Chile, Bolivia and Iran Slash Energy Subsidies

Chile Protests Turn Deadly as Latin America Buckles Under Rising Energy Prices

With two people killed in the southern city of Punta Arenas during Chile protests against hikes in natural gas prices, President Sebastián Piñera may be facing his biggest crisis yet.

January 12, 2011

Christian Science Monitor - Two people in the southern Chilean city of Punta Arenas were killed Tuesday night when a truck ran into the barricade where they were protesting the government's plan to increase natural gas prices.

The world's southernmost city, with a population of 110,000, remained largely paralyzed today by a general strike as local residents and elected officials demand that the national government maintain subsidies on natural gas, which is widely used in the region to power vehicles, heat homes, and provide energy for businesses.

The protests are the latest in a wave of anger in Latin America as governments attempt to reconcile budgets with energy prices, which have climbed to levels not seen since the record highs of 2008.

Close on Bolivia's heels

Just two weeks ago, Bolivian demonstrators took to the streets in the week between Christmas and New Year's to protest against President Evo Morales' plan to reduce subsidies for gasoline and diesel. Mr. Morales ultimately reversed his decision and reinstated subsidies on oil and gas.

Likewise in Chile, which imports 93 percent of its gas, analysts expect President Sebastián Piñera may have to back down from the planned 17 percent hike in natural gas prices as the strike in Punta Arenas and the surrounding region of Magallanes threatens to become his biggest crisis since taking office a year ago. Indeed, government spokeswoman Ena Von Baer told reporters this morning that the administration is open to adjusting its plan but didn't want to do so under threat of strikes and violence.

"We want dialogue, to continue talking in a serious and responsible way about the future of Magallanes," she said.

The government is painting the price increase as a technical decision in response to declining reserves of gas. Tomas Mosciatti, a pundit with Radio Biobio, said today on CNN Chile that any decision about subsidies – be it for the government to take on the burden, or to push it onto citizens – will have political repercussions.

"No matter what they do, the government has already lost," he said.

Gas now costs more than in US

Chile has been cutting subsidies to its national energy company, Enap, which in turn has laid off 600 workers in recent weeks and raised fuel prices. Gasoline and diesel in this import-dependent country now cost more than fuel in the US. Gas here is now more than $5 a gallon.

Chile's energy costs are compounded in Magallanes, where citizens pay the same average gas bill as consumers in the more temperate center of the country, about $45 a month, while consuming eight to ten times as much gas, Energy Minister Ricardo Raineri told Radio Cooperativa on Jan. 6.

The price increase will be only $6 a month for the average consumer, he said, but this threat was still enough to rile citizens in Magallanes. The region, which has Chile's only producing natural gas wells, is especially susceptible to increases in natural gas prices because many of the area's motor vehicles run on natural gas.

In Punta Arenas, truckers blocked the port yesterday and residents erected barricades overnight to enforce a general strike. Tourists arriving by airport at the peak of the southern summer must walk into the city, and access is blocked to the Torres del Paine national park in Patagonia, reported Radio Agricultura. Ferries to and from the island of Tierra del Fuego were halted by residents there.

Police detained 31 people overnight for alleged looting and vandalism. The driver of the vehicle that killed the two women, ages 19 and 23, and gravely injured a 2-year-old girl is still at large, Radio Polar reported. Political motivation for the accident has not been ruled out nor confirmed.

Bolivia's Morales Scrambles to Stem Crisis over Massive Fuel Price Hike

President Evo Morales' government raised the minimum wage by 20 percent on Wednesday in a bid to defuse social tensions over hefty fuel price increases that have sparked protests in the impoverished Andean country.

December 30, 2010

Christian Science Monitor - President Evo Morales's decision to cut fuel subsidies has led to repeated protests, most recently today, by poor Bolivians who make up his political base.

Bolivian President Evo Morales faces another day of demonstrations over an enormous fuel price increase today, after bus drivers and some citizens' groups rejected his conciliatory gesture to increase pay for minimum-wage workers and public servants.

The head of the national bus drivers' union, Franklin Duran, called for a national strike today after Mr. Morales last night reaffirmed his Dec. 26 decree to slash subsidies and raise fuel prices by more than 50 percent, the first price increase in six years.

