Poor perfomance or poor imagination? (part 2)

As a former post showed, Bolivian CPI variation for 2007, according to ECLAC's information, was 11,9%. Hyperinflation is an unpleasant ghost in recent Bolivian collective memory. In second trimester of 1985, CPI variation reached 23.500%. The hyperinflation, produced by the irresponsible international debts contracted by Banzer’s authoritarian military government (1971 – 1978) and the “international debt crisis”, accompanied Bolivian economy since late 1970s. But it monumentally rose up in the even more irresponsible UDP government (1982 – 1985), the first of the recent democratic era (1982 – nowadays). To control it, the successor of UDP (MNR’s Victor Paz, 1985 - 1989), implemented what specialized literature calls “structural adjustment” (SA). The “adjustment” was introduced by the today infamous 21060 “supreme decree”, which liberalized and deregulated the economy

 to allow the market, and not the State, to define the prices of good and services.

In a couple of years, the new economic policy controlled the inflation rate variation. Thus, the average Bolivian consumers’ pocket was relieved. But the 21060 decree, in compass with other economic measures, also generated unemployment and “killed” the national mining industry, which was the main income source for Bolivian economy since the foundation of the Republic (1825). For those reasons, inflation (and the possible policies to control it) scares to death the average Bolivian citizen. In this context, a 11,9% CPI variation is taken as the worst economic indicator.

To understand and explain the 2007’s Bolivian inflation rate, however, it is fundamental and necessary to analyze it in the context of the actual, 

and not past, economic events. Two are the key factors that explain CPI variation in 2007:

• The meteorological event of “La Niña”, which razed broad agricultural and cattie territories

• Direct transference of income from public budget to citizens recently entitled with new social rights

“La Niña” contracted the supply; the transferences expanded the demand. Contraction of supply and expansion of demand, in any economy, generate price increases. The largest part of CPI variation (explained by La Niña) was not produced by economic public policy, but by conditions beyond government’s control. None of these condition were present during 2006, when the inflation rate was 4,9%. Evidently, a good government should react opportunely to avoid the consequences of this kind of factors. And there is solid evidence that proves that government was not fast enough to control the 

situation. But government itself did not produce the main factor of CPI variation, as was suggested by poor imagination’s propaganda (here and there). As far as we know, the “Andean indigenous” government still has not developed magical techniques to control the weather, although opposition’s poor imagination seems to believe the contrary.

Nevertheless, even with the slow reaction of the government, the inflation rate could have been worse. All Latin American economies affected by La Niña (see chart) witnessed a significant increment in their consumer prices. Bolivian 2007 CPI doubled 2006’s. The same did CPIs of Honduras, Guyana, Panama, and Guatemala. But Chile's and Peru's 2007 CPI —also affected by La Niña, among other economic events— tripled 2006’s.

Latin America and The Caribbean (7 countries): Consumers Prices

(Percentage variation December - December) a/

Source: ECLAC

a/ Twelve-month variation up to November for 2007

Analyzing this context, the Bolivian 2007 CPI increment was perfectly expectable and understandable, although not very much avoidable. Why then does poor imagination, instead of analyze the context and the causes of CPI variation, prefer to just blame economic policy ? This kind of conclusions is understandable from lay citizens, but it is not from economic annalists. Annalists are supposed to explain phenomena. But in Bolivia it seems like they have become another political actor, which, instead of “analyzing” and explain, are more interesting in producing the opposition’s arguments and ideological tools… very, very poor ideological tools. Don’t you think?

All points of view are welcome…

And don’t forget to visit:

INE for Bolivian official statistics (Spanish)

ECLAC for statistics and papers regarding Latin American and Bolivian socioeconomic issues (Spanish and English)

UDAPE for Bolivian public policies analysis (Spanish)