Global Policy Forum

By Emad Mekay

The International Monetary Fund (IMF) backed a tax increase and economic austerity measures in Bolivia that fuelled riots in the South American nation this week that have left at least 20 people dead and dozens injured, critics of the Washington-based institution say.

Bolivia, the poorest country in South America, is witnessing some of its worst ever violent protests over government plans to hike income taxes by 12.5 percent, which officials claim is needed to cut the budget deficit and win IMF support for a four-billion-dollar loan.

While the Washington-based anti-debt group 50 Years is Enough said in a statement Wednesday that activists in Bolivia were convinced that anti-tax feelings drove most of the protesters into the streets, a Fund official told IPS on Thursday that the agency had not suggested that the government introduce new taxes.

Local press reports available on the Internet quoted the governor of Bolivia's central bank as saying that the IMF had demanded that the budget deficit be reduced from 8.5 percent to no more than 5.5 percent under the loan agreement.

But the Bolivian government, led by right-wing President Gonzalo Sanchez de Lozado, has said that the tax was not imposed under the IMF programme.

''On paper that is no doubt true; in reality it is widely known that the IMF takes an active role in proposing solutions to the problems it identifies,'' said the activist group. ''The introduction of new taxes on the working population was widely known to be the IMF's favoured remedy for the deficit.''

''There's definitely consciousness in the population, that's been directly affected in Bolivia, that since the deal was made with the IMF in October that they are the ones orchestrating this government's economic policy,'' said Stasy McDougall, campaign coordinator with 50 Years.

A spokesperson for the IMF told IPS that the institution regretted the deaths and violence in Bolivia, but denied that the riots were sparked by any measures related to the Fund.

''The fight has started between the police and the military and is not connected to any specific measures,'' Francesco Baker said. ''It was basically a problem over the salaries of policemen.''

Baker also denied that the IMF recommended the tax increase directly during consultations with Bolivian officials. ''We didn't look into specific measures. What we looked into was the deficit situation. A high deficit is not sustainable.''

The talks took place ''without going into details of that measure or this or how to get there'', added Baker.

Bolivia has been in discussions with the IMF since October and has reached a provisional deal for a four-billion-dollar loan.

One of the Fund's standard requirements is that borrowing countries slash budget deficits to fund poverty reduction programmes, described in a 'poverty reduction strategy paper' (PRSP), a Fund-approved document that outlines a government's economic roadmap. Increasing tax revenues are a standard measure in those programmes.

The cost of implementing Bolivia's IMF-backed programme until 2006 is estimated at 7.4 billion dollars, of which 3.7 billion dollars (including tax revenues) would come from domestic sources and 2.8 billion dollars from foreign financing.

According to the PRSP, the financing gap of 0.9 billion dollars could be filled by the private sector (for example, through investing in road concessions) and ''increased tax revenues following improvements in tax administration''.

IMF-inspired policies and pressure from the United States to end coca growing in the country without offering farmers an economic alternative are burdening Bolivians, says the Washington Office on Latin America, a non-governmental organization (NGO).

''The protests are a result of the population's frustration and desperation with the economic situation in Bolivia,'' said Tina Hodges of the group.

''Bolivia is under pressure from the IMF to reduce their deficit. Given that the IMF is insisting on this reduction, and raising taxes is one way of doing that, the Bolivian administration has announced they were going to administer this tax.''

But the tax hike, revoked immediately after the riots broke out, has proved to be the final straw on a population already mired in poverty and buffeted by economic liberalisation programmes.

The majority of Bolivia's 8.5 million people are low-income subsistence farmers, miners or small artisans. The country's average annual per capita income is about one thousand dollars, compared to more than thirty-four thousand dollars in the United States.

The country exports soybeans, zinc, silver, gold, and other metals, wood, and natural gas.

Hit in the 1980s by recession and high inflation, the government introduced austerity measures similar to those now being implemented, a new currency and tax reforms. Those moves partly succeeded in limiting inflation and restoring foreign investors' confidence.

But while the policy changes, implemented in exchange for World Bank and IMF support, succeeded in lowering inflation, activists charge that the results also include greater inequality of wealth and heightened social instability and unrest.

Now, labour unions, employers groups and opposition leaders have all threatened a general strike to protest the austerity policies of Sanchez de Lozado, himself a millionaire owner of Bolivia's largest mining group.

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