Where is the inflation in Bolivia?

Hugo Marcelo Balderrama

At the end of April, the BBC published an article about the “absence” of inflation in Bolivia. As a result of that note, thousands of journalists around South America once again praised the “successful” economic model implemented by Evo Morales and his entourage of socialists.

However, the BBC is completely wrong. Because in Bolivia there is inflation, and a lot of it. But it is in the goods that very few have the sense to analyze. Let’s see.

In the first place, inflation is not the general rise in prices – as the professors of the great universities repeat ad nauseam – but the increase, without backing, of the money supply. In fact, for there to be a general increase, all prices must rise simultaneously, including wages (and savings must be indexed as well). In that situation, there would be no problem. The crux of the matter is that increases in the monetary base affect relative prices. Well, not all rise at the same time, but in different periods of time. That is why the wage earner is behind in relation to final consumer goods.

Similarly, the National Institute of Statistics of Bolivia – like any other state institution that manages data – uses the Consumer Price Index (CPI) as an indicator to “measure” the inflation of basic consumer goods.

However, what superpower do the rulers have to define which are the “basic” goods that should enter the CPI? Actually none. Ergo, it is a manipulable indicator.

This is where conventional economists fail. Because when they see a rise in prices of the goods that make up the CPI, they shout – like the protagonist of a horror movie – inflation. However, when they observe the same phenomenon in goods that are not included in this indicator, they call it a “boom”.
That is the trick the regime used for several years. Since the manipulation of interest rates for the purchase of real estate resulted in an increase of up to 30% in the final price. So inflation is in durable consumer goods ―falsely considered the engine of the recovery―, for example, houses, land and apartments.

However, the fact that the national economy has not bottomed out is due exclusively to the fixed exchange rate. But that good measure, the only successful one of the regime, does not hold everything. Because if the levels of public spending continue, the accumulation of the fiscal deficit and, especially, the drastic reduction of the International Reserves, the government will be forced to devalue. Hence, inflation will skyrocket.

On the other hand, on May 2, the newspaper Los Tiempos published a survey carried out by the Center for Studies for Labor and Agrarian Development (CEDLA). It revealed that almost two-thirds of Bolivian citizens, as a result of the pandemic, suffered a decrease in their income, and 80 percent reported that it is not enough to make ends meet.

Despite the success of the analysis, there is an error in the interpretation of the data. The pandemic was not the main factor in the fall of the Bolivian economy, its role is only an aggravating element. Families are feeling the effects of the exhaustion of the disastrous Bolivian economic model.

Even despite maintaining the same levels of state spending, the Bolivian economy has been in decline since 2014. With the aggravating circumstance that since that year the income from gas rents has been replaced with large doses of debt (internal and external).

As I said before, you don’t have to look for the what (everything points to a default), but the when.

That God protect us!

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