HYPOCRISY, BAD IDEAS AND HALF-TRUTHS
31 January 2022
Hypocrisy, bad ideas and half-truths
The speech delivered by President Arce on January 22, during the celebrations for the anniversary of the Plurinational State, was a true display of hypocrisy, bad ideas, and half-truths. Probably the only redeeming feature was that it lasted only 40 minutes instead of the usual two hours of endless boring speech.
Let’s start by saying that there was nothing to celebrate here. The conversion of the Republic to the Plurinational State is a historical absurdity that does not deserve any celebration. One thing is multiculturalism, which one welcomes, but another thing is to establish nations or groups that, as the new Constitution says, have “the right to exercise their political, legal and economic systems according to their worldview.” This is nonsense because it means that a group that defines itself as a “nation” (and supposedly predates the “Spanish colonial invasion”) can have its own laws and apply its own justice as it sees fit. At this point, and when we are all mestizos and citizens of the same country, granting privileges to some and not to others is simply unfair and discriminatory.
Let us now turn to the speech. The 40 minutes began with a treacherous hypocrisy. The President said that in the “Colonial Republic” there was a “kind of social apartheid” in which there were “first-class and second-class citizens” with a “State that represented and benefited only a few.” Is such nonsense possible? Is it not now, in the multinational era of the MAS, that the true “social apartheid” is being experienced? Aren’t those with a blue card, the members of the party, those from the environment, the true “first-class citizens”? Don’t the MAS members do what they want with justice and put anyone who dares to contradict them in prison? Don’t they have a rule that obliges every public servant to be a member of their party? Make no mistake, President, now we have a State that represents and benefits only a few, you, the familiar faces, those who raise their little fists and persecute those who think differently. The rest of us, “second-class citizens,” can only tie shoelaces and see how the country is being divided.
Shortly after, the bad ideas start. The President mentions and praises socialism several times. He says that “socialism is being reborn in new soldiers of the process of change,” that his Government is based on the redistribution of wealth, that we must close the gap between rich and poor, and that we must fight against capitalism. For now much of that is rhetorical. For now, we are not a socialist country, although we are a country in which the State has an enormous and perverse influence on the economy and society. Bolivia is a repressed country in which there is no institutionality that generates economic freedom. We are ranked 172 out of 178 countries in the Heritage Foundation’s index of economic freedom, very close to countries that are socialist such as Cuba (176), Venezuela (177), and North Korea (178). The enormous influence of the State in society translates into a mountain of regulations and bureaucracy, and the absence of legal certainty. This pushes the country into the informal sector (80% of the economy) in which we survive with very low productivity and no hope of generating a solid production network. Instead of praising outdated ideas like socialism, the President should have to worry about moving us in the other direction. The most capitalist countries, that is, those that embrace economic freedom, are the ones that have been able to develop the most and have lifted the most people out of poverty. Ideas matter and it is time to tell the Government that its socialist rhetoric sucks.
Speaking of outdated ideas. The next blunder of the President (and of the Economic and Social Development Plan) is the announcement that Bolivia will develop using “import substitution industrialization.” Something crazy. ECLAC sold the story of import substitution to the region during the 50s, 60s, and 70s, and the only thing it achieved was to generate a deep crisis that lasted a decade (the lost decade of the 80s). Import substitution is a Chinese tale that has never worked and will never work because it ignores the fundamental law of international trade: countries must specialize in what they have a comparative advantage, that is, in what they can produce at a lower cost than the rest. If you do not have a comparative advantage in a certain product, it is rational to import it from countries that do. Do you think, perchance, that we should produce Quipus computers to replace the computers of China, Japan, or the US? Or that we should produce cars or cell phones to replace the ones we buy abroad? It wouldn’t make any sense to do so. It would be very expensive and we would use resources that are better used in what we can compete in.
