Bolivia agrees to end fuel subsidies by January under IMF deal

Move ends a 20-year policy costing Bolivian government $2.9 billion a year

Bolivia moved Thursday to dismantle a more than 20-year-old fuel subsidy system, with President Rodrigo Paz sending legislation to Congress to ratify a $1.9 billion, 36-month financing agreement with the International Monetary Fund that will require domestic fuel prices to move toward full cost recovery beginning in January.

Under the agreement’s “Memorandum of Economic and Financial Policies,” the Bolivian government said it would exclude funding for hydrocarbon subsidies from its 2027 budget, Infobae reported. Paz described the plan as involving “decisive policy measures” and “structural reforms” that his government has committed to implementing in support of the agreement with the international lender. He said the package was “designed to restore external stability, achieve lasting fiscal and debt sustainability and support strong and inclusive economic growth,” according to broadcaster Unitel.

Economy Minister Christian Morales said publicly that the measure was not directly “imposed” by the IMF, but instead was developed by Bolivia to address its fiscal imbalance. The government’s gasoline subsidy will remain in place only until January, when authorities will have to make a decision on the fuel’s market price, Morales said. He also said the review would be accompanied by social measures aimed at cushioning the economic impact, according to Bolivian newspaper El Deber.

Bolivian authorities have said the country’s fuel subsidy system has become financially unsustainable. Keeping fuel prices artificially low costs the government about $2.9 billion annually and drains the country’s foreign currency reserves amid a shortage of U.S. currency, the government has said. Officials have also argued that the artificially low prices have encouraged illegal fuel shipments to neighboring countries, benefiting smugglers rather than vulnerable Bolivians.

Changes to fuel subsidies have historically been an extremely sensitive issue in Bolivia and have triggered serious social unrest. The most prominent episode came in late December 2010, when Evo Morales’s government unexpectedly issued a decree raising gasoline prices by 73% and diesel prices by 82% to bring them in line with international prices. Labor unions, neighborhood organizations and transportation groups launched an indefinite nationwide strike, with road blockades and violent demonstrations in major cities. Morales reversed the measure just five days later.