16 Sep Is a “Gasolinazo” a Viable Solution to Bolivia’s Fiscal Problem?
Let me begin with the answer: No—not with the current levels of gasoline, diesel, and CNG production.
You may wonder why I pose such a provocative question. Allow me to explain. Over the past few months, I’ve been working on a project designed to evaluate potential solutions to the macroeconomic imbalances currently affecting our country.
As part of this effort, I’ve been revisiting the general equilibrium models developed in Bolivia, starting with the one created by Juan Cariaga in the 1980s. That model aimed to address the severe fiscal imbalance of the time. Juan Cariaga, in his analysis, proposed several measures, including raising taxes on gasoline and diesel—a policy that came to be known (and dreaded) as the “gasolinazo.”
History shows that part of the stabilization package that ended the hyperinflation of the 1980s included a significant increase in fuel prices, effectively masking a tax hike on fuel consumers. Alongside other measures, this policy successfully restored stability to the Bolivian economy.
Today, Bolivia faces a considerable fiscal deficit. Instead of assigning blame, I believe it’s far more urgent to focus on identifying solutions and understanding their implications. As an initial exercise, I calculated how much gasoline, diesel, and CNG prices would need to increase to eliminate the fiscal deficit—an approximation, if you will.
Here are the (sobering) results of my analysis:
With current production levels of gasoline, diesel, and CNG, the final prices of these products would need to increase (via a higher IEHD tax rate) by Bs 8.2. In practical terms:
Gasoline would need to rise from Bs 3.74 to Bs 11.96.
Diesel would increase from Bs 3.72 to Bs 11.94.
CNG would jump from Bs 1.66 to Bs 9.88.
Staggering, isn’t it?
To be clear, this is purely a hypothetical exercise. The technical and political feasibility of such a measure is implausible. Nonetheless, this analysis provides critical insight into the magnitude and nature of the challenges we are currently facing. In future posts, I will explore alternative measures and assess their macroeconomic, social, and environmental impacts.
In recent months, I’ve traveled through several Asian countries and observed that many economies are now grappling with the aftermath of the commodity price collapse. It’s time to scrape the bottom of the barrel and tighten our belts after what some of my colleagues call “the supercycle of commodity prices.”
Wishing you all a productive and insightful start to the week
S.Mauricio Medinaceli Monrroy
Dushanbe
September 16, 2019
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