A way out for Bolivia?

By Norman A. Bailey

Published February 13, 2005. Washington Times

In the landlocked, Andean nation of Bolivia, a major crisis is unfolding that deserves international attention. Bolivia is on the verge of nothing less than social suicide. The reason? Unprincipled politicians seek power by selling a self-defeating notion to Bolivians -- many of them Indians and mixed-race cholos barely eking out a living on high, dry soil. The demagogues have convinced the dispossessed that selling Bolivia's huge natural gas reserves to foreigners somehow is contrary to the national interest. Better, they say, to leave the gas in the ground -- and remain poor. At first, it is hard to grasp how this could happen. Before capitalization -- the 1990s reform that invited in foreign investors as 51-49 partners in Bolivia's state-owned enterprises -- the Bolivian state energy firm lethargically exploited and produced natural gas. With the entry of foreign firms from Europe, Brazil and the United States, proven and probable reserves burgeoned from 4 trillion cubic feet in 1996, to 36 trillion cubic feet today. That's a ninefold increase in eight years -- with more in prospect if Bolivia doesn't throw away its opportunity. In short, gas production and exporting has been a financial bonanza for the Bolivian government, which rakes in an average of about 68 percent of gross petroleum revenues in royalties and other, complex taxes. This arrangement is now in serious jeopardy. Responding to the supposed mandate of a July popular referendum, the Bolivian Congress is considering legislation to abrogate Bolivia's contracts with the foreign investors. It would also resurrect the famously inefficient, corrupt state petroleum monopoly, installing it as the operating partner of the foreign energy investors. If enacted, this legislation would destroy Bolivia's access to international credit -- its economic lifeline -- and embroil the country in years of costly international arbitration. That would end foreign investment in Bolivia's development. Given all that, why does a campaign to wreck the energy sector have such popular appeal? The Indians and cholos have been duped by demagoguery into believing a resurrected national petroleum company is the way to regain "sovereign" control over the natural gas wealth and thereby recover "dignity." Unexamined is who really benefits, and why such "strange bedfellows" as discredited old-line politicians and new, insurgent, indigenous populists like Evo Morales, leader of the coca growers, or Indian firebrand Filipe Quispe would favor it. Would Bolivia's impoverished Indians really own anything worthwhile through this scheme? Would they be any better off? Or would Bolivia's new populist, indigenous leaders simply copy old-line politicians and help themselves, and their party machinery, to the coffers of the state-run petroleum company? This trickery could be remedied by Bolivia's president and legislators embracing a different energy-sector reform that gives ownership and control of energy-sector assets, and their revenues, directly to the Indians, not the politicians. This would be a truly revolutionary development for Bolivia -- one with far richer economic gains for Bolivia's poor than the bonosol, the small, annual, lump-sum payment the elderly receive from their government's foreign partnerships. The re-creation of Bolivia's traditional "slush fund" for politicians is not what is needed, but rather a transformation of Bolivia's indigenous poor into owners and stakeholders. Can it be done? It already has been, in the 49th U.S. state, Alaska, a place that, like Bolivia, was energy-rich, mountainous and poor. Thirty years ago, Alaska's indigenous people lived on $1 or $2 a day -- similar to today's incomes of Bolivian Indians. In 1971, the Alaska Native Claims Settlement Act addressed this directly by creating regional and village corporations comprised of native Alaskans. These received the right to exploit the resources of more than 44 million acres, with a $1 billion payout directly to native Alaskan shareholders. Native Alaskans still reap vast sums, totaling billions of dollars yearly. Alaska's indigenous-owned corporations now get the energy jobs and government contracts, using their revenue to create new businesses and jobs for their communities. As a result, structural poverty has vanished among targeted Alaskan indigenous communities in a single generation. The key has been ownership by indigenous people, not a state bureaucracy. Another model, the African nation of Chad, shows how revenues from natural resources can be managed in a transparent fashion to benefit the poor. Here, a massive petroleum project has been developed, a pipeline to a marine terminal in neighboring Cameroon that will swell government revenues by as much as 50 percent a year. A unique revenue-management law requires spending nearly 90 percent of oil revenues on education, health care, rural development and infrastructure improvements. The World Bank is leading a program to shape the project with advice from representatives of poor communities. An independent oversight committee will conduct audits and publicly distribute the reports. Local controls will be public and transparent. The people of Chad will see their oil wealth in schools, clinics and water wells. Would such an approach work in Bolivia? Only if Bolivians act in time -- even in the midst of the country's social and political ferment -- before its politicians enact the wrong steps for the wrong reasons. Transforming Bolivia's poor into stakeholders offers the chance to end centuries of poverty and social strife in a single generation. This goal can best be achieved by attracting -- not repelling -- foreign investors.

Norman A. Bailey is a senior fellow at the Potomac Foundation and co-founder of the Indigenous Economic Education Initiative. In the Reagan administration, he was senior director of international economic affairs on the National Security Council staff.