Three months after the new government took office, Bolivia is moving closer to a resolution of its long-simmering FX crisis, with preliminary IMF talks underway and rallying debt markets.

At the same time, the macro picture is still bleak. The black market exchange rate has already depreciated rapidly, local inflation is running at 20% y/y and FX controls have been hurting the export sector. Again, any remaining logic in hanging on to the boliviano peg has long since disappeared and the only path forward is to let it go.

The real question is whether this happens in an orderly manner, with accompanying fiscal austerity, a true currency liberalization and IMF support, or whether Bolivia will try to muddle through with half measures, prolonging the chaos. In the former case we could still see Bolivian dollar sovereign spreads tighten further; in the latter, we would expect retrenchment.