President Morales came to power in 2006, riding a wave of popular support. He was reelected in 2009 with 64 percent of the vote. Since he announced gasolinazo and oil prices skyrocketed, he now faces a 30 percent approval rating.
Although Bolivians do not agree with the policy of ending government fuel subsidies, there are many reasons to support of it. Fuel prices in Bolivia have been frozen since 2004. To achieve this freeze, the government has heavily subsidized fuel to maintain domestic supply and imports. However, since 2004, the demand for fuel in Bolivia has increased, but Bolivian production of oil has decreased. This widened the domestic gap and thus increased demand for fuel imports, further driving up the cost of imports. The Bolivian government of course must pay the cost of the resulting dramatic increase in fuel subsidies. The Vice-President of Bolivia estimates that fuel subsidies cost the government $380 million last year and would cost $660 million in 2011.
President Morales argues removing fuel subsidies will prevent “bleeding the economy.” Currently the Bolivian subsidies primarily benefit smugglers and neighboring countries. Gas prices in neighboring countries are not subsidized and are two to three times as high as in Bolivia. The subsidized gas is smuggled out of Bolivia and then resold in the neighboring countries at prices higher than in Bolivia but lower than market prices. Analysts estimate $150 million of the government subsidies was wasted on gas smuggled out of the country, creating a further negative effect on the Bolivian economy.
The government also insists that the removal of subsidies will stimulate oil exploration and production within Bolivia. Bolivia oil reserves are almost depleted, but companies have been unwilling to invest in exploration of more Bolivian sources because crude oil prices in Bolivia are frozen at $27 per barrel (less than a third of the international price). By removing the subsidies, the freeze on domestic crude oil prices also can be removed, and companies will be more likely to explore for oil within Bolivia. This would also help Bolivia overcome its current dependency on foreign oil sources.
President Morales argues that the subsidy removal was a “patriotic measure” designed to benefit the economy and redirect the subsidies from wasteful sources into programs to benefit Bolivian social and economic programs. Although Bolivians will be spending more on fuel, they will spend less in other areas, and more money will remain inside the country. These arguments have yet to convince the Bolivian people, but they could have more impact if the government implements concrete programs.
While many analysts agree the subsidy removal happened too abruptly, they agree that the subsidies are unsustainable and the government must eliminate them over time. Morales remains committed to ending the fuel subsidy, and he says he is working on a revised policy “in consultation with the people.”
Others are proposing solutions as well. Unaderena, a group seeking alternatives to the gasolinazo, suggests that the government take full control over all Bolivian hydrocarbon production. While Bolivia is a major exporter of natural gas, it wastes an estimated $700 million per year when it sells natural gas to Brazil without first separating liquids from the natural gas that can be converted into petroleum products. Another group suggests developing new natural gas reserves within Bolivia that are only provided to the domestic market. By increasing the availability of natural gas within Bolivia’s market, the group hopes to decrease dependency on foreign oil.
The Bolivian government faces a precarious future of balancing spending cuts with placating the people. While President Morales will most likely act more slowly this time around, further change must also begin soon.