pension fund. The nation’s reserves collapsed, and it faced a gaping fiscal deficit. 

None of this was inevitable, according to Harvard Kennedy School professor Ricardo Hausmann and his team at the Growth Lab. It also wasn’t a surprise. In a paper, Bolivia’s Economic Pivot: Main Findings and Reform Priorities, they write:

“Bolivia’s economic crisis is the predictable result of a development model that systematically dismantled the economic foundations on which economic growth depends.”

Hausmann, the Rafik Hariri Professor of the Practice of International Political Economy, and his team explored the roots of this crisis and considered what might help move the nation to stability. Over 18 months, with the support of an economic initiative called Bolivia 360, they learned from Bolivian government officials, international organizations, business leaders, industry associations, civil society representatives, and academic and policy experts to understand the experience of people across the nation.

The team writes that “the country has abundant natural resources, a young and growing workforce and a rich cultural heritage. In practice, every one of these assets is underutilized” today because the country lacks the structures and conditions the economy needs to thrive.

The crisis

Hausmann and his team say Bolivia’s crisis was “not the result of bad luck or external shocks,” but rather the nation’s choice to “crowd out private investment and long-term competitiveness” across the economy.

Bolivia’s economy once had enormous promise: in the late 1990s and early 2000s, the nation had a natural gas boom stoked by strong policy conditions for private investment.

“Gas output boomed and, between 2004 and 2014, so did prices. Tax revenues increased dramatically,” says Hausmann. “The government was able to increase spending —investments and social programs—and those were the happy days,” he says.

In 2006, the nation changed course, nationalizing the gas industry and severely restricting private investment in exploration, which dropped precipitously. Eventually, output also started to fall. As Hausmann puts it, “Bolivia killed the goose that laid the golden eggs.”

When the gas prices also fell in 2014, Bolivia “had the double whammy of having lower prices and also lower quantities, because now the private investment that had generated the production capacity was no longer there. The government did not respond by cutting spending.”

Over time, Bolivia’s economy no longer generated the tax revenue needed to maintain the government’s public spending plans. Natural gas production fell by 54 % between 2014 and 2025, and export volumes dropped by nearly 78%. As revenue from hydrocarbons dropped, the government didn’t adjust public spending, and the fiscal gap grew to over 12% of GDP in 2025.

Over and over again, he says, the government prioritized nationalized industry over private investment and competition. Restricting private airlines over a national airline, for instance, thwarted growth in tourism. The region is rich in mineral resources—but restricting private mining meant that while nearby Chile, Peru, and Argentina attracted significant investments in mines, Bolivia has had no new large mines since 2014. The government’s policies thwarted agricultural and lithium growth, too.

“They first responded by using the savings they had accumulated during the boom,” says Hausmann of the government, “and when those ran out, they started grabbing all the savings in the economy, savings in the banking system, savings in the pension system, and they started to print money. As a consequence, credit to the private sector including to small and medium enterprises decline significantly,” he explains.

As the nation continued to print money, he added, “they first lost all their reserves and then the currency suffered a massive devaluation, coupled with an acceleration of inflation, and stagnation in the economy.”

The exchange rate skyrocketed, inflation shot to above 20%, and fuel shortages further limited the economy’s capacity to produce.

When President Rodrigo Paz stepped into office in November 2025, succeeding Luis Arce, he took steps that improved the daily lives of Bolivians—such as reducing fuel shortages through imports, increasing gasoline prices and social transfers, and raising the national minimum wage by 20%. His government also secured some promising multilateral financing commitments—but the nation still has a long way to go before it can thrive economically.