Travel on Highway 1 through Bolivia should be a snap. This all-weather road is the country’s principal artery, connecting the eastern economic hub of Santa Cruz with the political centre of La Paz, in the western highlands.
Despite its importance, the highway is a mess as it passes through the Bolivian jungle. Large tracts have been washed out since April, making the 100-mile journey between Villa Tunari in the jungle to Cochabamba in the highlands last up to nine hours instead of the normal three.
At any other time in Bolivia’s recent history, the problems on this road would have had residents incensed, ready to protest and, if possible, bring down the government in La Paz for turning a blind eye to the plight of the country’s nine million people. But no one is protesting the road problems today, largely because of the presence of one man – president Evo Morales, or simply Evo as he is universally known here.
New optimism
Since winning office last December with more than 50% of the vote, Morales, a left-wing, protester-turned-president, has brought a sense of calm to this convulsed Andean nation.
“There is a new sense of hope among the people since Evo’s victory. People tell us that they now have a chance to pull themselves out of poverty, to make a better life for themselves and their children,” says Jorge Oporto, a lawyer working with the country’s human rights ombudsman’s office.
In power since January, Morales, 46, and his Movement to Socialism party have worked on a project to transform Bolivia’s economic, political and social structures. So far, this has included nationalizing the country’s hydrocarbon reserves, signing a People’s Trade Agreement with Cuba and Venezuela and creating a constituent assembly charged with rewriting the country’s constitution.
While these and other measures have been more style than substance – Morales himself admits that hydrocarbon nationalization is far behind schedule – the general public likes what it sees. Morales’ popularity in recent polls is around 75%. Support for the administration stems from it making good on campaign promises, as well as a healthy economy.
International health
Like the rest of South America, Bolivia is benefiting from the buoyant international climate, particularly the high prices for raw materials. The bulk of its economy revolves around the export of hydrocarbons (51.7%) and minerals (26.3%), which means there is more money coming into the treasury. Gross domestic product is expanding by close to 5%, inflation is around 4%, and foreign investment is up.
In its most recent review of the Bolivian economy, the IMF stated that the “economic outlook for the remainder of 2006 remains positive, helped in large part by continued highly favourable external conditions, notably high energy prices. Real GDP growth is expected at just above 4%, with inflation in low single digits.”
The positive external conditions are also having a favourable impact on tax collection, a cornerstone of finance minister Luis Arce’s economic approach. Tax collection for the first seven months of this year was 46.5% higher than the same period last year.
“The most important thing we need to do is broaden the tax base. We are not proposing tax reform but a review of tax policy. We are going to review current taxes, because there are too many exonerations in Bolivia that have been adopted for political pressures that have not benefited society,” says Arce.
Critics argue that the international economic climate is temporarily masking the damage Morales’ policies are inflicting on the Bolivian economy.
Foreign investment
Raul Loayza, an economist and head of the National Unity opposition party’s government programme, says the key ingredient for Bolivia’s long-term improvement is foreign investment, and there is very little coming into the country right now. Foreign direct investment in the first half of the year was slightly more than $100 million. He says that the nationalization of hydrocarbons, even though it was more symbolic than real, has sent the wrong message to the international community.
“The signals that the government has given so far are not favourable for foreign investment. Bolivia is not at the centre of the world, it is on the periphery, and we need to be aware of this. The signals being sent, regardless of whether they are being interpreted fairly or not, have added another ‘but’ to our ability to attract investment,” says Loayza.
New best friends
Gustavo Aliaga, a coordinator of the opposition Podemos party, says he is concerned about the country’s foreign policy, particularly the friendships the Morales administration is cultivating. He says that he fears the model being implemented by the government is imported and directed by Venezuelan president Hugo Chavez.
Chavez is Bolivia’s top ally and has pledged major investments in different
sectors, including energy. Venezuela and Cuba are also supplying the country with educators and doctors. Also troubling for Aliaga are overtures towards Iran. Bolivia and Iran recently signed a memorandum of understanding to cooperate on mining, and the Bolivian government is hoping Iran will start buying soybeans, its top agricultural export.
“The vision of development is troubling. I would not be too concerned if this was a Bolivian model, but it is not. Chavez has too much influence over Morales,” says Aliaga.
After ATPDEA
Bolivia is moving to shore up its international ties at a time when it could lose one of its major export markets, the United States. Like other Andean countries, Bolivia has benefited for the past 15 years from the US Andean Trade Promotion & Drug Eradication Act (ATPDEA) and its predecessor, known as ATPA. Together, these two laws have allowed Bolivia, Colombia, Ecuador and Peru to export more than 6,000 items to the US tariff free.
ATPDEA expires at the end of this year, and the Bolivian government is following a two-pronged approach. On the one hand, it is lobbying hard for an extension of ATPDEA, with vice-president Alvaro Garcia visiting Washington earlier this year and Morales planning a trip in October.
Eduardo Peinado, deputy industry minister, says the Bolivian government “is interested in having a positive relationship with the United States. In addition to an extension of ATPDEA, we are also interested in other forms of exchange with the United States.”
If the extension does not materialize, the government is working on two strategies, one of which involves finding new export markets, while the other involves shoring up the internal market. The industry ministry will launch a new programme in early September, Productive Bolivia 2010, targeted at small enterprises. The idea is to assist local industries in competing with imported products.
Finance minister Arce says that, while he is concerned about the potential loss of tariff preferences under ATPDEA, particularly the effect this will have on employment, the government is taking corrective measures and will be prepared if the act it not extended.
“One door might be closing, but there are alternatives available to us. We need to develop new markets, and this time make sure all our eggs are not in one basket, which is what we did in the past,” says Arce.