November 04, 2006

Unemployment

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The graph on the left is showing unemployment figures in Bolivia from four different entities. The first comes from the statistics institute, INE. In my opinion this one is the most reliable. But, that's just my opinion. It is funy to notice that the two government agencies have a lower rate than the other two "independent" organizations (independent from the government, I mean). Anyway, the argument of the graph is that unemployment has been decreasing since 2004. As a good economist, I ask myself why?

No time to make of this question a research question, but here go some reflexions. Over the last decade or so, Bolivia's macroeconomy has been relatively stable. For one, inflation, which once plagued the country like famine, has been low and thus kept in check. Another thing, over the same period there has been economic grownt. I remember to have read, somewhere, that Bolivia grew at a 3% on average. Exports were fantastic, in the same period. Alone, hydrocarbons were a major source of dollars. So good was the situation that savings in Bolivianos started to replace savings in dollars. So, macroeconomically, Bolivia was going relatively good.

In comes this government in January 2006. And no, I won't say everything went south. In fact, things got even better. There were a couple of things which added to the situation. For one, the debt relif Bolivia got from its creditors such as the international credit organizations and governments like the Spanish, who forgave Bolivia's foreign debt. This was a significant push to bring more macro stability and set this government on the right foot. Problems in the deficit were more directly affected. This year, for the first time in a long, long time, Bolivia will have a surplus instead of a deficit. That is really extraordinary. Also, not having to make payments on the deb, is a significant developlemt. That means more money in the government's pockets. Of course, the government started to receive more dollars from the nationalization and the new conditions in the natural gas sector. So, the government has more money. That alone is a special situation unlike any other government in history. Lastly, the Morales goverment is receiving money (or shall I say help) from the Venezuelan government. Chavez is being very generous with Bolivia funding projects left and right. For example he is paying to establish a national radio network to bring radio to the four corners of the country. Another thing Chavez is doing is he is buying Bolivian debt and he is buying Bolivian products such as soya. That also brings more money to the government's pockets. Morales has even asked every MAS member working in the government and every other functionary working in the government to pay into a fund in support to the party, MAS.

The question is what is the Morales government doing with so much money. Well, here is my scepticism taking over. Morales and his government are using the money to fund populist policies designed to keep their supporters happy and him in power. He has offered employment to the rebel cooperatives in Huanuni to appease them and bring them to his side. He is paying out a "bonus" to every child in Bolivia. He keeps paying out the solidary bonus to the elderly. He is spending lots of money alone in the nationalization of the companies and the restarting of the national energy company, YPFB.

These examples do not amount to a significant percentage of the national budget, but they are examples of his tendency to spend to keep support alive. The problem with this is that is might not be a sustainable way. Yes, Bolivia has some dollars now, but what about in the next years, decades? It is my opinion that one of the reasons unemployment is tending to go down is because of Morales' populist policies. And the problem with populist policies is the they tend to be short-sighted. They might be good to keep public support, but they make no economic sense. In other words, most of the time, they are not sustainable. And that is the key word here, sustainability. The country must be able to keep on generating income, just like anyone. It cannot continue spending without worrying about from where is the next dollar going to come.

At present time, this does not look good. The only significant source of income for Bolivia seems to be natural gas. Bolivia cannot stay dependent on a commodity, we know what happens then. The diversification of the economy is also a priority. This is what makes income sustainable.

2 comments:

mcentellas said...

I also worry about those issues. On the one hand, in macroeconomic indicators, Bolivia's economy has done well -- and continues to do so. So where's the crisis? I've always thought hte crisis was more political than economic. On the other hand, is Evo pursuing policies too similar to those of the Barrientos/Ovando/Torres period (1960s-1970s) & the UDP government (1982-1985)? If so, what's the danger of a collapse of such policies?

mabb said...

I think the crisis is a bit from both, plus other things. The thing is most of the time the reasons overlap eachother. For example, poverty. It clearly has many dimensions, among them economic and political.

One of the criticisms that economists themselves, astounded, bestow on the neoliberal policies of the 90s, is that these policies, eventhough they seemed to have "worked" (i.e. there was growth), did not deliver what they promised.

So we find rising unemployment, miser investing, rising inequality, problems with the budget, high debt, etc., etc., etc. And those problems tend to touch the people directly.

I think that is why one can say the crisis is more political than economic. But, I don't want to even think how the crisis would have been had the macro variables been on the wrong track.

And yes, that is why I mean when I talk about Evo's populists policies. I think he is being short sighted because he does not have to worry about inflation or government intakes, the TGN is doing well now, so he worries about how to cement his power. He wants solid support and how might one get this support? By spreading $$$, jobs and the like.

I think the danger of collapse is there. What is going to happen when his luck runs out and the coffers in the TGN is empty? He is no Chavez who has oil to rely on. Yes he is trying to build himself natural gas, but he has to build it first. That takes time. Instead I think that some time in the future money will not be as readily available and he'll come into pressure.