27 10 2015

THE PRESIDENT IN THE STRIPED SWEATER

Mention Bolivia, and for the last decade it has been difficult not to mention Evo too. Evo Morales was elected as president for the first time in 2005 with 54% of the votes, and he can now celebrate 10 years as president. An absolute outsider, brought forward by social movements of mainly indigenous farmers, workers and small traders, with a tough anti-imperialist and anti-capitalist discourse, he horrified the traditional economic and political elite and the “international community” alike. His government has lived through conflicts and crisis, bordering to civil war, but at the same time it has brought a decade of economic prosperity, dramatic reduction of poverty and a revaluation of the country's indigenous ethnic and cultural roots.

Bolivia is the country of eternal conflicts. Before Evo was elected president it was said that the average lifetime of the governments during the almost 200 years of independence was than one year. The backdrop to the election of Evo was a period of hyperinflation and economic chaos in the beginning of the nineteen-eighties, followed by neoliberal governments with heavy support from IMF, the World Bank and the “international community”. What followed was closure of most of the mining sector, wholesale privatisations, deregulation, and heavy dependence on foreign aid. It all lasted untill around year 2000, when social protests started to make the country ungovernable. The campaign for destruction of the coca plantations, lead by the US Drug Enforcement Agency (DEA) was met with massive opposition from the coca farmers, and the privatisation of the major water companies and a project to export natural gas to the US through Chile were met by protests and widespread mobilisations. When the army was called in to quell the protests with force in 2003, killing more than 60 people, the government resigned and the president, Sanchez de Losada (“Goni”), fled to the US, from where the Bolivian Government is in vane trying to get him extradited.

Evo became president when the country was practically falling apart, as the more prosperous regions in the Eastern and Southern lowlands, where the oil and gas riches are located, claimed autonomy, if not outright independence. His weakness was that his main popular base was in the indigenous highlands, but he skilfully succeeded in mobilising this social base and avoided the trap using military force to suppress the open rebellions (which would probably have resulted in a military coup againt him). The turning point came in 2008, when Evo not only survived a revocation referendum, but won a 67% vote of confidence. He even succeeded in getting a 40% confidence vote in the rebellious Santa Cruz Province. After that the united opposition front started to fall apart. There have been many conflicts since, but none has constituted a serious threat to his Presidency. He won the presidential elections in 2009 and 2014 easily with 64% and 61% of the votes. His votes are now more evenly distributed, as he in 2014 won in eight out of the country's nine provinces (and the corollary is of course that he has lost votes among his traditional core constituency).

On the economic front, Evo's first move was to increase the government revenue from the natural resources, principally gas and oil. The state-owned oil and gas company, YPFB, had been reduced to a shadow of its former self, as its main assets had been sold off to foreign companies. YPFB was refounded and a several of the privatised companies were reincorporated into YPFB. He also “nationalised” the oil and gas, as foreign companies were now forced to sell the extracted resources to the state, which controlled sales, transportation and distribution as well as key decisions regarding the refining and markets. The foreign oil companies were furthermore forced to renegotiate their contracts. The effect of this was to increase the Government's revenues from the sector dramatically.

The increased revenues from the oil and gas sector were used to start social programmes directed at the poorest sectors of the population with several so-called “bonos” (for mother-child programmes, primary education, old age pensions etc.). The increased revenues were also used to renationalise a series of other companies, among these the national telephone company, ENTEL, the water companies, the electricity company etc. and to start new state-owned companies, among these the National Airline (BOA).

Of course the old elite and the “international community” were horrified. Here we had an indigenous president, who had not even finished secondary school, trying to turn back the clock. This was a repetition, it seemed, of oldfashioned populist policies that had let to the economic crisis in the eighties in most of Latin America. The nationalisations of foreign companies would turn out to have a high cost, it was claimed, as it would scare foreign investors away, and the foreign oil companies would not want to renegotiate, they would simply give up on Bolivia and make enormous claims against the country in international courts. It turned out differently, however. Most of the foreign companies chose to negotiate and stay on. And in the cases where they went for international arbitration, e.g. the Italian company ITC, it was settled at compensations much below the – often ridiculously high - claims made.

Bolivia has experienced a period of extraordinary growth during the last decade, growing at a rate of 5-7% per year. Even in 2009, the year of the international financial crisis, the country managed more than 3% growth. The growth has been consistently higher than in the rest of Latin America.

 Growth

There has a the same time been a marked reduction in poverty – even if poverty levels still are very high. Poverty has been reduced from around 60% in 2006 to under 40% in 2013, and extreme poverty has been reduced from almost 40% to under 20% in the same period. This is an impressive achievement.

Boliviapobreza

At the same time inequality has diminished, even if the country is still very unequal. In 2005 the 10% of the population with the highest incomes had incomes 128 higher than the 10% with the lowest – in 2013 that number had decreased to 42 times. Another way of measuring it: the so-called Gini-coefficient went down from 0.61 to 0.49.

The economic policy has at the same time been extremely cautious, running surpluses on both the government budget and the current account for most of the decade, so the fiscal situation is quite good with a low government debt and historically high international reserves.

Critics say that all this is simply down to good luck. Evo was elected president as prices for oil, gas, minerals and agricultural produce started to go up, and now that these prices are falling his good luck is over. This is not a convincing argument, however, as so many Latin American governments historically have wasted commodity booms. Evo's economic policy has been a bit conservative, but this is paying off now, where the country has to withstand a situation with falling prices on practically all its export products. The future looks complicated as the country still is extremely dependent on commodities: natural gas, minerals, soy-beans etc. Bolivia is now running a fiscal deficit of around 3-4%, which is natural as part of a countercyclical policy. It should not be a major worry as long as the economy continues to grow. The current account surplus has all but vanished due to falling export prices, but as long the country does not run major deficits is should not be a major concern.

