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Bolivia stakes its claim

John Crabtree
3 May 2006

In a gesture reminiscent of earlier episodes of Latin American history, Evo Morales celebrated May Day – also his first hundred days in office – by sending the troops in to claim national ownership of the country's oil-wells and gas pipelines. This may have been interpreted in much of the rest of the world as an anachronistic move, but in Bolivia it was widely seen as a case of a new president coming good on earlier promises to nationalise the country's most valuable economic asset.

The negative international reaction from economic and political establishments was swift. The bitterest criticism came from the companies directly affected – principally Brazil's Petrobras (which announced on 4 May that it was suspending future investment in Bolivia) and Spain's Repsol-YPF – but Morales's decision was also variously deprecated by the European Union, the Spanish government and (if in a slightly lower key) the Lula administration in Brazil.

At a deeper level, Evo Morales's visit to Cuba to appear alongside Fidel Castro and Venezuela's Hugo Chávez – only two days before the announcement that Bolivia's energy resources were to be reclaimed by the state – is being interpreted as further evidence of the new Bolivian government's predilection for making friends among Washington's principal enemies in Latin America. This is likely to impact too at intergovernmental level, where agencies like the International Monetary Fund, the World Bank and the Inter-American Development Bank (Bolivia's main foreign creditors and its principal source of much-needed social lending) will not welcome La Paz's nationalisation of foreign investment.

John Crabtree is a research associate at Oxford University's Centre for Latin American Studies. He is the author of Peru under Garcia: Opportunity Lost (Macmillan, 1992), Fujimori's Peru (ILAS, 1998), and Patterns of Protest: Politics and Social Movements in Bolivia (Latin America Bureau, 2005). He is the editor of Making Institutions Work in Peru: Democracy, Development and Inequality since 1980 (Institute for the Study of the Americas,
April 2006)

Also by John Crabtree on openDemocracy:

"Bolivia's retreat from civil war" (June 2005)

"Peru: the next Andean domino?" (June 2005)

"Bolivia on the brink" (October 2005)

"An Andean crisis of democracy"
(November 2005)

"Evo Morales's challenge"
(January 2006)

"Peruvians prepare to bite back" (April 2006)

"Peru's chessboard" (April 2006)

A pending issue

The nationalisation of gas has been on the agenda since 2003 when former president Gonzalo Sánchez de Lozada was ousted for his part in the so-called "gas war", a major mobilisation against his government's plans to sell Bolivian gas to the United States through a pipeline passing through Chile, long regarded as the country's traditional enemy. The shortlived government of Carlos Mesa that followed – responding to an overwhelming "yes" vote in a referendum on the gas issue in July 2004 – proclaimed Bolivian ownership over its hydrocarbons resources, and in 2005 enacted a new hydrocarbons law that reiterated this claim and raised the tax rate payable by foreign investors.

The investor companies responded cautiously, unwilling to put themselves in the firing-line and become the target for nationalistic anger, particularly during the presidential election campaign of late 2005 which brought Morales to office. However, they privately made clear their opposition to being forced to sign new contracts under duress, a situation that (if nothing else) they feared would cause a precedent which other nationalistic-minded oil- or gas-producing countries would want to copy. Such fears were borne out when the tide of "Bolivarian revolution" in Venezuela – the world's fifth largest oil economy – led Hugo Chávez to announce in November 2005 that many of its main investors had to sign new contracts if they wished to continue operating in the country.

For their part, the Bolivian authorities argue that the existing contracts, dating from the most recent privatisation of the country's hydrocarbons industry in 1996, are in fact invalid. They claim that they were never ratified by congress, as required by Bolivian law. The investor community regards such arguments with disdain, and some firms have been considering invoking international arbitration for damages if outright nationalisation goes ahead.

A nationalist tradition

The issue of national ownership of Bolivia's natural resources runs deep in the popular memory. The oil industry has already been twice nationalised in the past, most recently in 1969. In the wake of the 1952 revolution, Bolivia nationalised its mining industry, a historic move that helped finance the country's subsequent economic development.

After 1985, however, the policy pendulum – encouraged by the World Bank, and under the influence of the "Washington consensus" model – swung in an economically neo-liberal direction. In the 1990s, Bolivia even pioneered a novel form of privatisation called "capitalisation" under which foreign companies invested an amount equal to the previous capitalisation of the former state company, and took managerial control. The remaining capital was invested on behalf of the country's old-age pensioners.

The rise to prominence of Evo Morales can be understood in this context. It reflected, amongst other things, deep-rooted disenchantment with the meagre results of economic liberalisation and growing hostility towards private foreign companies. Drawing on the country's often militant political traditions, Morales promised a new deal in the December 2005 elections, while leaving deliberately vague what he exactly meant by "nationalisation".

