No production, no redistribution

At a recent press conference, President Arce declared: “Our economic model is a redistributive model.” Clearly, for Arce, this is the purpose of his economic model, its raison d’être. The President should be reminded that if the surplus does not exist, it cannot be redistributed; and the surplus cannot exist without first producing it.
Arce believed that the main economic problem was how to fairly distribute the fruits of the economic production effort between companies and workers. The answer was to provide more resources to workers through government-set wage increases. Such a redistribution would not only lead to a more equitable distribution of the fruits of production, but would also be a formula for boosting national development and wealth by increasing demand.
This is not to say that a fair distribution of the goods produced by the economy between capital and workers is not important for social justice to exist in society. One could even say that a society, in addition to increasing production, must first and foremost distribute fairly. The poorer the country, the more this is true. In a country like Bolivia, wealth creation must be a priority; if the pie is not expanded, poverty will be distributed.
These considerations go to the heart of the situation the country currently finds itself in. Let us recall recent history.
Fortunately for the MAS, it came to power in 2006, almost mathematically coinciding with the biggest commodities bull cycle the country has ever experienced since its founding. As a result of this phenomenon, the country enjoyed unprecedented and extraordinary revenues until 2014.
This wealth has enabled the MAS government to generate surpluses which have been distributed to the population directly through subsidies and bonds, and indirectly through an overvalued exchange rate, which has encouraged consumption of imported goods, current expenditures in an increasingly large state sector, and loss-making investments – creating state-owned enterprises. These measures have increased consumption at the expense of investment, although there has been infrastructure investment as well.
From 2015 to 2022, the MAS government continues to spend just as before, only now they run trade and fiscal balance deficits because the raw materials boom is over, and how do they do that? Well, by simply spending the savings generated during the boom that have accumulated in the RINs.
This phase ends in early 2023 when, as expected, the RINs are finally exhausted. However, the government persists and insists on behaving in the same way as before, when it first enjoyed surpluses and then savings, which no longer exist.
The government currently no longer has the resources to cover its expenses. The result is a lack of foreign exchange, and therefore the emergence of a parallel market in the dollar, a deficit in the commercial and fiscal balances that can no longer be sustained, inflation that has been curbed (although not completely) through subsidies, and an increased likelihood that the country will not be able to repay the debts contracted with international creditors.
What happened? Simply put, the MAS deceived itself. During the boom, when he still had the savings created by the boom, he believed and believed that the surplus that existed because of the boom was created by his model. Nothing could be further from reality. There is no worse blind man than one who does not want to see.
In fact, this wealth is not the result of the productive capacity of the Bolivian economy, nor even of the MAS economic model. It is the result of the laws approved during the Sánchez de Lozada government, which gave rise to massive investments in hydrocarbon exploration, which led to the discovery of large reserves of natural gas and to an accident of history: the huge growth of China meant an unprecedented increase in raw material prices.
The lesson of recent history, or rather the lesson reinforced because it is nothing new, is that you cannot achieve sustainable growth by temporarily increasing consumption, because the extraordinary income you enjoy during this period is also temporary. No country has ever become poor by prioritizing consumption. Quite the contrary, it has done so by prioritizing savings and investment, dare we say? The market is an invisible hand, but the state also understands that its role is to effectively supervise the market, not to replace it. The latest example of this certainty is East Asia, which has gone from being one of the poorest regions in the world 60 years ago (certainly poorer than Latin America) to one of the richest.