Daily Archives: November 21, 2012

Are Bolivian subsidies a good and long-run sustainable practice?

Natali Vargas reports for Pagina Siete:

Maintains support for fuels, electricity, flour and corn

They subsidize 4 products to avoid price increases

ANALYSIS specialists argue that the Government should assess the social impact that has on the people these benefits, although they believe that the poor should benefit more.

In addition to fuels, the State subsidizes electricity generation, the flour and the corn so that their prices do not rise in the domestic market and benefit the final consumer.

Last week, the Minister of economy, Luis Arce, mentioned that “there are many products that we subsidize and we are not charging anything; the bread is subsidized, we bring more cheap flour to sell to the bakers and that is why prices are kept there, stable”.

In addition to public products, including corn; he stressed that “energy is also subsidized”.

The liter of gasoline and diesel cost Bs3.74 and Bs3.72, respectively. While on average its price in international market is Bs9.56, which implies that the State defrays Bs5.84 spending per liter. In 2013 1,060 million dollars will be allocated to subsidize fuel in 2013.

In terms of electricity generation, according to the statistical bulletin of January to June by YPFB, the export of the natural gas price varies between nine and 13 dollars per million BTU (almost equal to one thousand cubic feet – mpc); on the other hand, for generating companies of the national interconnected system (SIN) is $1.3 by mpc.

In addition, the liter of diesel, which is Bs3.72, for isolated generation systems in the internal market is priced at Bs1.10.

In the case of flour, data provided by EMAPA to Pagina Siete point that until October, 1,353,542 bags of 50 kg were given to the bakers, at a unitary price of Bs145. The quintal of flour in market places is at an average of Bs220. If you account for the distributed amount and price of Bs145, the cost of the subsidy would reach a value close to Bs101,515,650 ($14.6 million).

The Minister of economy, in an interview in January with La Razon newspaper, reported that the subsidy for bread reaches Bs250 million per year.

On the other hand, EMAPA made available to poultry, dairy and eggs producers its hard yellow corn reserves at a quantity of 78,000 tons (in ten months), at a price of Bs1,000 ($143.7) per ton. According to the IBCE, the international price of that product to November is $285.7 per ton.

Analyst Gonzalo Chávez indicates that “a social vision of the economy also should qualify and quantify the positive impact of these subsidies on the income of the people”. Analyst Julio Alvarado contends that this benefit should favor especially the poorest.

http://www.paginasiete.bo/2012-11-20/Economia/Destacados/8Eco00120-11-12-P720121120MAR.aspx

Keynes would be happy with these subsidies while Friedman not. Subsidies are a win win situation for the politicians in power and the consumer. The country loses over the long run as smuggling benefits a few and there is still scarcity of those products for the specially most deprived in our society. So, subsidies are not, repeat, not sustainable over the long run.