In a measure, similar to the one taken by the Iranian President Mahmoud Ahmadinejad, the Bolivian government announced the removal of subsidies on fuel prices, which it blamed for discouraging investment in oil production and costing the state $380m a year.

The subsidy reform plan being implemented in Iran will see 100 percent removal of fuel subsidies in different phases over a five year period. However, Bolivia’s reforms took affect immediately and have caused uproar among trade unions and disruptions in the transport sector.
Commuters on Monday struggled to reach the main cities, and army lories were used to help people get to work.
The left-wing government of President Evo Morales ended a six-year freeze on fuel prices on Sunday. “That money should stay here (in Bolivia) and the resources we will obtain from this move will be spent on productive local irrigation projects,” Morales was quoted on Monday by AFP.
The government said the price hikes were designed to compel energy firms to produce more oil and to reduce dependence on imports.
“We are bringing fuels up to the international price levels,” said Vice President Alvaro Garcia Linera Garcia.
The removal of the fuel subsidy, which followed a crackdown on smuggling last month, took many people by surprise. Service stations lifted prices immediately, and transport and teachers’ unions announced an indefinite protest strike, branding the measure “surgery without anaesthesia”.
Alvaro García Linera, vice-president, said $150m of the annual subsidy was ending up in the pockets of smugglers and foreign consumers in Peru, Chile, Argentina and Brazil.
“We cannot have low prices here and high prices outside
[Bolivia], because then all our gasoline and diesel flow out like rivers. We have tried to protect ourselves from smuggling. We have mobilized the armed forces. We have done everything, but it’s impossible,” said Mr García Linera.
“Our model of development needs to be protected. We will continue to grow and invest, but we cannot continue bleeding.”
The removal of the fuel subsidy was announced on Sunday after a six-year price freeze.
Diesel prices rose 83 per cent on the announcement to $0.96 a liter; low-octane petrol by 73 percent to $0.90; and high-octane by 57 percent to $1.04.
The government of Morales, which nationalized the hydrocarbon sector in 2006, is maintaining the price of natural gas that is converted into vehicle fuel or domestic gas for cooking. It has also frozen electricity, water and telephone rates, and promised above-inflation pay rises for public-sector workers of about 6 percent to offset the fuel price rises.
Recent Bolivian governments have paid a hefty price for tinkering with fuel prices. The former president Gonzalo Sánchez de Losada fled abroad in 2003 after riots sparked by tax increases imposed to avoid a fuel price rise. Ex-president Carlos Mesa’s diesel increase in 2004 bolstered an autonomy movement in the gas-rich south-eastern states.
Bolivia is South America’s second-poorest country after Guyana. Its economy expanded 4 per cent in 2010 and is forecast to grow 5 per cent in 2011. President Evo Morales’s administration has won praise from the International Monetary Fund for “prudent” macro­economic management, and the country has earned upgrades from Fitch and Moody’s rating agencies.
Foreign investors remain skeptical, however, following the hydrocarbon nationalization and similar moves in the pension and power sectors. The state energy group YPFB faces a challenge in attracting investment in oil and gas production to cut imports.
Photo: Soldiers and military vehicles provided alternative means of transportation for some. (Photo: AP