The 1 May 2006 announcement clarifies matters somewhat. Morales's statement of position appears a good deal more radical in its implications than the reassuring words he expressed during his post-election, pre-inauguration visits to European and Asian countries in early January.

The conditions attached to the announcement require foreign companies in Bolivia to decide within 180 days whether they wish to leave the country or accept new contracts which would limit their participation largely to one of providing the public sector with services. The government has also announced significantly higher taxes in the case of at least two gas deposits. The terms it is offering are not nearly as favourable as those conceded in the wake of privatisation in 1996, but the government is bargaining that at least some of the existing foreign investors – including BP, British Gas, Total, as well as Repsol and Petrobras – will agree to remain in Bolivia. Moreover, it calculates that companies deciding to withdraw may be replaced by others willing to enter – including possibly companies from China.

A political calculation

Morales's timing in announcing oil and gas nationalisation is partly conditioned by domestic political considerations. Bolivia's election cycle did not finish with Morales's arrival in power: on 2 July, Bolivians are due to go to the polls to elect a constituent assembly to redraft the country's constitution. This, like gas nationalisation, was another key issue on the so-called "October agenda", a list of demands made by protestors when they forced Sánchez de Lozada to resign in October 2003. Amid signs that his high popularity ratings are beginning to diminish, Morales is keen to seize the political initiative in advance of the election.

His government is also already coming under pressure from opponents, both to the right and the left. In the eastern department of Santa Cruz, where support for Morales is probably weakest, a one-day strike is being organised on 4 May by the rightwing civic committee, the Comité Pro Santa Cruz. At the same time, his opponents on the left – notably in the once mighty and now much diminished trade-union confederation, the Central Obrera Boliviana (Cob) – have made clear they consider Morales a "reformist" destined to betray the workers' demands. The position of the Cob is reflected in some other union federations, like the teachers, and among sectors of the indigenous highland peasantry who see Morales selling them short on their aspirations.

There seems little doubt, however, that Morales's supporters in the Movimiento al Socialismo (Mas) will win a majority in the constituent assembly, which will take its seats on 6 August in Sucre, Bolivia's titular capital. In recent weeks, influential voices – including the Catholic church hierarchy – have accused Morales and the Mas of seeking to monopolise political space, leaving no room for the opposition to voice its feelings.

Against this, Morales's supporters see the assembly as a historic opportunity to increase the scope of political participation available to ordinary Bolivians, particularly the country's Aymara and Quechua majority. In Santa Cruz, however, such ambitions are a matter of concern, since indigenous groups in the east of the country are becoming restive in face of the hegemony of the local business elite, particularly with respect to the advance of agribusiness (notably soya) at the expense of indigenous land-uses.

A foreign difficulty

In foreign policy, the Morales administration has increasingly raised the hackles of some of its neighbours, especially in siding with the Chávez government in Caracas. A summit meeting in the Argentinean city of Puerto Iguazu on 4 May involving Morales, Chávez, Lula and Argentina's Nestor Kirchner, may provide a point of dialogue. However, Brasilia and Buenos Aires share irritation at Venezuela's meddling in the affairs of the Mercosur grouping and alarm at the threat of Bolivia possibly failing to meet their energy needs.

For their part, Peru and Colombia are annoyed by Morales's and Chávez's criticisms of their recently negotiated free trade agreements with the United States. Peru has also reacted badly to Morales's expressions of support for Ollanta Humala, the nationalist candidate in the second round of Peru's presidential elections provisionally scheduled for 4 June. Meanwhile, Chile remains alert to Bolivian pretensions to bring international pressure to bear to force it to cede some of the territory it won in the war of 1879-84 and grant Bolivia its longed-for salida al mar (exit to the sea).

Washington, too, is watching events unfold in Bolivia with some consternation. The Bush administration is suspicious of the increasingly warm relationship between Morales, Chávez and Castro; worried about the possible effect of events in Bolivia on the elections in Peru and Ecuador; and unconvinced by Morales's drug policy summarised in the slogan coca sí, cocaina no. Coca cultivation in Bolivia has been on the increase for several years, and domestic consumption of coca leaves (for chewing or infusions) absorbs only a small fraction of total supply. A senior US state department official visited La Paz in late April, reiterating the US line about drug eradication. Bolivia seems set to follow a different course.

The Morales government is only fifteen weeks old, but it is already making its mark in a Latin America where inherited forms of governance and mechanisms of United States influence are increasingly open to challenge.

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