Significance: Protests are expected to continue in Bolivia despite the government's decision yesterday to introduce a 20% rise in the minimum wage to compensate for the end of fuel subsidies.

Implications: It is unlikely that the salary rise will compensate for the increase in transport and food prices.

Outlook: Protests and strikes are to be expected in the following weeks, becoming a real test for the socialist government of President Evo Morales.

Minimum Wage Increase

Yesterday President Evo Morales introduced a 20% rise in the minimum wage. This had been expected following the controversial removal of fuel subsidies decreed on 26 December .The measure will also apply to public-sector workers in the police force, the armed forces, and education and health services, who will benefit from a 20% salary rise in 2011 as well. The left-wing president has also introduced other measures to placate the protests generated by the 83% rise in the price of diesel and 73% rise in that of gasoline (petrol), which has led to a massive strike by bus drivers across the country. Amongst the new benefits Morales has introduced are financial incentives for rural workers and special benefits such as additional bonuses for civil servants. Nonetheless, further protests are expected today, with transport unions likely to lead protests by angry commuters and drivers. The raising of the minimum wage (currently set at a monthly US$95) has been welcomed by most Bolivians, but it will hardly compensate for the dramatic rise in fuel prices, particularly since most basic foodstuffs such as rice, bread, sugar, and oil have already seen a price hike driven by the rise in transport prices. Yesterday, residents of the capital La Paz queued for hours to obtain basic staples from the State Food Production Company (Empresa de Apoyo a la Producción de Alimentos, or EMAPA). One of EMAPA's officials, Álvaro Ríos, had declared earlier that products such as rice, sugar, and oil have already experienced a price rise of between 10% and 15%. Outside state-sponsored supermarkets, however, speculation was running high and prices were arbitrarily adjusted, fuelling further popular discontent.

A Test for Morales

Morales said yesterday in a national address broadcast on public TV and radio that introducing the end of fuel subsidies was "difficult" for him since he was not looking after his image but that of the "national economy". Protests were staged in the Oruro and Potosí departments, while the blue-collar city of El Alto, near La Paz, experienced street blockades. In addition, thousands of miners at Huanuni mine in Oruro, the biggest tin and silver mine in the country, went on a 24-hour strike and threatened to march to La Paz if Morales did not revoke the measure. Panic spread as rumours spread of possible runs on banks and a freeze on savings accounts. Despite the unlikelihood of these events, the sudden and dramatic hike of fuel prices has generated much confusion amongst Bolivians, who are suspicious of sudden changes in economic policy. Meanwhile, bus drivers have called for further protests and are insisting on a 100% rise in transport prices, with the government trying to impose a lower 30% rise. Despite the rise in the minimum wage and the new benefits announced yesterday, further unrest is likely.

Outlook and Implications

According to government sources, the minimum wage rise is intended to compensate for inflation in 2010 and for the end of fuel subsidies. These have cost, according to the government, US$380 million in 2010, the equivalent of 2% of Bolivia's GDP. The expensive subsidies were in place for six years, helping to cement the later social measures and economic benefits for the poor introduced by the socialist Morales government. Nevertheless, despite the government's hopes that this will satisfy consumers, it is unlikely that the 20% rise in the minimum wage will compensate for the increase in transport and food prices. Moreover, the sharp rise in fuel prices will serve to boost  inflation further in 2011, contributing to an ongoing erosion of consumer purchasing power. These are very sensitive issues for Morales' key support base, the urban and rural poor, and may prove a major test of the president's popularity. This is possibly the most unpopular measure announced by the incumbent socialist administration since Morales became president in 2006 and could become a real challenge for the endurance of widespread support for the indigenous leader. It remains to be seen how Morales will handle public reaction against this measure and whether protests will continue after the initial display of public discontent. What is clear is that the leader will lose some form of political capital in the short term, with strikes and social unrest to be expected over the coming weeks.