Bolivia is one of the poorest countries in Latin America, with an economy based on extractive mining and traditional agriculture. Its per-capita income has always been one of the lowest in the region, about $990 a year. During the 1990s, its economic performance was encouraging. The country was then on the verge of political and economic stability, with annual GDP growth rates of 4%. Prices were under control. In recent years, however, there has been barely any GDP growth (averaging 1.5%), and inflation has turned upward (to 4.5%). The reason: The Bolivian economy is very vulnerable to international economic conditions and to crises suffered by neighboring countries such as Brazil and Argentina.


Evo Morales has emerged from that context. Born into a family of the Aymara ethnic group, in the frozen Andean mountains, Morales was once a musician in a popular band that played at carnivals in the city of Oruro. He became a farmer in the warm foothills of the Andes — the so-called “Eastern branch” of the country — where coca is cultivated. Two decades ago, he became the leader of the country’s coca growers, beginning a dizzying political career in which he led marches of hundreds of kilometers into the centers of power and the heights of the capital city of La Paz. In the course of this battle, Morales contributed to the toppling of the administrations of both Gonzalo Sánchez de Losada and Carlos Mesa.


The agenda for Evo Morales’ government is based, first of all, on nationalizing the energy sector and all natural resources; this means reassuming control of their exploitation and use. In addition, Morales is pursuing an approach involving greater austerity in the public sector in order to eliminate excessive spending and do away with land speculation.  It also involves constructing a new system of social security and transforming education. Morales, who heads the Movement Toward Socialism (MAS), is also hoping to give a greater role to the displaced sectors of Bolivian society — largely its native population — for the first time in the 180 years of the republic.


At first glance, this attempt to nationalize the energy sector seems to put pressure on several international energy companies that have a presence in Bolivia. They include Spain’s Repsol YPF, which has 20% of Bolivia’s gas reserves; Brazil’s Petrobras; France’s Total; Anglo-Dutch Shell; Enron, from the U.S, and British Petroleum. For Repsol YPF, the importance of Bolivia lies in its growth potential. In 2004, Repsol produced the equivalent of 107,000 barrels of oil each day in Bolivia (10% of the country’s total) but it expects to reach a total of 227,000 barrels in 2009. To achieve that goal, La Caixa, the Spanish financial institution, plans to invest $850 million in Bolivia over five years. Bolivia has gas reserves of 813 billion cubic meters. A few years ago, Repsol YPF considered a plan for exporting this gas by ship to North America. However, it is now planning to send the gas to other South American countries such as Brazil, Chile and Argentina.


Those three countries jointly consume 70 billion cubic meters of gas a year. France’s Total is also expecting bigger things in Bolivia. According to Le Monde, the French daily, Total is currently exploiting two gas deposits of moderate size in Bolivia but it has discovered reserve deposits that would exceed those of Repsol YPF or Petrobras [in that country]. Total could invest up to $200 million in those deposits, but it has not done so because conditions in Bolivia are considered too unstable.


Welcome Pragmatism


According to Mauro Guillén, a Wharton professor of management, if Morales sticks to the precise guidelines of his program and proceeds with his program of nationalization, “There will evidently be a decline in [foreign] investments, which are something a country like Bolivia needs.” According to Guillén, the important thing is to “establish conditions for investment while defending the interests of the country. Multinational companies are compatible with economic development.” Despite the fact that Morales’ electoral promise has been very clear, Guillén warns that it would not be the first time that an elected president changed his program and became less extreme after assuming power. “The electoral program is so radical that I do not believe that they will put it entirely into practice,” he adds.


If the nationalization program does take place, foreign companies will not wind up being seriously affected by a reduction in their share of ownership [of Bolivian companies], according to Hugo Macías Cardona, who runs the CIECA research center at the University of Medellín (Colombia) that belongs to the Econolatin Network. In the current international environment, you cannot expropriate assets without providing compensation. “Only Argentina, because of its very particular conditions, has given itself the luxury of not paying a significant proportion of its debt. Bolivia’s low level of internal savings means that it must maintain appropriate conditions so that foreign investment can continue to come in. Morales will have to allow that; he cannot subject his population to [even] greater poverty,” warns Macías Cardona.


