Turning the tables

02/04/2006 | Lucien Chauvin

Bolivia’s new president is holding out for a better deal for his country – from hydrocarbons to foreign trade. His instincts may be more practical than the rhetoric suggests

By Lucien Chauvin

Bolivia’s new president is holding out for a better deal for his country – from hydrocarbons to foreign trade. His instincts may be more practical than the rhetoric suggests
Bolivian president Evo Morales has moved more slowly than expected on economic reforms in his first two months in office, focusing instead on the legal framework that will alter the political, economic and social make up of the Andean nation.

Morales, inaugurated in late January, received approval in early March from the Bolivian house of representatives and senate, where his Movement to Socialism has working majorities, to move ahead with a constituent assembly that will rewrite the country’s constitution.

Assembly members will be elected in July 2 voting and seated on August 6 in Sucre, the country’s historic capital. The assembly will have up to one year to draft a new constitution, which will then be submitted in a referendum to voters within 120 days.

“I would say that the administration is trying to get a better grasp on the problems and challenges and what it can and cannot do. The fundamental need is to consolidate political power and the capacity for action, which is why measures for reforms have been delayed,” says Roberto Laserna of the Cochabamba-based Research Center on Economic and Social Reality (Ceres).

Dropping the debt

The government has gained some wiggle room on outside sources. In December, the IMF announced that it would forgive Bolivia’s $232.2 million in debt. In the past 90 days, the Japanese and Spanish governments have also forgiven debt of approximately $200 million.

Morales is lobbying the IDB to do the same, calling on it to wipe out the debt owed it by Bolivia. “If the IDB cancels the debt it would be huge, because it is about 35% of their external public debt,” says Mark Weisbrot, co-director of the Washington-based Center for Economic Policy Research.

While the administration’s efforts have been focused on building its teams and getting a handle on the reality of moving from opposition to government, there have been decisions made and signs as to the direction in which Morales would like to take the country.

The president has made it clear that his administration plans to follow through on the campaign pledge to increase the state’s presence in strategic sectors, such as natural resources, telecommunications and transportation as part of the economic reform efforts.

Air and water

The Bolivian state tacitly took over the administration of the one-time national airline, LAB, when it ended a strike by pilots. Morales announced that the state would renationalize water resources in early February, after having created the post of water minister in the cabinet. He got a pre-inaugural gift on January 19, when US-based Bechtel agreed to end a $50-million suit against the Bolivian state for reneging on a water privatization contract it won in 1999 to run the water and sewage system in Cochabamba, Bolivia’s second largest city. The contract was cancelled within a few months after massive protests –  the “water wars” – threatened to topple then-president Hugo Banzer’s government.

The major issue – and one that will most likely dominate debate in the constituent assembly – concerns the state’s role in the hydrocarbon sector. Policies for oil and gas exploitation and export have already toppled two presidents (Gonzalo Sanchez de Lozada in October 2003 and Carlos Mesa in June 2005), and Morales needs to walk a fine line.
His administration has promised to do several things so far, such as repeal Supreme Decree 21060, the 1985 law that began the economic liberalization process, as well as Supreme Decree 24806, signed by Sanchez de Lozada in 1997, that gave foreign companies ownership of oil and gas at the wellhead.

What next for hydrocarbons

While repealing these decrees is mainly symbolic, major oil and gas multinationals operating in the country know that the goal is some form of nationalization of hydrocarbons. Almost everyone is waiting to see exactly what form it will take.

“Nationalization is very tricky, because it means many things to different people. For the government, which is being criticized from the left, nationalization seems to mean signing better contracts and being able to assert more control over the sale of oil and gas, but by no means seizing the wellheads,” says Jeff Vogt, who researches economic issues for the Washington Office on Latin America (WOLA).

Weisbrot believes that the government’s approach will be beneficial to Bolivia and will not scare off any of the major multinationals already operating in the hydrocarbon sector.

“I think that they [Bolivia] are going to get a better deal for their natural resources than they have in the past, which is very important,” he says. 

In the meantime, the administration is enjoying positive economic numbers from the worldwide boom in mineral and hydrocarbon prices. The National Statistics Institute (INE) reported on March 17 that exports for the first two months of the year were 49.73% higher than the same period last year, thanks mainly to a 76.44% jump in hydrocarbons, which brought in $271 million of the overall $516 million in export earnings.

Laserna says this rapid increase in export earnings could come back to haunt the administration if it does not properly administer the windfall. “The big challenge is how to use these new resources without generating internal conflicts, because there are regions that are waiting for more money. This is an enormous challenge,” he says.

Gas and oil reserves are found in the lowland Tarija and San Cruz departments, both of which threatened to partially secede from Bolivia last year in the conflict that led to President Mesa’s resignation. The Morales administration has to find a common ground that satisfies the demands of these departments while using income from hydrocarbons to address the endemic problems in this country, where more than 60% of its 8.5 million people live in poverty. 

Free trade

The other dominant theme early on in the administration is free trade, but with a distinctly Bolivian twist. Morales, who campaigned against the US-led Free Trade Area of the Americas (FTAA) and a possible bilateral free-trade agreement (FTA) with the US, reiterated the pledge on March 15, saying Bolivia would “never sign an FTA with the United States”.

The immediate problem, however, is more about a US-Colombia deal. Under the late February FTA pact negotiated between Bogota and Washington, Colombia will immediately allow US soybeans and soybean meal into the country tariff free as soon as the treaty is approved. Colombia is the largest importer of Bolivian soy, with Bolivia exporting 500,000 tons of soy to Colombia in 2005 for $166 million. This market is likely to be lost once the FTA kicks in.

“Right now, the major concern is for preserving the soybean market due to the possible loss of Colombia,” says Laserna. Soybean exports reached over 1 million tons in 2005, earning $257 million or 19% of export earnings.

While Morales is opposed to an FTA with the US, his government has announced that it is negotiating with the US embassy in La Paz to start three-way talks with the US and Colombia to deal with the soybean issue.

“The administration seems to have a double dialogue, saying it will not sign an FTA but trying to negotiate with the United States. I think it is trying to demonstrate to the outside that it is practical, while dealing with its own taboos at home,” says Laserna.

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