By Jan. 1, a panicked Morales reinstated the subsidy, no doubt overcome with déjà vu and the prospect of being ejected from his office over the very same issue that helped him force out both President Gonzalo Sánchez de Lozada, in 2003, and President Carlos Mesa, in 2005.
Subsidies are unsustainable
This approach – also seen in Ecuador in the late 1990s – of yanking away a treasured entitlement and then, in what appears to be a desperate bid to remain in power, abruptly re-instating it, only undermines the long-term plan to remove the subsidy, because it serves to embolden the forces that oppose these necessary changes. The subsidies are unsustainably expensive. In Bolivia, they account for 2 percent of GDP. Ecuador continues to have an eerily similar problem with fuel subsidies, though it is currently wealthy enough to absorb the losses. It devotes a whopping 7 percent of its GDP to its enormously popular but wasteful fuel, electricity, agricultural, and housing subsidies and a monthly stipend for over a million poor Ecuadorians.
Anyone tempted to think this is merely a South American problem should note that the United States, with its tax breaks for interest on mortgage payments, has a de facto housing subsidy, itself. Despite its fiscal irresponsibility, this tax policy is also too politically valuable to die.
All countries, apparently, have their vices.
But as a result of Bolivia and Ecuador’s fuel subsidies, the streets of both La Paz and Quito are crammed with automobiles, the air in both cities is redolent of diesel exhaust, and because of their cheap gasoline, the two cities boast incongruously vibrant taxi industries, especially considering the meager average wages of the cities’ denizens.