Abundant natural resources can act as a magnet for populism, or for adopting measures that do not help in the long term. However, this is not the case in Bolivia, explains Juan Eduardo Coeymans, director of the Inter-American Program of Applied Macroeconomics at the Catholic University of Chile. “Although it has a lot of gas in its subsoil, [Bolivia] needs investments in order to extract it.” Coeymans agrees with Guillén that it is unlikely that Morales will promote anti-business measures. The case of Lula in Brazil shows that candidates can appear more populist or “statist” than they wind up behaving afterwards, says Coeymans.


Morales has already been taking steps in that direction. In a well publicized meeting, the President-elect promised business leaders in Santa Cruz, the powerful region of eastern Bolivia, that he will respect private property and foreign investment. “I am not going to hurt anybody. I do not want to expropriate or confiscate any goods. I want to learn from business people. I do not have any professional training but it will be important for us to complement each another.  You have the professional training, and I have the social conscience,” Morales told them. In the meeting, Morales also assured businessmen that he will not put the brakes on a controversial project to exploit mining reserves in the Mutún region, some 1,700 kilometers [about 1,000 miles] southeast of La Paz, in the Santa Cruz region. The region is very close to the border with Brazil, and it is considered one of the world’s most important deposits. According to a Bolivian organization, The Committee for Defense of the National Patrimony, which questions the bidding process [for the project], its reserves amount to 40 billion tons of iron and 10 billion tons of magnesium; the equivalent of 70% of global reserves.


Morales has also sent calming signals to international investors. In his meetings in Spain, Brussels (headquarters of the European Union), Holland and France, where he made an international tour to introduce himself, Morales said that his government will exercise its “right of ownership” over the country’s natural resources. Bolivia has the second-largest gas resources in South America but this does not mean that the government will “confiscate, expropriate or expel,” he said. Morales said that his government is going to guarantee that “any company that cooperates and pays its taxes can recover its investments and have the right to its profits, but under the principle of balance because the State and the people must also benefit.” He also promised to come down hard on “contraband” companies. In Madrid and Paris, Morales made it clear that he did not believe that Repsol-YPF or Total were in the category of “contraband” companies.


It remains to be seen if these recent moves are a sign of greater political pragmatism. Coeymans views the moderation in Morales’ speeches as a “good sign.” He emphasizes that there is a consensus nowadays that governments have much less freedom to make mistakes because there are immediate indicators that measure those mistakes and evaluate their performance. “For example, country-risk indicators show if a country is doing a good job. Added to that, there are also restricted capital flows. If the government starts to go astray, then (capital) does not come in, and the country can have serious short-term problems in its balance of payments.” In some respect, asserts Coeymans, populist governments “begin the learning process as soon as they take office. In the past, that would not happen. These days, presidents learn much more quickly than they did during the 1960s or at the start of the 1970s.”


According to Macías Cardona, another factor could lead to pragmatism — the well-known weakness of Bolivian government, not just its institutional structure but its inability to control its national territory and collect taxes, among other things. “Morales will make an effort to preserve the power that democracy has granted him; to do that, he will have to moderate his position and tend to divisions that occur within MAS,” his political movement.



Mixed Societies and the Influence of Venezuela and Cuba


Some observers believe that the anticipated nationalization measures could involve “a Venezuelan style solution.” That would mean creating companies of mixed ownership from both government and private enterprise. They cite the case of Repsol YPF which, months ago, reached an agreement with the Venezuelan government of President Hugo Chávez about oil concessions to some companies that are jointly owned by PDVSA, the state oil company.


