The Bolivian Revolution

06 May 2006 |



REVOLUTION IN THE ANDES

Leader
Wednesday May 3, 2006
The Guardian

Evo Morales went for a characteristically theatrical gesture when he sent in troops to seize Bolivia's natural gas fields, pipelines and refineries on May Day. As global energy companies struggle to digest the consequences, it is clear that the president of Latin America's highest, poorest and most isolated country intends to keep on trying to redistribute the region's wealth. It is less clear how far he is likely to succeed. Morales's nationalisation coup followed a meeting with Cuba's Fidel Castro and Venzuela's Hugo Chavez, splashing happily in the "pink tide" that is lapping away at US influence. To underline the point, they signed a "People's Trade Agreement" to try to counter attempts by Washington to bolster its plan for a "Free Trade Area of the Americas".

Morales, a former coca farmer and the continent's first indigenous president, pledged last year to become "George Bush's worst nightmare" and to end what he called "the pillage of our natural resources by foreign companies". His move is another example of what is dubbed "oil nationalism", as practised by Mr Chavez in Caracas and Vladimir Putin in Moscow. Ecuador is making similar moves. Gordon Brown has raised taxes on North Sea oil and gas too. But the case for a leftist surge across Latin America can be overstated; Colombia and Peru are striking bilateral trade deals with the US while Uruguay and Paraguay are unhappy with Mercosur, the Brazil-dominated Latin American common market, and considering making their own agreements with Washington.

Low-key responses to the announcement that foreign companies have six months to hand over majority control suggests the move is designed to secure better terms rather than drive them away. Bolivia, landlocked as well as desperately poor, must avoid endangering exports, especially through Brazil, whose state-owned corporation Petrobras is the biggest single investor in Bolivian energy. The Brazilian president, Luis Inacio Lula da Silva - a more market-friendly leftwinger - is unhappy with Mr Morales. Still, Bolivia's natural resources are highly sensitive political issues; protests over gas have brought down two previous presidents. Now investors are concerned that the new arrangements may leave foreign operations in the country economically unviable. Repsol, the Spanish energy company, was already scaling back its growth forecasts. Economic nationalists, even those elected by what Mr Morales has called "the most disdained and discriminated against", have to think through the full consequences of their actions.







BOLIVIA STUNS ENERGY GIANTS

  • EU and US caught out by nationalisation move

  • Shares fall after Morales sends in army on May Day


  • Duncan Campbell and Terry Macalister
    Wednesday May 3, 2006
    The Guardian

    The occupation of foreign-owned gas fields in Bolivia by troops sent by President Evo Morales shocked global financial markets yesterday and provoked a hostile response from energy companies and international economic bodies.

    Mr Morales, who took office earlier this year, ordered the occupation with a decree to "retake absolute control of our natural resources".

    Although the president, Bolivia's first indigenous leader, had always made clear his intentions when he was elected with 54% of the vote last December, the peaceful arrival of troops on May Day still made a dramatic international statement. Companies were told to turn production over to the state firm and given six months to comply. Mr Morales described the move as "a historic day" for Bolivia.

    The European commission made its unease known yesterday. "The commission took note with concern the decree ... which nationalises the Bolivian industry," said spokesman Johannes Laitenberger. "We had hoped there would be a process of discussion and consultation before it adopted such measures."

    "We're still analysing it," said Eric Watnik of the US state department yesterday. "We're concerned with its potential impact on Bolivia's economy, on private investment and existing contracts."

    "It is a symbolic message of sovereignty," said Larry Birns of the Washington-based Council on Hemispheric Affairs. "The very fact that he sent troops in, he was heightening the sense of urgency and dash. He is reaffirming his commitment to the indigenous community. He has remained constant and he is fulfilling all of his pledges. This could be a manoeuvring position to raise taxes and royalties but it's a rather bold demand."

    Mr Birns said President Morales was conscious of the fact that many previous Bolivian leaders had made promises to the indigenous population, only to renege on them when in office.

    "He doesn't have [Venezuelan President Hugo] Chávez's purse to spend on infrastructure or a sophisticated state-owned oil company so he has to get these resources from somewhere," he said. "He has done some notable things since he took office by not going to the US but instead going to Europe, India and Brazil. What he seems to be doing is positioning himself at the centre of the true believers. The state department are certainly going to be unhappy but the question is how they are going to handle this."

    Shares in BG, spun out of the former state-owned British Gas, were down in early trading on the London stock exchange. Spanish oil group Repsol YPF, the most exposed of the western oil majors in Bolivia, lost 3% of its stock market value although other key firms such as BP and Total remained unscathed. BG has around 100 British staff working inside Bolivia and produces 3% of its global gas output from the country. A spokesman for BG said it was too early to say exactly how it would be affected by the moves in Bolivia.

