Bolivia: unorthodox economic management in the least inflationary country in South America

First modification: 07/26/2022 – 19:17

If the Bolivian government of Luis Arce is proud of anything, it is its economic policy. This country has the lowest inflation rate in a Latin America hit by the effects of the war in Ukraine that fueled a crisis already dragged down by the Covid-19 pandemic.

The war has caused unusual increases in the prices of the family basket, which have forced central banks to tighten their policies, for example, by raising interest rates.

The case of Bolivia is particular. While in Argentina the consumer price index has accumulated a rise of 36.2% between January and June 2022, its neighbor without access to the sea reports a barely noticeable increase of 1.2%.

The Bolivian authorities attribute the result to its unorthodox economic policy, which includes import substitution and generous subsidies for agriculture, industry and fuel, according to the Minister of Economy and Finance, Marcelo Montenegro.

“The formula that we apply is simply to promote production in the agricultural area and a subsidy scheme in the productive area,” he told France 24.

09:58

Faced with the doubts that certain analysts have raised in relation to the decrease in international reserves caused by this subsidy scheme, the head of the portfolio stated that “our level of reserves has, in international metrics, for more than four or five months import”.

07:13

Days before, President Luis Arce pointed out that, given the rise in food and energy prices, “the response of the countries has been orthodoxy” to reduce inflation and whose “cost” is precisely the “recession.”