Bolivia buries 20 years of socialism with ‘capitalism for all’ reforms
New president Rodrigo Paz plans sweeping natural resources reforms to boost foreign investment and revive economy
Bolivia’s new president is planning major reforms to unleash a mining and oil exploration boom, burying nearly 20 years of socialism in the Andean nation with a new policy — “capitalism for all”.
Rodrigo Paz, a pragmatic centrist former senator, said his team was working on a package of laws to boost foreign investment in natural resources which would be presented to congress for approval “in the coming days or months”.
“We need a new oil and gas law,” Paz told the Financial Times in an interview while attending an economic forum in Panama. “Bolivia should go for 50-50 [risk-sharing with foreign investors]. I give you the space. You come in with technology and investment . . . I think it’s the basis for business in future.”
Bolivia has a fifth of the world’s reserves of lithium, according to the US Geological Survey, but with its state-owned company YLB lacking technical expertise and investment, it has struggled for years to produce commercial quantities of the battery metal and exports are currently dominated by neighbouring Chile. Bolivia also has big reserves of silver, tin and antimony.
Paz said the Bolivian people, who have a history of protesting against mining, would support fresh investment if they were shown they would benefit financially. He compared his country to its neighbours: “Peru last year had mining revenues of around $50bn. Chile had revenues with state and private companies of $65bn. And we . . . had just $6bn,” he said.
Lithium mining and processing contracts signed with China and Russia under the previous socialist president Luis Arce, would be reviewed and made public to allow proper scrutiny, Paz added. “They will be respected if and when they are transparent,” he explained.
Arce is currently under arrest over corruption charges for allegedly diverting funds from a state fund for the rural poor while he was serving in a previous role as economy minister. He has denied wrongdoing.
Paz inherited an economy close to collapse from the leftwing MAS movement, which had governed Bolivia almost uninterrupted since 2005, first under the leadership of Evo Morales, a charismatic former coca growers’ leader, then under Arce.
When Paz took office in November, foreign currency reserves were virtually exhausted, the dollar was selling for almost twice the official exchange rate on the black market, the fiscal deficit was around 11 per cent of GDP and inflation was among the highest in Latin America at nearly 20 per cent a year. Deforestation was rampant, with Bolivia cited by NGOs as the world’s third-biggest wrecker of tropical forest.
The new president moved quickly, declaring an economic emergency in December and scrapping a government subsidy on fuel which was costing up to $2.5bn a year. The subsidy provided lucrative opportunities for smugglers, who spirited cheap Bolivian petrol and diesel over the border to resell in neighbouring Peru, Paraguay and Brazil.
“Almost half [the subsidy] went in smuggling and corruption,” Paz said. “Four families were making an average of $1.3bn to $1.5bn a year.”
His government used part of the savings to reduce the budget deficit, while also increasing targeted welfare payments to students and the elderly and boosting the minimum monthly salary by 20 per cent to 3,300 bolivianos ($479). This helped to tame social protests in the wake of the rise in fuel prices.
Asked whether capitalism had a chance in Bolivia after two decades of socialist government, Paz responded that his country had a long history of private enterprise. “Today the informal economy is 85 per cent [of the total economy],” he said. “That 85 per cent don’t work for the state, they are capitalists . . . and the other 15 per cent don’t like the state because the state corners them on taxes.”
The solution, he said, was to cut taxes and import duties and “swap a corrupt state which blocked everything” for a state which facilitated business. “People want to be rich,” he said, citing the word “qamiri”, which he said meant “abundance” in the indigenous Aymara language. “To be rich is not a sin in our societies.”
Paz said that after 12 weeks of his government, Bolivia’s country risk — the additional premium demanded by investors to hold its sovereign debt over that of US Treasuries — had fallen from arbout 1200 basis points last year to close to 600 basis points.
Fitch upgraded Bolivia’s debt by one notch last month, citing a lower risk of default and the elimination of fuel subsidies, but added that “risks remain high”.
Paz has also reestablished full diplomatic relations with the US, which were disrupted when Morales expelled Washington’s ambassador and the Drug Enforcement Administration (DEA) from Bolivia in 2008. The new president has pledged to “open Bolivia to the world and the world to Bolivia” after a period in which the MAS shunned the west in favour of China, Venezuela, Cuba and Iran.
Marco Rubio, US secretary of state, has described Paz’s election as a “transformative opportunity” and Washington has welcomed his economic reforms as a “necessary course correction” after “decades of failed policies”.
Multilateral development banks have weighed in to support Paz’s government. The Inter-American Development Bank has pledged $4.5bn over the next three years while Latin America’s development bank CAF has agreed a $3.1bn support package over five years.
Bolivia has a history of political instability, with nearly 200 coups or attempted coups since independence from Spain in the early 19th century, and analysts have flagged possible risks to Paz’s government from opponents such as Morales.
Morales has dominated Bolivian politics this century as the country’s first president of indigenous descent, serving three terms. He was forced from office after attempting to claim a fourth election victory amid charges of electoral fraud and is now wanted on a charge of raping and making pregnant a 15-year-old girl while president. He has denied wrongdoing and claims the charge is politically motivated.
Morales has been hiding for months in his coca-growing stronghold of Chapare protected by local allies but has not appeared for his weekly radio show recently amid speculation he may have slipped out of the country.
Asked whether Morales might call his supporters on to the streets to disrupt Bolivia and try to overthrow the government, Paz paused for some time before responding: “Bolivia’s capacity for resilience and adaptability will give a clear answer on the topic of Evo in the short term. But I don’t want that to be the headline of this interview. Bolivia deserves a better future than talking about Evo.”