Letter From Bolivia: Morales Moves

Maybe it's the altitude or the Xanax hangover from the long night flight in, but political culture in Bolivia seems to have changed radically in the past year. Awakening in a shabby La Paz hotel, I turn on the TV. Onscreen sits the usual Barbie doll-style hostess, but she is interviewing Raul Prada, a short, thickset Marxist intellectual with permanently bent eyeglasses. The last time I saw Prada he was in the streets dodging tear gas with the masses. Now an adviser to Evo Morales and his party, the Movement Toward Socialism (MAS), Prada is explaining why the government just nationalized a big part of Bolivia's natural gas industry.

"Nationalization of hydrocarbons has been a demand and a state policy since the defeat of the traditional elites during the Chaco War of 1932-35," says Prada, referring to a cataclysmic bloodletting with Paraguay that was to Bolivia what World War I was to Europe. In 1937 the Bolivian government confiscated Standard Oil's operations in the country--all of them, without compensation.

"By those standards, the current policy isn't even really nationalization," says Prada with a tone of resigned disappointment. The Barbie doll TV hostess nods and follows up with interesting and informed questions: How, exactly, will Bolivia "industrialize" its natural gas reserves? How much will the planned infrastructure cost?

Where is the redbaiting fury, the racist gibes about the Indio Presidente being in over his head? Surprisingly, Morales's May 1 nationalization decree is hardly controversial here. Even large sections of the Bolivian business class support the move.

To be fair, this "nationalization" is really only a limited takeover of three key companies that together control the heart of the Bolivian energy industry. Nor is it radically precipitous. Morales's decree is the culmination of a process that started with the "gas war" of October 2003, which brought down President Gonzalo Sanchez de Lozada and later his successor, Carlos Mesa. In all, the new moves should earn the government more than $700 million a year in revenue.

The three firms in question were partly sold off--or "capitalized"--during the 1990s. Under the new rules, the government's petroleum company will gain a 51 percent stake in Transredes (owned by Shell), which manages most gas and oil transport including pipelines, as well as in Andina (owned by the Spanish-Argentine firm Repsol YPF) and Chaco (BP and Britain's BG Group), both of which do exploration and primary production. The government is also taking over Bolivia's two main refineries, formerly controlled by Brazil's Petrobras. The twenty or so other foreign companies are left untouched.

For the next six months the government and the three big firms will split gas royalties 82 to 18 percent in the government's favor. During that time new contracts will be negotiated and prices will be raised. But the eventual royalty split will not be as favorable to the government. Right now it seems that most oil companies operating in Bolivia will continue to pay 50 percent royalties, as they have since the Hydrocarbons Law passed in May 2005.

But Morales has promised to go beyond gas. He has announced plans to nationalize mining and forestry, and to confiscate and redistribute unused land to landless farmers. In March the Bolivian government decided it would not renew an expiring three-year financing deal with the International Monetary Fund, after decades of following IMF-imposed austerity programs. The government has boosted the minimum wage, has promised to increase next year's spending on healthcare by 300 percent and has told a major Brazilian mining firm to leave the country because it is allegedly operating illegally.

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