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Home > English > Alternatives International Journal > 2015 > May 2015 > Case of Bolivia Offers Alternative Perspective on the Supposed Necessity of (...)

Case of Bolivia Offers Alternative Perspective on the Supposed Necessity of Fiscal Austerity

Monday 4 May 2015, by Kyle Jacques

The Quebec Liberals and their supporters in the news media are relying on familiar and simplistic arguments regarding the need for fiscal austerity in the province. While budget cuts will harm Quebeckers’ livelihoods and foment social unrest, the argument goes, such cuts are the only feasible option to set right a province with such a large debt burden. Yves Boisvert of the Globe and Mail, for example, claims that austerity is like “cleaning up the shed.” “It’s a good idea” but, since it is ultimately bound to frustrate somebody, you just need to figure out “what is the best season to do it.”

The argument is appealing because of its apparent simplicity. Quebec has too much debt, debts occur when you spend too much money, so we need to just spend less money! Simple, right? Unfortunately, this view ignores some critical lessons from history.

Bolivia was just one of many Latin American countries to endure the International Monetary Fund’s harsh structural adjustment policies of the 1970s and 1980s. In an attempt to stimulate their infant exporting industries, the Bolivian government took out a series of loans from the IMF. These loans required, as per the IMF’s conditionality clauses, that the government “agree” to an agenda of severe fiscal austerity. The government reduced wages countrywide, and made cascading cuts to various social welfare initiatives. Unsurprisingly, it was the lower-income labouring classes who bore the brunt of these cutbacks.

The measures did help curb the country’s hyperinflation, which by 1985 had reached an estimated 24 000%. However the IMF’s promises of sustained economic growth never materialized, economic inequality skyrocketed, and the debt load remained firmly in place. Even the IMF acknowledged in a 2003 memorandum that, despite strict adherence to the structural adjustment programs, incomes, employment, and other economic indicators in Bolivia were continuing to fall.

Over the course of the early 2000s, the people of Bolivia took to the streets in a series of mass demonstrations against the incumbent government and its subservience to global financial institutions. These protests set the stage for the 2006 electoral victory of Evo Morales with an absolute majority— a very uncommon feat in Bolivian politics.

Under Morales, the government reversed almost every policy imposed on them by the IMF. Instead of privatizing further, the government re-nationalized its energy industry by purchasing a 51% stake in its lucrative natural gas firms. They massively reversed budget cuts, making cash payments to young mothers, improving pensions, and starting a national literacy campaign. Social spending as a whole increased by an estimated 45% under Morales’s government.

Did this lead to the economic ruin of the country? No. In fact, just the opposite happened. In 2014 the Centre for Economic and Policy Research wrote that Bolivia “has grown faster over the last eight years than in any period over the past three and a half decades.” Not only that, but inflation has remained in check and— listen up Quebec — the debt load has been substantially reduced. Inequality has also decreased, poverty has declined by 25%, and the real minimum wage has increased by 87.7%.

Obviously there are substantial differences between Quebec and Bolivia that make it difficult to compare them too closely. Few would recommend that Quebec take the exact same steps to reducing their debt burden and encouraging growth that Bolivia did. The point of the Bolivia case, rather, is simply to show that when Canadian elected officials and journalists respond to the incredible hardships that fiscal austerity will inflict on Quebeckers by shrugging their shoulders and telling us that “it’s the only way,” they simply are not telling the truth.

Instead of just cutting public services, the Bolivian government found innovative ways to stimulate demand and increase government revenue. Most importantly, the case of Bolivia shows us that, historically, austerity has always hurt the most economically vulnerable members of society. In 2009, the IMF’s Western Hemisphere donor Nicolas Eyzaguirre reflected on the ways that fiscal austerity had impacted the people of Bolivia and other Latin American countries, conceding that the Fund is now “emphasizing, much more than the past, that [economic] adjustment cannot take place at the expense of weakening social safety nets.”

Now, when even a representative of the IMF, the institution whose name was once synonymous with “fiscal austerity,” stresses the importance of preserving social safety nets, it seems like the government that wants to slash child care programs, reduce health-care funding, and fire public sector employees should probably listen up.