The history of South American countries like Bolivia and Ecuador shows that abrupt austerity measures to pull back government subsidies equate with political suicide and civil unrest. America's budget-slashing Congress should take note.
The cliché tells us that Band-Aids are best ripped off quickly. This has a pleasantly simple ring to it, but, as anyone who’s ever showered wearing a bandage knows, it’s not actually true. Soak the Band-Aid in warm water, and you can pull it off slowly and painlessly. It seems there’s a similar myth about swiftly tearing off wasteful government subsidies. There’s an analogous truth, too: They’re best phased out slowly.
Evo Morales, Bolivia’s much loved and much hated leader, needs to learn this lesson soon so that he can avoid getting ousted (revolution-prone Bolivia has averaged slightly more than one president per year for the last 186 years). Others, at the International Monetary Fund (IMF) and elsewhere, should take note, as well. Even the United States’ new budget-slashing Congress might consider paying attention.
Mr. Morales, ironically enough, rose to prominence amid the so-called Bolivian Gas War (a series of riots over the government’s natural gas policies between 2003 and 2005). Soon after coming into power on the heels of two ousted presidents, he put gas largely under state control, in an effort to redistribute the great wealth of the country’s gas fields. But at the end of 2010, Morales didn’t need pressure from the IMF to institute an economic austerity plan when he tried to abruptly and completely remove all Bolivian subsidies on fuel. This resulted in a weeklong, more than 70 percent spike in prices for gasoline and natural gas in the country, which, in turn, led to violent protests.
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