And now we turn to the half-truths. The President proudly said that the growth of the third quarter of 2021 was 8.9%, somewhat less than the also bombastic 9.4% of the second quarter that appears on giant billboards next to his face. 8.9% seems high, but it is a lie. All growth is great if the starting point is the bottom of the well. Let us remember that in 2020 the country decreased by almost 9%. After such a strong drop, the recovery will always be high due to a statistical rebound effect. Note, for example, that Chile grew more than 17% during the same period, Colombia more than 13%, Peru more than 11%, and Argentina more than 10%. As you can see, our 8.9% is not as impressive as it is made out to be. According to Arce, we will grow 6% in 2022, but ECLAC and the World Bank expect only 3.2 and 3.5%, respectively. In an external context in which all variables are adjusting downward, it is much more likely that international organizations will be the ones to get it right.
And, of course, the President forgot to say that the country’s sources of growth do not come from a solid production network, but from the art of inflating the famous “internal demand” through deficits and debt. He did not say that we have had deficits for 8 consecutive years at an average of 8% of GDP, that our internal and external debt now comfortably exceeds 50% of our production, that the gas era is over, and that in a couple of years our hydrocarbon imports will be higher than our exports, that our international reserves have suffered a brutal setback and are now barely USD 4.6 billion when they were more than USD 14 billion in 2014, that the vast majority of public companies are in deficit, that we have more than half a million public employees, and that this year’s budget plans to spend 80% of the GDP! No, none of that, just hypocrisy, bad ideas, and half-truths.
Source: https://brujuladigital.net/opinion/hipocresia-malas-ideas-y-medias-verdades
THE BUDGET OF HORROR
5 December 2021
The budget of horror
The General State Budget (GSB) for 2022 is a horror movie. The horror it produces comes not only from the numbers that, as always, do not add up, but, above all, from the intentions of the Government that they represent. This budget leaves no room for doubt. The Movement Towards Socialism (MAS) wants to completely control the country and lead it unfailingly towards socialism.
Let’s start with the total amount. The consolidated General State Budget for 2022 plans to spend Bs. 235,090 million, that is, US $ 34,000 million. This huge number represents 90% of our GDP. As you read it. The government is planning to spend in 2022 an amount equivalent to almost all the national production of that year. Take the case of the United States for comparison. In that country, the government budget represents only 30% of the GDP. In Chile, it represents 32% of the GDP. In Paraguay, which is a country with which we typically share the last place in development levels in South America, it represents 37% of the GDP. Even in the Nordic countries, which maintain a relatively large government, the government budget does not exceed 50% of the GDP. The General State Budget 2022 is, therefore, and however you want to see it, a real elephant.
Having such a large government produces at least three fundamental problems. The first is that all that money has to come from somewhere. Since 2014, the government has been unable to sustain its huge spending and, therefore, has been accumulating deficits. We come from eight years of consecutive fiscal deficits averaging 7.8% and 2022 will be no exception. The General State Budget 2022 foresees an 8% deficit that will continue to increase the debt that, by now, has already far exceeded 50% of the GDP. The second problem with a huge government is that it generates a huge bureaucracy and an ordeal of paperwork that continues to torture private agents. The government employs half a million people! Public employees alone would be the fifth most populous city in the country. The third problem, and probably the most pernicious, is that a huge government also has a huge influence on the economy. With this budget, the government makes it very clear that it claims economic leadership by deciding what to do and how. The government spends and does not let go of the control, but private agents pay for the dance.
Let’s now look at financing. Here the horror movie reaches a climax. The largest component of the General State Budget 2022 financing is debt! That’s right, 40% of the resources that the government will spend next year comes from internal or external financing (more from the former than the latter). This means credits from multilateral organizations, loans from the Central Bank, sale of bonds to the Pension Fund Administrators (AFPs), and unused money from the past administration. In sum, the government plans to spend 40% more than it will generate as income next year. The second component of financing is operating income (23%) and the third is taxes paid by citizens and ordinary businesses such as Value Added Tax (VAT), Transaction Tax (IT), etc. (18%). Oil revenues (Direct Tax on Hydrocarbons (IDH) and Special Tax on Hydrocarbons and Derivatives (IEHD)) represent only 3% of revenues.