Guillén says that this possibility cannot be ruled out. However, he insists that the important thing is to establish clear rules of the game, and apply them systematically. “If Bolivians want more control over investments, then let that be the case. But they should not close the door [to foreign investment], because they need the capital and technology.” Macías Cardona adds that Morales really “will have to attend to the issue of retaining state ownership for some companies [in sectors] considered more strategic, while permitting total ownership by the private sector in most economic sectors.”


Multinationals are taking a cautious approach to the fact that Morales’ politics are in tune with those of Chávez and Cuban leader Fidel Castro. Are we about to see the creation of a Habana-Caracas-La Paz axis that is opposed to free trade, to private initiative, and to the free-market economic model that has been successful in other Latin American nations such as Brazil, Chile, Colombia and Mexico? Guillén responds that, as long as oil prices continue at their peak, Chávez will continue to be a strong leader. “However, as we have seen many times, prices can change, and it then becomes harder [for a leader] to follow through on promises. I don’t think this supposed ‘axis’ will last more than five years,” says Guillén.


According to Macías Cardona, relationships are constructed between entire teams of governmental officials, and between parties and elites. In this sense, he says that the situation in Bolivia is different from the situation in Cuba and Venezuela. “Evo Morales cannot count on an important group of senior executives, the way President Chávez can; he cannot count on a society that is organized for action and is prepared to co-manage the future of the country. Undoubtedly, Morales did not emerge the same way as Chávez or Castro did; he leads a political movement that acquired visibility only in the elections of June 2002.”


Another important difference, adds Macías Cardona, is that the social and political reality of Bolivia is much more similar to that of Ecuador than to Venezuela and Cuba. There are many factors, including the predominance of the indigenous population and cultures, in contrast to the Caribbean cultures [in the other countries]. Another factor is the power of social movements to topple governments. “In Venezuela, the middle and upper class movements were directed by an opposition nostalgic to reclaim its power; they sought to neutralize the populist [lower-class] movements. In Cuba, the social dynamics do not permit any mass demonstrations that seek change. Bolivia and Ecuador are different; in those countries, people who are excluded raise themselves up, reclaim their rights, and overthrow presidents,” he says.


The main difference between Bolivia, on the one hand, and Cuba and Venezuela, on the other, involves institutional fragility, adds Macías Cardona. “Over decades, Castro has constructed a structure strong enough to confront the United States politically and to survive the early 1990s, when it faced the most severe crisis any Latin American country has ever faced. As for Chávez, despite chaos and innumerable failed attempts to disqualify him and overthrow him, he has constructed a significant degree of institutionalization, which provides him a broader horizon than the price of oil alone could permit him.” In contrast, Morales will have to spend time constructing institutions that enable him to overcome the many challenges he will have to confront. “Quite likely, this will involve the disintegration of the MAS [party], which was conceived as an opposition movement, not as a party for governing.”


Despite Morales’ sympathy for Chávez, Coeymans emphasizes that Morales has demonstrated greater independence and skill. “His visit to Europe demonstrates that. It is a good sign,” says Coeymans.


Containing the Demands of the Population


It seems logical that if the new Bolivian leader takes a step backward from the drastic promises of his electoral campaign, those who elected him will feel cheated. To conserve governability, Macías Cardona suggests that Morales “take a pragmatic approach to the ‘statists’ in a skillful way, and conserve an important portion of his base of support, while skillfully balancing national [Bolivian] institutions and interests with those from outside the country.” If Morales still has any intention of nationalizing assets, adds Macías, “later on, he will have to make sure that his supporters understand and accept the fact that he has not been able to do that.”


Coeymans adds that one of the largest problems facing Morales is his supporters’ requirement for “much faster” results than any economy can possibly provide. “There are a lot of unsatisfied demands; his supporters have too many demands. His success is going to depend on how he communicates [to them] that they have to moderate their expectations, how he explains that no country can achieve economic development over night,” says the economist. Coeymans insists that Morales’ supporters should not demand that the Bolivian President eradicate poverty [during the course of his administration]. “This is probably going to take a decade or two, if they make the right decisions,” he argues. The key question, concludes Coeymans, is how long is the new Bolivian president’s political capital going to last?