Bolivia Web Blog

I’m reposting here a comment I made recently in the von Mises Institute blog. My comment was in response to a discussion about the policies that Evo Morales is pursuing. What I’m hoping to achieve is that people who are not very familiar with Bolivia’s history will understand a little bit better the context that resulted in the election of Evo. Here is what I wrote:

No comment about Evo Morales’ recent measures is complete until one considers how private companies like Repsol, Petrobras, and others acquired ownership of Bolivian oil and gas.

Up until the early 1990s, the state oil company (YPFB) controlled 100% of the oil and gas industry. As others have pointed out, YPFB was very inneficient and corrupt. The government of Gonzalo Sanchez de Lozada (GSL), with full support from the US, announced that it would “capitalize” the company as a way to solve all its problems.

Capitalization consisted of transferring 51% of its shares to newly created pension funds (which would fund the retirement of Bolivians), and selling 49% of YPFB to private investors.

So far so good. Sanchez de Lozada seemed to know what he was doing, and the “capitalization” process made sense. It would be a step in the right direction, for state ownership of the oil and gas industry had been a disaster. Unfortunately, the whole process was a sham.

Several government officials and close associates of GSL (and perhaps GSL himself) set up shell companies that acquired YPFBs assets at a huge discount. Enron got involved, acquiring a pipeline network using loan guarantees from the US Export/Import bank. Bolivians quickly realized that “capitalization” was synonimous with plundering.

I should also add that shortly after YPFB was dismantled, the private companies that acquired its assets started announcing major discoveries of gas. I’m sure that some of the discoveries were a legitimate result of their exploration and investment efforts. But in many cases, all proven years later, it turned out that some YPFB executives already knew about some of the huge gas reserves. They had passed confidential information to the private companies prior to YPFB’s assets being sold off. In fact, private companies had acquired the second largest natural gas reserves in South America for cents on the dollar.

As the economic situation in Bolivia continued to get worse, Bolivians started wondering how come none of GSL’s promises came to fruition. Several investigations were launched. An independent auditor discovered that the private companies were keeping at least two sets of accounting books. One that showed huge losses and thus minimized their tax exposure, and one that showed huge profits and thus made the companies attractive to private investors in Wall Street and other exchanges.

Ah! I should add that the special investigator appointed by the goverment died in a plane accident just as he was getting ready to go after Enron and other companies.

Anyway, the bottom line is that Bolivians became disgusted with GSL and booted him out of office. Evo’s promises of undoing everything GSL had done became hugely popular. In a country where most recent elections had been closely contested, Evo won with an absolute majority. His rise to power is a direct result of the corruption that has reigned in Bolivia for decades.

Another project that my friend Rodrigo Peñaloza has worked on resulted in the Evo Morales interview now available in a British web site. I’m not very familiar with British television, but I found the interviewer’s style to be quite confrontational. At some point in the interview he asked Evo “Why do you hate the US?” Apparently, the idea that disagreeing with the policies of a country is the same as hating a country has reached the UK. Evo didn’t take the bait, fortunately.

One of my friends from high-school has been providing logistical support to foreign journalists in Bolivia. The result of one of his projects, a very interesting report on Evo Morales, is available on the PBS web site.