Gasoline prices in Bolivia

Last Sunday the government of President Evo Morales suddenly announced that the fuel prices (gasoline and diesel) would increase with immediate effect. Until then, the fuel was subsidised because of the low wages in Bolivia. This meant that in many border areas fuel was being smuggled into neighboring countries (even on donkeys and llamas) because the prices there are much higher. The argument of the government was that in this way they subsidize the other countries for an amount of $150,000 per year (of the total subsidy of $380,000) – in itself a valid argument. And moreover they need the additional revenues. The prices of gas were not increased.

Such a large increase (57-82%) gives a tremendous shock in the economy. For a start start the price of public transport at the moment is in a state of anarchy. In Cochabamba the price of a bus was Bs. 1.50 (approx. € 0.15) within the city and Bs 2.00 to the surrounding cities of Quillacollo and Sacaba.

According to news reports, the transport authorities increased the price of Bs. 1.50 to Bs. 2.00. The transport sector had already asked for such an increase before . But we heard someone who paid Bs. 1.50 on the outward journey and Bs. 3.00 on the return journey. We had to pay Bs. 2.50 pay in the bus. And long-distance bus trips would be increased by 100%.

Transport costs are also effecting most products sold. It is therefore to be expected that all prices will rise, which will cause a substantial inflation. There were already some long queues reported. Probably, some shops will use the opportunity to put an extra increase on prices. Inflation in Bolivia was already on the high side, and now will get an additional boost. Because many Bolivians live on the brink of poverty or even below, people will not accept this. Already there are strikes, blockades and demonstrations. We heard from someone who had to return from La Paz, but was stuck there because of the strike of the buses. Yersterday there was a strike of the public transport in Cochabamba for 24 hours, but for next week an indefinite strike was announced.

No doubt there will be many more strikes, either to cancel this increase, or to enforce salary increases. The government expects a salary increase of 10-20% will be needed to calm the mind. For the police, military, medical professionals and teachers in public service a  salary increase of 20% has been promised. This will of course cause an inflationary spiral, like there was in the ’80s.

There has now even smuggling of diesel from Brazil been reported (i.e. the other way) because it is cheaper there now. It is striking that five years ago, Evo Morales was against a similar increase proposed by the previous president (Carlos Mesa), and even demanded that the president would resign. He called him the greatest enemy of Bolivia. Incidentally, he also said he would protest against this increase when he would have been a union leader. But he believes it is necessary for the economy of the country.

Update december 31 2010:

It is reported that the price of bread increased. A roll of bread which up to now cost Bs. 0.50, is raised to Bs. 0.70.

In the cities Oruro, El Alto and Llallagua reportedly 14.000 people have partaken in protest demonstrations. In these areas Evo Morales has many supporters, but now they are turning against him. The elections were earlier in 2010 and the presidential term is 5 years, so formally this is unimportant. Only it happens quite often in Bolivia that a president has to  resign because his position has become untenable. There haven’t been any military coups during the last 30 years.

Update januari 1, 2011:

President Evo Morales has cancelled the fuel price increase on New Year’s Eve.