Notice then that the elephantian government is not financed mostly with gas sales but with debt and our taxes. Considering also that only 30% of the economy is formal and pays taxes, the dance is being paid for by a very small segment of the national population.
Let’s now look at the expenditure. 57% goes to current expenses, 17% goes to capital expenses, and 26% to other uses that include debt service. For every dollar invested in capital expenses, therefore, $ 3.5 in current expenses is spent. And where does the capital expenses go to ($ 5 billion)? To the 70 public companies, the vast majority of which are unprofitable and inefficient.
Within current expenses, only the item of wages and salaries reaches $ 6,499 million, which represents 20% of the budget. We spend about $ 18 million a day on wages and salaries alone ($ 25 million per workday). 34% of the $ 6,499 million goes to the teaching profession (which we already know is a nest of corruption and incapacity that keeps our education imprisoned in mediocrity), 9% to health, 6% to the Police, and 6% to the Armed Forces. The rest, more or less 50%, goes to the bureaucrats who occupy a seat in the public administration that includes all the people who occupy the 17 ministries, 53 vice-ministries, and 200 entities that depend on those 53 vice-ministries.
This huge administrative apparatus is also built on very weak and unrealistic assumptions. The budget assumes that our product [GDP] will grow in 2022 at a rate of 5.1% when international organizations such as ECLAC or the World Bank expect only a rate of 3.5%. An oil price of $ 50.5 is also assumed when the US Energy Information Administration (EIA) expects it to reach $ 68.28. Here it is important to remember that a high oil price today hurts us more than benefits us because our gas sales volumes have dropped and we continue to strongly subsidize the domestic price of hydrocarbons.
This is, in short, what the MAS wants to sell us and what it will probably be approved without problem in parliament. Debt and voracious spending when what we need is savings. To add more monsters to the movie, last week we learned that our cash reserves (currencies) are already on the ground at $ 1,769 million. Let’s remember that next year we will have to pay around $ 1.8 billion of previously issued bonds. Ronald MacLean illustrates this whole alarming situation by saying that the car is going over the cliff and the driver is asleep. It seems to me that the driver is not asleep. He knows we are going to the cliff, and even so he does not let go of the accelerator.
Antonio Saravia is PhD in economics (Twitter: @tufisaravia)
Source: https://brujuladigital.net/opinion/el-presupuesto-del-horror
STRIKES. THE POT CALLING THE KETTLE BLACK
17 October 2021
Strikes. The pot calling the kettle black
The previous Sunday I had promised to write about another of the speakers, JH Chang, from the 14th meeting of economists organized by the Central Bank of Bolivia. The political situation forces us to speak of the civic strike and its economic impact. I apologize. I’ll leave the Cambridge University Professor’s article on industrialization for next week.
The Government, outraged, has denounced that in the one-day strike the economy would have lost 112 million dollars. We fully agree that this social and political practice does enormous harm to the country, regardless of who is promoting it.
But let’s look at a bit of history and let’s make a recount of who were the people responsible for hundreds of days lost due to strikes or work stoppages in the past. In this perspective, we are going to see how the old saying is applied to this case: The pot calling the kettle black.
According to the Observatory and Analysis of Social Conflicts in Bolivia, of the Center for the Study of Economic and Social Reality (CERES), in the period 1970-2010, there were 13,897 conflicts. The bulk of these conflicts had the participation of groups, unions, actors, or people who are now within the Government. It is they who are crying out to heaven for the recent strike on October 11.
In 40 years of economic and social history, there was practically one conflict per day; this result comes from dividing the 13,897 conflicts between 40 years, which records 347 strikes or work stoppages per year; that is to say, every day someone, in all this time, was protesting with good or bad reasons.
