Bolivia Analysis: The Failed Attempt to Cut Fuel Subsidies

Hat tip to EA reader Catmari for the sources for this analysis....

Yesterday we carried the report that the Bolivian Government of Evo Morales had abandoned, after only five days, its attempt to remove subsidies on fuel. Here is the wider context....

On Sunday, Vice-President Álvaro García Linera announced that the government would end the subsidies on gasoline and diesel fuel. García Linera claimed that the $380 million of subsidies had illegally benefited those selling fuel to neighbouring countries where the price was much higher.

With the cuts, the price of gasoline would increase by 73% and the price of diesel by 83%. Long lines formed at gasoline stations as drivers hoped to beat the rise. Bolivians reported on Twitter that prices for goods and services, including cement, bread, and lunches, were rising and that supermarkets were changing the prices on products on the shelves. Public transport was disrupted as syndicates decided what action to take. 

Some economists supported the measures, but most observers noted that “once again the people with low incomes will be the ones who sacrifice the most”. Groups who have supported Morales, like the Departmental Worker's Center and the Federation of Neighborhood Organizations in the City of El Alto, came out in opposition to the cuts. 

The Vice President had made the announcement because Morales was in Venezuela delivering aid to flood victims. If this was a political calculation to shield the President from any opposition, it was ineffective. Morales soon found himself having to defend the measure as police used tear gas to disperse hundreds of demonstrators on Monday. Teachers came out in protest, and bus drivers announced an open-ended strike.

On Thursday, powerful unions and civic groups announced further strikes and marches. Morales, in a nationally-televised address, announced a 20% increase in the "national salary", with the same rise "for the police, armed forces,and  the health and education sectors". He also said there would be economic improvements and incentives for farmers.

The steps were far from enough. Thousands of Bolivians lined up to withdraw money from bank accounts. The protests threatened to disrupt cities, blocking off roads. So on Saturday, the Morales Government ended one of the shortest-lived economic measures in history.