The nationalisations have been much villified, but there are several resounding success stories. In the case of the national telephone company, ENTEL, the Italian ITC received 100 million USD in compensation. In the following 5 years, 2008-2012, the company had a profit of 380 million USD, and it invested around the same amount in a modernisation and expansion of the network. It has until June 2014 contributed 700 million USD to the state (taxes, special contributions to the new general old age pension scheme (“Renta Dignidad”) and other). At the same time, the prices of mobile and internet services were reduced, forcing the other (foreign) companies to follow suit.

Another success story is BOA, the state-owned airline founded in 2007 and starting operations in 2009. It now has 80% of the domestic market and has opened connections to Argentina, Brazil, Spain and the US. It was established with 15 million USD from the state and now has a book value of more than 60 million (most of the aircrafts are leased). The net profit in 2014 was 35 million USD and the competition from BOA has reduced the price of international travel to and from Bolivia (of which BOA now has a market share of 20%).

This is not to say that all is success. The Bolivian Government now manages 63 commercial enterprises. Some are quite big start-ups, as e.g. a big fertilizer plant that will use natural gas as raw material, and which is still under construction, and a cement plant. Others have just started operating (e.g. a Sugar Mill and various Dairy Plants). Not all of the investments are convincing and some look dubious. This is e.g. the case with the rescue of AMETEX, a private textile firm that was not able to survive, when the US abolished the preferential access to the US market (ATPDEA), as a punishment for “lack of cooperation” in the war against drugs. The decision to invest in the revival of the huge metal smelting plant in Karachipampa, finished in 1984 but never made to work, looks dubious too. The Government has stated several times that stateowned enterprises that are not able to sustain themselves will be closed down. However, it remains to be seen if they have the courage to do that, when the case arises.

But what about coca? Is it true, as the US says, that the country is “uncooperative”? As the US general James T. Hill said in 2004: “If radicals continue to hijack the indigenous movement, we could find ourselves faced with a narcostate that supports the uncontrolled cultivation of coca." The US has since “decertificated” Bolivia, this strange process where the US each year unilaterally certifies or decertifies other countries (third world countries of course) on a series of issues such as drugs, terror, respect for US private property etc.

In 2008 the Bolivian Government expelled both the drug agency, DEA, and the US foreign aid agency USAID, as it considered that these agencies were supporting the secession of parts of the country. It seems DEA did not accept this eviction quietly, but that it rather went after members of Evo's administration in an apparent effort to undermine his leadership (called "Operation Naked King”).

Since Bolivia evicted DEA it has handled the control of drugs in the country on its own, but with a very different approach, involving the coca farmers in the control and eradication of illegal plantations (growing of coca is controlled in Bolivia, but it is not illegal, as it has traditional, legal uses.) It has not been an easy process, and much less so in a country with an enormous territory and with pervasive corruption, but according to the UN drug agency, UNODC, Bolivia has actually improved after expelling DEA, reducing the area planted with coca to half from 2010 to 2014. So one starts to wonder what DEA actually is doing.

Cultivococa

Bolivia is progressing at an impressive speed, but it is a country with enormous challenges. Poverty and inequality are still high, the economic future is not rosy now that commodity prices are falling, racism is rife despite important improvements, violence against women is endemic, the justice system is corrupt and inefficient, corruption is widespread - worryingly also in the police and the armed forces. Bolivia merits support, but as Evo has stated it repeatedly, it wants partners, not masters. Sometimes the Bolivian government is moving despairingly slowly, when they should move and grasp opportunities, e.g. the exploitation of the enormous reserves of lithium in the Uyuni salt plains. But their scepticism towards foreign companies coming in and exploiting their resources is understandable, taken into account past bitter experiences.

It is time for the developed countries to find a new approach towards Bolivia. You would think that Europe would lead that process, as they have no geopolitical interests there. Unfortunately, this does not seem to be the case. The embarrassing conduct of France, Portugal and Spain in 2013, when they forced the Presidential Plane with Evo Morales on board to turn around and land in Austria, because the US claimed whistle-blower Edward Snowden was onboard, is a humiliation they would never have dared to inflict on any Western country. That was noted in Latin America. A presidential plane is like a flying Embassy, so it should be covered by the Geneva convention, but "what the heck, this is just some third world despot, isn't it?" As far as I have noticed, only the French have made an apology.

EvoPlane

And now that the Paris summit on climate change is approaching, it is also embarrassing to remember the bullying of the third world countries during the Copenhagen summit in 2009. At the same summit Evo apparently “shocked the audience by his radical and unrealistic positions”: “limit the temperature increase to 1%”! What had he been smoking? Worth remembering perhaps that Bolivia contributes almost nothing to to global warming, but it is a country for which the climate change has very serious consequences.

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Thorbjorn Waagstein

Thorbjørn Waagstein, Economist, PhD, since 1999 working as international Development Consultant in Latin America, Africa and Asia.

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1 comment

  • Mike Speirs Mike Speirs Says: Friday, 30 October 2015 20:58

    Dear Thorbjorn,

    What do you mean, Bolivia contributes almost nothing to global warming? You are totally ignoring the emissions due to deforestation and forest degradation, otherwise known as land use change. I'm sure you're aware of the LULUCF process in Latin America, e.g. in Brazil and elsewhere in the Amazon basin and I think you also know about land issues in the Bolivian lowlands. For an interesting insight in the Bolivian arguments on climate change, I suggest you take a look at the INDC that the government has submitted to the UNFCCC. Here's the link:

    http://www4.unfccc.int/submissions/indc/Submission%20Pages/submissions.aspx

    Bortset fra det, haaber jeg at du har det godt og mange hilsener

    Mike

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