28 The Americas The EconomistOctober 17th 2020
21ests against Mr Morales. His base is Santa
Cruz, Bolivia’s most populous department,
which has flirted with secession. Mr Cama-
cho is not promoting unity. Cruceñosare
exchanging lists on WhatsApp of Mr Mesa’s
supporters, who are then ostracised.
Blaming the pandemic, Ms Áñez post-
poned the elections twice. That fuelled sus-
picion among mas supporters that they
would be stolen from them. Mr Arce told
The Economistthat he would respect the re-
sults of “transparent” elections, but has
also said that “only fraud” would explain a
victory by Mr Mesa. Less than half of Boliv-
ians trust the Supreme Electoral Tribunal,
according to a poll by Fundación Jubileo,
an ngolinked to the Catholic church.
The best reason to be hopeful is that
those suspicions are groundless. The tribu-
nal has new members. They have removed
dead people and non-voters from electoral
rolls and developed software and rules for
protecting ballots. The pandemic has kept
many foreign observers away, but hun-
dreds of Bolivians have been trained to as-
sume their roles. “The international com-
munity won’t support anyone who tries to
overturn the results,” says an ambassador.
Even if a political crisis is avoided, an
economic one awaits. Falling revenue from
gas exports had reduced growth before co-
vid-19. gdpis expected to shrink by at least
6% this year. The fiscal deficit, 7% of gdpat
the end of 2019, is expected to reach 12%
this year. Ms Áñez cancelled construction
projects that employed thousands. After
the pandemic struck, the mas-controlled
legislature refused to spend a $327m loan
from the imf, which deepened the suffer-
ing. Two payments to Bolivians of 500 bo-
livianos ($72) each “were hardly enough to
buy internet”, says an Aymara woman sell-
ing colourful sweaters and face masks at
the Feria 16 de Julio, a huge market in El
Alto, on the plains above La Paz. More pain
is in store. The next president will have to
reduce spending.
But he will probably inflame Bolivians
less than Mr Morales and Ms Áñez did.
Some indigenous people regard Mr Mesa,
who was driven from office in 2005 by de-
monstrators demanding nationalisation of
gas, as a blander version of the interim
president. A graffito in Villa Armonía de-
clares “Mesa = Añez”. Mr Mesa responds
that he will fight racism and poverty. “A
president should be judged by his actions,
not by the colour of his skin,” he says.
Mr Arce seeks to distance himself from
the most contentious aspects of the Mo-
rales years. He says he will not interfere in
investigations against former officials. His
ministers will not be veterans of the former
government. Unlike Mr Morales, “Luis Arce
is not a caudillo,” says Juan Carlos Nuñez,
the director of Fundación Jubileo.
The next president is unlikely to com-
mand congress as Mr Morales did. Thatposesarisk.Alegislativeimpassecould
furtherdamagetheeconomyandleadto
newprotests.However,theremightbeless
cronyismandmorepragmatismina gov-
ernment answerable to a legislature in
whichnopartyhasa majority.Itwillhave
toseekconsensus,forexample,toapprove
nominees for jobs in such corruption-
proneorganisationsasstate-ownedfirms
andthecustomsagency.
AcrosstheplazainVillaArmonía,Carla
Fernándezwaitsindrizzlefora bus,sport-
inga Mesahat.“Mymotherwearsapollera
[traditionalskirt]andI’mnotrich.Butthat
doesn’tmean I’m going to vote forthe
mas,”shesays.Hervotewilloffsetthatof
JoanFernández,whoisnorelation.They
sharea hopethattheelections,whilethey
maynotbringharmony,willatleastfore-
stallanotheroutbreakofviolence. 7T
he politicsof value-added tax (vat)
are complicated in many countries.
They are especially tricky in Colombia. The
standard vatrate is 19%, one of the highest
in Latin America, but the list of exemp-
tions, which includes milk, eggs and visits
to the doctor, is long. This is supposed to
help the poor, but the rich benefit more.
Salmon, which is imported and therefore
expensive, is not taxed. Coffee and soap,
which almost all Colombians use, are.
Luis Alberto Rodríguez, who as director
of national planning manages public in-
vestment, says it has been “our obsession”
to correct this unfairness. Income inequal-
ity is the highest in the oecd, a club of
mostly rich countries. Colombia’s taxes
and transfers do less to correct this than inany other member country (see chart). vat
exemptions and reductions are also expen-
sive. They cost the government the equiva-
lent of 6% of gdp, more than in any other
Latin American country.
In the early 2000s Alberto Carrasquilla,
the finance minister, wanted to give re-
bates to poor people for the vatthey paid.
That would have allowed the government
to shorten the list of exemptions, boosting
its revenue. But politicians objected, be-
cause vat exemptions are popular. The
government lacked the information it
needed to compensate the poor.
Now it knows more, and, under Mr Car-
rasquilla, who is again finance minister, it
is making another attempt. The govern-
ment quietly inserted a vatcompensation
scheme into a tax bill that Congress rushed
to approve in January to stave off a down-
grade of Colombia’s credit rating. Lawmak-
ers did not realise that the measure was in
it, says a former government adviser. It has
helped poor people cope with the recession
caused by the pandemic. It may become a
model for other countries. Argentina and
Ecuador have tried such schemes before,
without success.
Colombia’s government now has two
tools that it lacked. The first is a computer-
ised version of Sisbén, a database of mostly
low-income families. An upgrade of a reg-
istry created in the 1990s, it includes 80% of
the population. In Latin America, only Cos-
ta Rica has a similar database that covers as
high a share. Sisbén informs the universal
health-care system and identifies benefi-
ciaries of conditional cash-transfer (cct)
programmes like Families in Action, which
helps families that keep children in school.
Local authorities provide four-yearly up-
dates to discourage cheaters from register-
ing in more than one place. There are ways
to add households between updates.
Thanks to Sisbén, Colombia transferred
more emergency aid during the pandemic
than Peru, which had a bigger aid budget as
a share of gdp.
The second tool is digital financial ser-
vices. In 2012 the government signed a con-
tract with Davivienda, the third-largest
bank, to deliver cash transfers through
DaviPlata, a free “digital wallet” that allows
rural people to open accounts on their
smartphones. Other banks and fintech
firms followed. Today, 37% of beneficiaries
get their money through digital wallets.
Because many Colombians are em-
ployed off the books and shop in stores that
do not keep accurate records, the govern-
ment does not know precisely how much
poor families spend on vat. Using surveys,
it has estimated that the average outlay is
37,500 pesos ($10) a month. The compensa-
tion programme gives that amount back, in
two-monthly instalments.
One beneficiary is Irma Rosa Melenje, a
single mother, who lives in a slum 40 min-BOGOTÁ
The government tries to fix a messy
and unfair taxColombiaVAT half-empty
Bottom of the barrel
Reduction in inequality* after taxes and transfers
Selectedcountries, 2018 orlatestavailable,%Source:OECD *GinicoefficientColombiaMexicoChileUnited StatesBritainOECDGermanyFrance403020100