Five days after: Increasing gasoline price – Bolivian experience

Five days after: Increasing gasoline price – Bolivian experience

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I can imagine the picture. Let me start commenting how is the room where the President and Ministers have they meetings in Bolivia. On the second floor of Government Palace, there is a rather rectangular room, where a long wooden table occupies more than 60% of it. Several entries communicate this room with the corridor of the Palace (from where you can see the main hall) and a small door next to the Presidential chair communicates with a tiny private elevator. Few windows, poor artificial lighting (at least it was in my days), antique furniture and paintings and fairly comfortable chairs, the perfect place to discuss the substantive issues of the country.

Perhaps in a similar environment with the noise of firecrackers Year’s Eve, on December 31st. of 2010 President Evo Morales and his Ministers (what I call Cabinet) discussed (worried) the implementation of one of the most aggressive measures – from a social point of view – of the current Government, the increase in gaoline and diesel oil prices, what the people usually calls «gaolinazo». It was the first time that a public policy decision was not confronting Petrobras, Repsol, the US Government, the Italian Entel or the traditional oligarchy, not, this time, was his electoral base which was, frankly, angry. As usual in Cabinet meetings, with high probability there were two clearly defined groups: on one hand they wanted to keep the high prices «at any cost» and on the other, those who wished to reverse it. Of course, no more than 20 people know what happened and the kind of discussion that occurred, the fact is that they finally decided to reverse (5 days later) the gasolinazo and then, lower the prices to the former levels.

One of the central features of this entire novel – the pen of the writer could say – is the lack of clarity on the nature of the measure. Even now, a lot of people ask me what had happened during those five days, not from a political or social point of view of course, but, somewhat surprisingly, what happened with the price of gasoline? Before, during and after the measurement, executive branch officials explained without explaining the reasons behind the price increase. Put domestics prices in international standards, prevent smuggling, increased fiscal revenues for the Government, increase resources for the regions, benefits for universities, a fund to encourage oil exploration, were some of the explained concepts that generated in the head of many people the same effects of a good whiskey.

So will be good to explaining what happened to gasoline price during those five days. To do this, let me use the attached chart, where I present the gasoline price composition with and without the «gasolinazo». The black area is the gross margin for oil producers to cover operation & capital cost and get some profir (if any). The green area is the portion of producer price allocated to pay Direct Tax on Hydrocarbons (IDH) and royalties. The (rather small) yellow area are the additional resources allocated to YPFB, following the nationalization process; and the red part is Consumer Gasoline Tax (IEHD). Finally the gray area are marketing margins, refining, transportation and VAT.

In this context, what the gasolinazo did? The plot is completely clear. The gasolinazo increase the Consumer Gasoline Tax.

Of course, subsequent events are known to all, the price of gasoline back to its initial level (yet nobody tells me who kept the difference in the exchange rate) and some prices (transport and certain foods) that increased with the «gasolinazo» still remain high.

The «gasolinazo» was really a fiscal policy, because it increased the consumer tax. Therefore, while I am studying the energy and my main concern is the lack of investment in oil fields, I believe that the events of December should concern to my colleagues in fiscal area… to paraphrase an old economic paper «some unpleasant fiscal arithmetic».

Mauricio Medinaceli Monroy

La Paz, January 2011

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