Another "Gasolinazo"? – The continuing drift of the Bolivian economy

(Gasolinazo = Gas Price Hike)

Since the failed “Gasolinazo” of December 26th 2010, uncertainty has been cast on the Bolivian economy and the Bolivian people are worrying, awaiting a new economic measure in the weeks to come.

Is this statement true or just another speculation of an economic analyst, trying to create uncertainty among the Bolivian population?

The answer is found in the official declarations made by President Evo Morales’ government officials between the 26th and the 31st of December 2010. The authorities justified the price hike for gas with the following reasons:

1. Hydrocarbon liquids production in Bolivia fell from 48.556 barrels per day in 2005 to 40.743 barrels per day in 2009.

2. The government spent $660 million in imports and $380 million in subsidies for hydrocarbons in 2010, totaling $1.040 million.

3. The low subsidized price of hydrocarbons in Bolivia encourages smuggling to neighboring countries. The government has lost the fight against smuggling, as hydrocarbons are smuggled abroad even in “baby bottles”.

4. If the Government does not take adequate action, it will need $1,000 million for 2011, solely to import hydrocarbons.

As the citizens of El Alto and the miners from Huanuni threatened to march against La Paz on January 3rd 2011, President Evo Morales backtracked and nullified Supreme Decree No. 748, which had raised gas and diesel prices tremendously.

What has happened since December 31st 2010, the day Supreme Decree No. 748 was repealed?

The Government has tried to raise new financial resources in order to lighten the financial pressure hydrocarbon imports and subsidies are exerting on the national budget. Among several measures taken, the most important ones have been:

a) New taxes for independent professional consultants.

b) Higher taxes on casinos.

c) A law to centralize revenue of local and regional governments.

d) The legalization of cars smuggled into the country.

None of these measures has managed to cover the high costs of hydrocarbons imports and subsidies.

The most effective measure to raise financial resources was the legalization of smuggled cars: 128,000 cars have been legalized, generating an additional income for the Government fluctuating between $260 million and $520 million. However, this measure is not enough to cover the $1 billion needed for hydrocarbons imports and subsidies.

Therefore, the reasons government officials invoked to justify the “Gasolinazo” in December 2010 have not disappeared; on the contrary, the situation has worsened.

1. The production of hydrocarbons liquids does not cover the needs of the domestic market.

a. According to YPFB, liquids production increased by just 5% from 2009 to 2010, from 40.75 million barrels per day to 42.82 million barrels per day. YPFB said that "Diesel Oil imports during 2010 have averaged 365,232 barrels per month, representing a 7% increase with regards to 2009." In 2009, 339,826 barrels per month were imported.

2. Oil imports have increased.

a. According to the National Statistics Institute (INE), fuel and lubricant imports were $288.78 million from January to May 2010, while from January to May 2011 imports rose to $344.29 million.

3. The fight against smuggling has failed miserably.

a. The legalization of 128,000 smuggled cars is the clearest evidence that smuggling has defeated the government.

4. The measures taken by the Government fail to cover the fiscal gap of $1.040 million the Government reached in 2010

a. Certainly, hydrocarbon imports and subsidies will rise in 2011 due to the legalization of cars that entered the country illegally.

The causes of the failed "Gasolinazo" remain present and have even been accentuated. Consequently, the concern of the Bolivian population has not dissipated and has even increased.

What will the Government do to solve the issue of hydrocarbon imports and subsidization?

Increasing production is the only solution; however, the low investments in the hydrocarbons sector in recent years have postponed this solution to the medium or to the long term.

What will the Government do in the short term to solve the problem? Another hard “Gasolinazo”? Or a gradual “Gasolinazo” where prices would only increase slowly but certainly?

The Government has an obligation to speak the truth and give a clear answer to the people. The longer the Government waits to act, the more the economic situation will worsen.

The Bolivian economy, befallen by uncertainty, continues to drift.

Julio G. A. Alvarado

Diplomat
University Professor
International Trade Specialist
La Paz - Bolivia
julgas@gmx.net
http://alvaradojulio.blogspot.com/