    BP, which has interests in Bolivia through stakes in Pan-American Energy and Empresa Petrolera Chaco, also played down the impact of the nationalisation. "Pan-American and Chaco have expressed their willingness to work with the Bolivian government over the transition phase as the latest decree is implemented over the next six months," he said.

    A leading London oil analyst, who asked not to be named, said both BP and BG were privately furious at the developments but felt powerless to stop them at this stage. Legal action, he believed, could follow later if deemed necessary.

    "This is most serious for Repsol, which has around 18% of its hydrocarbon reserves in Bolivia, but clearly oil companies are worried that governments from Bolivia to Russia are taking back oil and gas into state ownership," he said.

    FAQ: Poverty and a president's promise

    How poor is Bolivia?

    Bolivia is the poorest country in South America and the third poorest in Latin America, with an average income of $900 (£525) a head. Two-thirds of Bolivians live below the poverty line and a quarter are malnourished.

    How is the economy fuelled?

    The mining industry has been a cash cow for the government, accounting for about 45% of export earnings. In the 1920s the advent of mass car production and demand for vacuum-packed cans sent Bolivia on its way to being the world's No 1 tin producer, a position it still holds. More recently it has exploited its energy resources. Last year the G8 announced a $2bn debt forgiveness plan.

    What did Morales say he would do before his election?

    "We will renegotiate all contracts - they are illegal, since Congress has never ratified them. The state will recover the property of its natural resources, but we are open to foreign investment in exchange for a share of the business."



    HOW MORALES WON HIS PEOPLE BACK

    Stand-off after Chávez-inspired leader sends troops into gas fields

    Dan Glaister in Santa Cruz
    Saturday May 6, 2006
    The Guardian

    The lady behind the reception desk at the Palmasola refinery smiled sweetly. "We're just carrying on here as normal," she said. "There's nothing to report."

    Horses ambled by on the dusty road outside. A few oil tankers stood idly, their drivers asleep. Only the presence of half-a-dozen soldiers, guns at their sides, revealed there was, indeed, something to report.

    For Palmasola, a Brazilian-owned refinery 15 miles west of Santa Cruz de la Sierra, the most prosperous city in Latin America's poorest nation, was at the centre of an international storm this week that saw the country nationalise in all but name its foreign-owned gas and oil industry, pitting neighbouring countries against each other and wrongfooting foreign investors.

    On May 1, Bolivia's recently elected president, Evo Morales, the country's first indigenous leader, put on a tin hat and made the declaration that much of the country had been waiting to hear. "The time has come," he said, announcing "a historic day in which Bolivia retakes absolute control of our natural resources". Mr Morales spoke of "looting by foreign companies" and said it was time the armed forces "occupy all the energy fields in Bolivia". But he was off pace. The army had already moved into Bolivia's foreign-owned energy fields, refineries and distribution depots.

    International capital did not like what it saw. Even Bolivia's allies, such as Brazilian president Luiz Inacio Lula da Silva, looked displeased. But on the streets of Bolivia, it was a different story. "It's been up and down," says José López, a Santa Cruz native. "For the first 100 days of his rule, Evo didn't do the things he said he would. But this was much better. Now everyone is behind him again."

    Such was the swing of popular support behind Mr Morales this week that a general strike planned for Thursday in the Santa Cruz region was called off. Sitting on a dusty traffic island outside the gates to the refinery, Eduardo González was charged with militant fervour and a sense of economic injustice. "It's good they want something for us," says Mr González, who services the tankers outside the gates. "If Bolivia owns the refinery it means there will be more jobs for Bolivians. Most of the people working in there," he nods at the distance, "are foreigners - Brazilians and Peruvians. We should have 100% ownership of it as a resource to help build the country."

    Private and public

    While foreign governments and the 25 foreign energy companies in Bolivia - including BP and BG from the UK, France's Total, Spain's Repsol, Brazil's Petrobras and ExxonMobil from the US - expressed their "consternation" at Mr Morales' "sad and worrying" decision, really only the timing should have taken them by surprise. For the president was doing that most unfashionable of things, delivering on a campaign promise.

    Throughout the campaign, Mr Morales and his running mate said they wanted to renegotiate foreign ownership of Bolivia's natural resources. This would not be appropriation, they said, it would not be nationalisation, it would be a renegotiation of existing contracts on terms that would provide a greater share of the revenues for the state.

    Throughout the campaign, hydrocarbons were the most frequently mentioned natural resources. Bolivians have long been sensitive about foreigners exploiting their resources, and not without reason. First came the Spanish, to rid the country of its silver, starting at Potosí in 1545. By the 20th century, tin mining had taken over. Today, Bolivia has the second largest reserves of natural gas in Latin America after Venezuela; 45% of it is exported to Brazil at a low price. But in the late 1970s, faced with crippling debt, Bolivia began to place its public assets in private hands: the mines, the railways, electricity, water, the state airline, hydrocarbons all went through a process delicately termed "capitalisation" in order to avoid the word "privatisation".

