Lessons from Bolivia: re-nationalising the hydrocarbon industry

Lessons from Bolivia: re-nationalising the hydrocarbon industry
Stephan Lefebvre and Jeanette Bonifaz 24 November 2014

In Bolivia, renationalisation of the hydrocarbon industry has been a huge economic success.



CMI Cochabamba

President Evo Morales came to power in Bolivia in 2006 amid widespread discontent. The country had been experiencing a long-term economic growth failure, with income per capita in 2005 lower than it was 27 years prior, and privatization efforts had been widely unpopular, including with the indigenous majority. Conflicts over natural resources, most notably the water and gas wars of 2000 and 2003, respectively, led to the resignations of Presidents Gonzalo Sánchez de Lozada in 2003 and Carlos Mesa in 2005. The Morales administration marked a dramatic turn-around for the country. The economy began to grow, experiencing its fastest growth in decades. Bolivia increased its sovereignty over economic policy; social spending increased by 45 percent from 2005-2012 and poverty was reduced by 25 percent from 2005-2011. In order to achieve these results, President Morales nationalized the hydrocarbons sector by decree early during his first year in office, allowing his government to engage in effective redistribution and macroeconomic policies that benefited the poorest segments of society.

For decades, natural resources extraction in Bolivia has alternated between public and private control. The oil and gas industries in Bolivia were privatized in 1996 through Hydrocarbons Law No. 1689 in a process heavily supported by the International Monetary Fund (IMF) and the World Bank as part of a neoliberal reform plan to increase foreign investment in those industries. YPFB (Bolivia’s state hydrocarbons company) was divided into three companies and 50 percent of the shares were auctioned to the private sector, a process that turned control of YPFB’s major assets over to private companies. The winners of the auction, including Enron, Shell and Repsol YPF, were not asked to pay for their shares; instead they simply committed themselves to investing an amount at least equal to the sale “price” over a period of seven years, the epitome of neoliberal governments giving away state assets.1 Additional efforts to attract foreign capital included lowering royalties and taxation rates on the gas industry from 50 percent to 18 percent. International companies were allowed to take possession of any hydrocarbons they extracted, except for a small amount slated for domestic consumption in Bolivia.

Foreign investment and production increased, and new natural gas deposits were found, but the public sector’s chronic fiscal deficit worsened. Rather than attempt to raise taxes on the immensely profitable hydrocarbons industry, now dominated by foreign corporations, the government announced it would create an income tax (the so-called “impuestazo” of 2003) despite prevailing low wages, high unemployment, and high levels of poverty. At around the same time, the government announced plans aimed at raising revenues by expanding gas exports with a pipeline through Chile, which would enable sales to the U.S. and Mexico.



CMI Cochabamba

As the public’s backlash against these policies increased, and the country was immobilized by protests. Following the killing of over 60 protesters by state security forces, President Sánchez de Lozada resigned and fled the country, and Carlos Mesa took office in 2003, calling for a referendum on the energy sector to take place in 2004. 92 percent of voters supported nationalizing Bolivia’s gas and 87 percent supported repealing the 1996 privatization law.2

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https://www.opendemocracy.net/ourkingdom/stephan-lefebvre-jeanette-bonifaz/lessons-from-bolivia-renationalising-hydrocarbon-indust