"This speech didn't have much flavor for us," said Mr. Duran, whose union is one of the country's most powerful, as the vast majority of Bolivians travel by bus and striking drivers use their vehicles to block streets. "We were hoping he would solve our problem, both as drivers and as Bolivian families."

The conflict may be Morales's biggest crisis since taking office in 2006. While he faced a recall referendum and extremist demonstrations in 2008, he has never faced so much opposition from the small miners, peasant farmers, and urban poor that make up his base.

Morales's sales pitch

Morales tried to explain the cuts last night by pointing out that half of the $380 million the government spent this year to lower fuel prices ended up being skimmed off by smugglers – including some bus drivers – who filled up in Bolivia and sold gasoline or diesel in neighboring countries for a profit.

Ending the subsidy will also help state oil company YPFB increase oil exploration, raising the possibility that the country could end fuel imports, he added.

The president also raised the minimum wage to $117 a month and gave the police, military, health, and education workers 20 percent raises.

Why the poor don't welcome pay raises

Rolando Villena, appointed by Morales to be a government ombudsman this year, said the price increase would hurt the poor the most.

Indeed, hopes for long-term economic stability and the new public-sector raises don't help the poor, whose jobs don't pay hourly wages, says Mario Duran, a political analyst in the El Alto neighborhood on the outskirts of the capital, La Paz.

Most residents in El Alto run small businesses such as clothing workshops and mechanic shops, meaning they won't benefit from a higher minimum wage. They are, however, hit by the costs of the price increase, as bus fares have jumped 50 to 100 percent and lunches that recently cost $1 now cost $1.50 to $2, he says.

Almost 90 percent of the neighborhood's residents voted for Morales last year, Duran says, adding that the president's popularity was in part a result of his opposition to the last increase in fuel prices, at the end of 2004.

Contrast with Iran, which also cut fuel subsidies

The crisis over Bolivia's fuel price increase stands in contrast to the calm in Iran, which also cut fuel and other subsidies last week, says Armin Wagner, transport policy advisor at the aid agency German Technical Cooperation, in an e-mailed response to questions.

He compiles an annual survey of fuel prices worldwide. Governments do better if they announcements fuel price changes regularly, rather than waiting years between adjustments, he says.

Ahmadinejad Cuts Iranian Subsidies, Quadrupling the Price of Gas

The price of gasoline will rise fourfold in Iran in the coming days, state television announced late on Saturday, as the most politically sensitive part of President Mahmoud Ahmadinejad's subsidy cuts plan takes effect.

December 20, 2010

Christian Science Monitor - President Ahmadinejad has made it a priority to cut subsidies on daily essentials such as gas, water, and flour that have cost Iran as much as $100 billion a year since 1979.

Iran began taking dramatic steps over the weekend to remove subsidies on fuel, food, and other essentials, in a politically risky move that overnight quadrupled the price of gas and increased the price of diesel ninefold.

President Mahmoud Ahmadinejad said the ambitious plan was a critical step in dealing with Iran’s ailing economy – burdened by both mismanagement and four rounds of United Nations sanctions – and promised that the compensation scheme of $40 per person per month would benefit 60 percent of Iran’s population.

While many recognize the huge cost the subsidies have imposed on the economy – the government says it spends $100 billion every year, though experts suggest it could be one-third that – there has also been strong criticism, including from economists, politicians, and citizens.

Riot police were deployed at some gas stations in Tehran on Sunday to prevent a repeat of the 2007 violence and protests that came after fuel rationing was announced – stealthily, and late at night. So far there have been no reports of unrest due to the long-expected plan.

“I ask the people not to hoard gasoline because it carries many dangers. God forbid, accidents could happen,” Mr. Ahmadinejad said on live television, when announcing that the first phase of subsidy cuts would begin on Sunday.

The Iranian president invoked the Shiite Messiah, the Mahdi, when describing the compensation plan, noting that two months’ worth had already been deposited into personal bank accounts to be withdrawn from Sunday onward.

“This scheme will continue and will continue for decades, thanks to the divine wisdom, so no one can annul it,” Ahmadinejad claimed. “The people should not hurry in withdrawing this money [or] the market will be disturbed.”