Let’s suppose, very conservatively, that only 5% of these social conflicts (rounded to 14,000) involved a one-day stoppage. There may be cases in which there was a general strike, or joining various social problems, they are equivalent to a day’s work stoppage. Let us modestly accept that we lost 700 days in 40 years and if we multiply this by 112 million dollars, the loss figure reported by the Government is equivalent to 78,400,000,000 dollars today. It reads: seventy-eight thousand four hundred million “Washingtons”. An 11-digit figure. In other words, we lost twice the size of our current GDP through strikes and work stoppages. Whoever has a glass or thatched roof should not throw stones at the other.
In the democratic era, the administration of the Government of Hernán Siles had the record of strikes, work stoppages, and other events: 1,825. Again, let us suppose that only 5% of these social problems involved the loss of a day, this is equal to 91 days. As I have mentioned, the Government affirms that in a one-day strike –in 2021– 112 million dollars are lost. But, it should be clarified that this is equivalent to 33 million in the 80s. Therefore, during the Siles Government, we lost 3,003 million dollars of that time.
During Paz Estenssoro’s administration, there were 1,180 social problems. Here the neoliberal period began. Again, only 5% was a day of loss. It means that during the Paz Government 59 days were lost, which in 1987 dollars would be equal to 59 times 47 million, equal to 2,773 million missing dollars.
Paz Zamora had 968 strikes. Same reasoning: 5% equals a one-day loss. That is, 48 days times 54 million, equals 2,592 million dollars of loss to the period’s value.
In the first Government of Sánchez de Lozada, 631 conflicts were verified. 5% is equivalent to 32 days times 64 million dollars in 1997, equivalent to 112 million in 2021. Loss: 2,048 million greens (dollars).
The democratic Government of General Banzer had 1,364 conflicts, the same as before 5% of these social problems. This translated into the loss of 68 days, which multiplied by 72 million dollars per day, is equal to 4,896 million dollars in 2000, which vanished.
Jorge Quiroga 355 and the second Government of Sánchez de Lozada had 518 strikes and social demonstrations. 42 days lost multiplied by 72 million, is equal to 3,024 million dollars of the period, which went down the drain.
The Government of Carlos Mesa also registered a high conflict rate with 1,042 events. 5% of the total of 1,042 days lost is 52 multiplied by 82 million per day, it is equal to 4,264,000,000 of economic loss.
The short administration of President Eduardo Rodríguez recorded 248 social problems. 12 days lost multiplied by 82 million dollars per day in 2005 is equivalent to 984 million dollars that disappeared.
Ugh, what a way to pull the rug from under them! Right? Now, the new owners of power who caused turmoil in the past, before they tear their hair out due to the last strike, they should put their hands to their chests –or is it their pocket?– and ask themselves: What percentage of these 78.4 billion dollars of economic loss at today´s value is the responsibility of Evo Morales and the coca growers, other social movements, the Bolivian Workers’ Union (COB), the various unions, civic committees, and other actors? I guess those who still have blood on their faces will turn red. Others will say that they were making the revolution. This is not intended to criminalize or discredit the social protest. The conflict is part of a democratic society, but it must be resolved through institutional means and not always in the streets. But, without a doubt, when authoritarianism shows its face, strikes and work stoppages are not an expense but an investment in democracy, justice, and freedom.
Source: https://www.paginasiete.bo/opinion/gonzalo-chavez/2021/10/17/paros-cuando-el-muerto-se-rie-del-degollado-312393.html?fbclid=IwAR1TsyUiehgh6lv5-X-qMY0AH9fgVs7NnH9_ZiZWA1Ih0EwLsRWi6SlWxu0
Light at the end of the tunnel or more tunnel at the end of the light?
6 June 2021
Light at the end of the tunnel or more tunnel at the end of the light?
After the worst global economic crisis in decades, several international organizations, such as the Organization for Economic Cooperation and Development (OECD), forecast a strong recovery from the recession.
