How Bolivia Beat Inflation (Interview)

We spoke to economist Mike Gemio about how Bolivia’s socialist policies have ensured currency stability while the rest of Latin America suffers an inflation crisis.

Many of our neighbors like Brazil and Chile are seeing some of the highest inflation rates in years, in the case of Brazil, they’re currently at 12% annually. However, Bolivia has the lowest inflation in the Americas with just 0.9% in 2021. Why?
The most important aspect here is the ‘Bolivianization’ of the economy, that is to say, economic sovereignty. Especially over monetary policy. Some countries opt for Central Bank ‘independence’ but in reality, the economic apparatus has to function along an agreed political line and since 2006 with Evo Morales we’ve been able to do this with positive results. Economic sovereignty has given us the freedom to set interest rates and control the money supply to ensure there aren’t inflationary pressures being generated.

Another important factor is food security. The state companies have played a key role here, for example, we have EMAPA which controls the prices of basic goods and stores supplies of things like grain and beef that can be released at strategic times to correct prices whenever there are supply-chain problems. The Ministry of Rural Development also plays a key role through technical support for farmers, subsidies, and helping farmers with transport and storage. All these are state policies aimed at ensuring that the price of basic foodstuffs doesn’t rise, and the statistics show that this has been successful.

The third factor is the nationalization of energy in Bolivia. Thanks to the nationalization of gas and the subsidies at the pump, we can ensure that fuel prices don’t rise. The opposition in Bolivia are opposed to this policy and want us to restore the free-market model that is leading to price rises right now in other countries.

These are the three factors that kept inflation below 1% in Bolivia. It’s an important achievement, those of us who have children know how even small changes to the price of bread or milk can really derail the finances of a family. Inflation hits the poorest in society, it’s a hidden tax of the elites imposed on the people. Low inflation also means that the country can plan its future, the stability attracts investment and for ordinary people, it means they can plan their finances. A person is more willing to set up a business or buy a house if they know what their finances are going to look like for the rest of the year.

If our neighboring countries are in the grip of an inflation crisis, is there a chance of contagion?
When inflation is due to external factors, rather than the failure of domestic policy, it’s usually for two reasons; It can come due to international energy price rises, which is happening now. In Bolivia, we have subsidies to ensure these fluctuations don’t reach the consumer, so I’m not worried about that.

Inflation can also be imported if the prices of goods we consume from abroad rise, which is also happening now with wheat. In Bolivia, the state company EMAPA has reserve stocks of these goods which is what’s keeping prices low, but we have to be aware that these stocks will not last forever, and if the sanctions and conflict in Ukraine continue for a very long time then eventually we will begin to feel the effects of the wheat shortages. We have to prepare for that.

Our policy of protectionism is very important. With regard to agricultural goods, we have an official policy of ensuring there are always enough supplies to meet internal demand, only surplus production can be exported. If there are shortages for our local population, then the government bans exports to ensure those supplies stay in the country and therefore ease inflationary pressures.

What policies need to be maintained to keep inflation low? Are there any new ideas you’d like to see implemented?
We need to maintain public control over monetary policy to ensure our currency remains strong and ensure our economy operates in our own national currency. We have to defend national production and national industry. That goes for the state industries, but also we should give more support to small and medium private producers so that we can continue reducing imports. If we can further reduce imports then we further reduce the chances of importing inflation. Especially when it comes to food processing and packaging, we need more of that and the government should do more to incentivize it. Also, on natural gas exploration, we need to continue investing there because if not then energy prices are going to rise and affect the people.

Featured image: Lady selling in a popular market. Photo: Kawsachun News.

(Kawsachun News)