'Ahmadinejad is the right person to do it'

Iran has provided costly state subsidies since the 1979 Islamic revolution. The effort to reduce them has long been a political hot potato. But Ahmadinejad, who has relatively strong backing among those most likely to be affected, has said he hopes to wean Iranians off the subsidies completely by the end of his term in 2013.

“Ahmadinejad is the right person to do it, because the brunt of this adjustment is going to be felt by people below the median income, especially when you get into bread, maybe even medicine,” says Djavad Salehi-Isfanhani, an economist at Virginia Tech and a fellow at the Brookings Institution, contacted in Tehran.

Such Iranians, often called the “pious poor,” have formed the backbone of the populist president’s support since Ahmadinejad was first elected in 2005. Many still support him, despite the disputed reelection in 2009, and the arch-conservative president has taken some unpopular decisions while at the same time enhancing the power of the president’s office.

“He said, ‘I am with the people, I am for the people,’ he kept saying that,” notes Mr. Salehi-Isfahani. “He was so emphatic about the fact that they thought about everything… ‘We know about the truck drivers who operate there,’ it was a confidence-building speech.”

37,000 clerics deployed to make the case

But experts are uncertain about the impact or success of the subsidy reforms, as well as of the ability of the government – which has shown “sheer incompetence” in some economic issues, says Salehi-Isfahani – to carry them out. Making the cash deposits in advance, however, was “very clever” because it helped counter the deep-seated belief that "the government is a thief,” he adds.

“This is a very hard country to govern, because there is so much distrust of government,” says Salehi-Isfahani. “With this level of distrust, to figure out a way to give and take at the same time is a good thing. [But] I’m not at all confident that they have thought a lot of things through.”

One Iranian website claimed that 37,000 clerics had been deployed across Iran by the Islamic Propaganda Organization to help make the case for the changes, according to the Enduring America website, which monitors Iranian media.

Economist Fariborz Rais Dana was arrested in Tehran soon after an interview with the BBC Persian service, in which he said:

“The government knows the cash that it gives to people will evaporate under inflationary pressure. Thus, after a while the cash will have no effect. The government will get rid of the huge expense [of the subsidies] and will spend the money on buying weapons or other things, and people will be on their own.”

Removing the subsidies, he said, according to a translation by analyst Muhammad Sahimi on the Tehran Bureau website, “will create more unemployment, more poverty, and more misery.”

President tackles culture of waste

Cut-price essential services have been a fact of life in Iran since the revolution. On his first day back in Tehran from exile in February 1979, Ayatollah Ruhollah Khomeini, the father of the revolution, stated that the Islamic Republic would “provide you water and electricity and bus rides free of charge,” and even “build a home for you.”

But the heavy subsidies have encouraged a widespread culture of waste in Iran. Economists say too many cars in Tehran, for example – and the attendant severe air pollution and traffic – are partly a function of gas that until now has been far cheaper than bottled water.

The price of gas, for example, has risen from 10 cents a liter to 40 cents. The price of electricity is set to triple, the cost of water to quadruple, and the price of flour to rise 12-fold.

Sometimes Iranians keep their cooking gas burners on constantly, even if there is no kettle or pot on the stove; reports suggest one of the highest volumes in the region of bread thrown away – part of a subsidy that costs the government $4 billion each year, according to Ahmadinejad.

“We have [planned to increase] the price of water, electricity, and natural gas gradually so everyone has an incentive to be more economical,” Ahmadinejad said on state TV.

'Ahmadinejad is a national hero'

Iranians are uncertain that such monumental economic changes will improve an economy already facing high levels of inflation and four sets of United Nations Security Council sanctions over Iran’s uranium enrichment program.

Television news reports showed some taxi drivers angry with the price hikes that will hit their business hard. But at least some are pleased.

“Ahmadinejad is a national hero,” said a 56-year-old taxi passenger quoted on the Tehran Bureau website. “He is the man who will lay the foundations for a new Iran. Everything he says is word for word our grievances. Why should the people in north Tehran live so well while all of us are being crushed by the hardships of life?”