The world economy will rebound by 5.8% in 2021. The Gross Domestic Product (GDP) of the United States will grow close to 7%. The Eurozone 4.3%. Other regions of the world will also have interesting economic recoveries. In this context of relative optimism, the Bolivian authorities have revealed that in the first quarter, the economy will grow by 5.3%. If the data is correct, this is good news, this could be light at the end of the tunnel.
The sectors that lead the recovery in Bolivia are mining, construction, and hydrocarbons. Sectors such as tourism, gastronomy, and banks react with less force.
The coming economic expansion will not be evenly distributed, either among the various countries or within each one. Whether the recovery takes the V-shaped (a steadfast and rapid return to growth), U-shaped (a slower recovery), K-shaped (certain sectors growing well and others still in recession), or W-shaped (with a relapse into recession starting in 2022) form, will depend on several factors, according to the economy and region in question.
Let us mention six factors: 1) The advances in vaccination. 2) The quality and scope of fiscal, credit, and exchange rate policies. 3) The financing capacity of these policies. 4) The reaction of the private sector. 5) The ability to reinvent the economy. 6) The recovery of per-capita income to pre-crisis values.
In the case of Bolivia, the analysis of each of these factors does not fuel optimism.
- The main instrument for economic recovery is in the health area. The higher the vaccination rate, the faster it returns to normal and, therefore, the faster economic growth returns. In Bolivia, the population vaccinated with two doses is around 3%. Immunization programs are very slow and disorganized, mainly due to the lack of vaccines. Here the Government failed. The third wave hits the defenseless population and reveals the failure of the health policy. In this context, the economy may recover, but very slowly.
- Fiscal, credit, and exchange rate policies have been unbalanced, disjointed, and insufficient. Indeed, public spending, especially with the provision of the bonus against hunger, and public investment skyrocketed. In addition, the private sector credit payments to banks have been deferred through different instruments, as a result of which private credit is slowly recovering. Likewise, the real exchange rate remained appreciated by consuming foreign currency and promoting imports. In terms of income, it was decided to get for cigarettes (low income). For example, the Wealth Tax is much ado about nothing. The newly rich in the informal sector remains tax-free.
- The financing of these macroeconomic policies was at the expense of loss of international reserves, increased domestic debt, and growth in the public deficit. These funding sources are drying up. To cope with the starvation of resources, the general budget of the nation in 2021 foresees an external debt of 5,750 million dollars, 2,750 from international cooperation, and 3,000 from private markets. There is no significant progress on these issues. The financial constraints cast doubt on the sustainability of the Bolivian recovery in the medium and long term.
- The Government supply support policies have been weak; therefore the private sector reacts very slowly. The Government’s flagship program –import substitution– is under-resourced and is not making significant progress. There is a better response from the informal sector, especially in trade. With an appreciated real exchange rate that makes imports cheaper, much of the resources placed in the economy by the Government go abroad via the purchase of goods and services.
- The Government’s economic activation policy is based on the assumption that until 2019 everything was very well before the Añez administration, therefore, the only objective of the current economic policy is to replace the primary export model destroyed by the coup d’état mentality. No change is needed. Meanwhile, many neighboring and northern economies have taken advantage of the crisis to reinvent the future, betting on digital and energy transformation. Here we seek to reissue the old bondholder normality.
- The central closing question is to know in how long the per-capita income of Bolivia will return to the pre-pandemic levels. Several neighboring countries, such as Argentina or Peru, are estimating that they will need between four and six years to recover the pre-crisis level of wealth. Probably, in our case, we are in the same time range. So while there is light at the end of the tunnel, the candle is dim and the corridor to cover is quite long and has subtle political winds.
In sum, the recovery in the world economy is very promising, although diverse; however, in Bolivia, the Product’s reaction is also fragmented and has too many threats. Economic recovery is also hampered by political uncertainty.