    But the economic rigour demanded by the neo-liberal orthodoxy failed to produce the expected results. Poverty remained rampant, as did political instability. By the end of the 1990s, popular protests became the preferred method of political engagement. Mr Morales and his Movement Towards Socialism party proved adept at harnessing these pressures. "Twenty years on, people see the grand deception," said José Mirtenbaum, sitting in his tiny office in a dismal building in Santa Cruz's University Gabriel René Moreno.

    "After all the great promises of the 1980s, what sort of planet do we have? It's also cyclical: there has been 20 years of neo-liberalism. Twenty years is enough, we shouldn't be too surprised."

    But what is taking the place of neo-liberalism and privatisation? Is it the good old-fashioned leftist thirst for nationalisation and state control reasserting itself, as many feared this week? "It's an adjustment," says Mr Mirtenbaum. "It's a sort of gradual nationalisation. The next 180 days will be very difficult."

    Capital values

    The decree announcing the army would seize control of the gas installations gave foreign firms 180 days to renegotiate their contracts. "They're still going to get a decent return," says Mr Mirtenbaum. "It's a good business. These are irrational fears on the part of shareholders who think Bolivia cannot be a good partner, a good capitalist."

    The vice-president, Alvaro García, speaking the day after the announcement, sought to assuage investors' fears: "The decree doesn't confiscate or annul the production capacity of the companies, what it does is reduce the extraordinary profits." Mr Morales, however, had already signalled his next move: "This is just the start," he said on Monday. "Tomorrow or the day after it will be mining, then forestry and eventually all the natural resources for which our ancestors fought."

    For some, Mr Morales is reasserting the Bolivian state, a state that all but disappeared under the strains of financial policies imposed from afar. The notion that the state was ill-suited to running anything took deep root in Bolivia. For others, it is not the might of the state that is being asserted but the might of Hugo Chávez of Venezuela. His hands were all over the hydrocarbons announcement: presidents Morales and Chávez were in Havana last weekend to meet Fidel Castro and sign up to the latest instrument of hemispheric influence, the Alba trade agreement. Then Mr Chávez popped up in La Paz to, in the words of the Santa Cruz paper El Nuevo Día, hold the president's hand as he travelled to a summit meeting with the leaders of Brazil and Argentina.

    For the US it could mark the fulfilment of another of Mr Morales' pledges, to be "Washington's worst nightmare". After a lot of bellicose comment during the campaign, the Bush administration has adopted an unexpectedly conciliatory tone.

    "The US never had much confidence in Morales," says Peter Hakim, president of the Washington-based Inter-American Dialogue. "Some were prepared to give him a chance, but when he starts behaving like this it strengthens the hardline groups who think he's an ally of Chávez. I don't think Venezuela can be unhappy about this because the more the region is unsettled, the more they look like the leader."

    Indeed Mr Chávez is not averse to stirring things up in the region. He has intervened in the forthcoming Peruvian and Mexican elections; his presence at the Mar del Plata summit was almost as divisive as that of President Bush; and his efforts to spread his munificence has sometimes been counterproductive.

    But others wonder if presidents Castro or Chávez did have a hand in Mr Morales' move. The announcement that he is obliging foreign investors to renegotiate the terms of their business certainly echoes moves made by Mr Chávez with foreign oil companies, but Venezuela has a lot of valuable assets: it sends 1.5m barrels of oil a day to the US. Bolivia, on the other hand, has two clients for its natural gas: Brazil and Argentina, and some see naivety in Mr Morales' failure to balance the interests of his domestic base with the demands of foreign policy to maintain good relations with his neighbours.

    Those differences seemed to be partly healed at Thursday's summit. The four leaders - of Argentina, Bolivia, Brazil and Venezuela - managed to move beyond the minor scuffle over gas prices. Indeed, they came close to enacting much of Mr Chávez's rhetoric: they all agreed to get behind Bolivia and support it as it tried to correct the woes of neo-liberalism and build a new country.

    They also agreed to join in the "gasoducto del sur" which, as Mr Chávez grandly declared, "will bring cheap, clean gas to all the people of South America for the next century".

    But Larry Birns, of the Washington-based Council on Hemispheric Affairs, believes the rhetoric and the reality might herald some sort of shift in the region. Alba, the gasoducto, Mr Morales taking on the energy companies, suggest, he says, that "a lethal threat is being posed by the school of thought that says development is not merely a matter for the economists.

    "Social issues have to be considered too. There is a direct challenge to the notion that what is private is good and what is public is bad. Enron put an end to that. If Morales has a successful administration, it will bring up some very heavy questions for Washington.

    "It's going to be difficult for the Republicans to resist saying, what are we going to do now? The commies are running amok in Latin America. But the truth now is that the US has run out of options. There's not much it can do, short of killing the leaders."

    Back at the refinery, the nice lady shrugs when I ask what the soldiers are doing. "They're guarding things," she says, helpfully. "Making sure everything's in order. That's all we know."

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