Latter-Day Bourbons in Bolivia

It was said that after their return to power in France in 1815, that the Bourbon dynasty monarchs and their aristocracy had "learned nothing, and forgotten nothing"--learned nothing about governance, legitimacy, or the public welfare; and forgotten none of the insults and injuries visited upon them during the First Republic and Napoleon's Empire.

Now it looks as though Bolivia's president Evo Morales is today's equivalent of the Bourbon King Louis XVIII. Decoupling Bolivia from the world economy will be costly and painful. Having your major extractive industries run by political hacks will be very destructive. And doing so in a way that will maximize the alienation of Brazil and Spain is just plain stupid.

And what kind of person thinks engineers come in battalions?

FT.com / Americas / Latin America - Bolivia set to seize foreign-run gas fields: By Hal Weitzman in Lima: Bolivia ordered its military to seize natural gas fields controlled by foreign investors as the 100-day-old government of Evo Morales signalled it was putting into effect a campaign pledge to nationalise the sector. Bolivia’s gas industry is dominated by international energy companies... Brazil’s Petrobras, Repsol of Spain, Total of France, and BG and BP of the UK, and the decree is the latest sign of a hardening approach to foreign investors.... “We want to ask [the armed forces] that, starting now, they occupy all the energy fields in Bolivia along with battalions of engineers,” Mr Morales said after signing an official nationalisation decree in a ceremony at a gas field in south-eastern Bolivia operated by Petrobras.

The document stated that “the state recovers ownership, possession, and total and absolute control of these resources”. Bolivia has the second-biggest reserves of natural gas in Latin America.... The intervention will heighten investors’ concerns about the investment climate in the energy sector generally, and Mr Morales’ willingness to pursue a leftwing agenda in particular....

Álvaro García, Bolivia’s vice-president, said officials from YPFB, the state energy company, and the military had begun to take control of 53 installations. YPFB and the state, he added, would assume responsibility for production, sales and pricing. Congress last year passed a law that obliges foreign energy companies to hand over 50 per cent of their revenues in taxes and royalities. But Mr Garcia indicated that at the two largest gas fields, San Alberto and Sabalo, the split would now be 82-18 in the state’s favour....

Last month Mr Morales expelled EBX, a Brazilian steelmaker, for allegedly breaking environmental law. Repsol’s chief executives were imprisoned in March on oil-smuggling charges...

This looks bad.

Comments

[Matt]

Brad,
I also am not optimistic about this working out well for Boliva. But, you'd come across a lot better if you gave any indication that you had any sympathy with the plight of the people there. Obviously it was not as if the old system was greatly enriching the average Bolivian. If it were they would not have voted to change. And, it seems pretty silly to compare them with the Bourbons since, obviously enough, the elected government of Bolivia, supported by the quite poor majority, has very little in common with an aristocratic absolutist monarchy that cared nothing for the people. If merely making an unwise choice makes one like the Bourbons there is a point, but as is this just looks mean and silly, I think.

[Matt]

Brad,
I also am not optimistic about this working out well for Boliva. But, you'd come across a lot better if you gave any indication that you had any sympathy with the plight of the people there. Obviously it was not as if the old system was greatly enriching the average Bolivian. If it were they would not have voted to change. And, it seems pretty silly to compare them with the Bourbons since, obviously enough, the elected government of Bolivia, supported by the quite poor majority, has very little in common with an aristocratic absolutist monarchy that cared nothing for the people. If merely making an unwise choice makes one like the Bourbons there is a point, but as is this just looks mean and silly, I think.

[liberal]

Brad DeLong wrote, "Decoupling Bolivia from the world economy will be costly and painful."

Where did the Bolivians say that was their intent?

"Having your major extractive industries run by political hacks will be very destructive."

Is that really what they plan on doing?

Here's a quote from a FT.com article: "Despite his inflammatory rhetoric and use of the army to secure the oil and gas fields, Mr Morales’s plan appears to be less outright takeover and more a bid to extract a bigger share of revenue for his exchequer."
(http://news.ft.com/cms/s/28fb631e-da30-11da-b7de-0000779e2340,dwp_uuid=14a702a8-4bbd-11da-997b-0000779e2340.html)

Sounds reasonable to me. Companies extracting the natural resources are due a return on their capital and labor, but the value of the natural resources belongs to the people, with the state acting as trustee.

Of course, to make these distinctions requires an understanding that there are three factors of production, not two.

[liberal]

Brad DeLong wrote, "Decoupling Bolivia from the world economy will be costly and painful."

Where did the Bolivians say that was their intent?

"Having your major extractive industries run by political hacks will be very destructive."

Is that really what they plan on doing?

Here's a quote from a FT.com article: "Despite his inflammatory rhetoric and use of the army to secure the oil and gas fields, Mr Morales’s plan appears to be less outright takeover and more a bid to extract a bigger share of revenue for his exchequer."
(http://news.ft.com/cms/s/28fb631e-da30-11da-b7de-0000779e2340,dwp_uuid=14a702a8-4bbd-11da-997b-0000779e2340.html)

Sounds reasonable to me. Companies extracting the natural resources are due a return on their capital and labor, but the value of the natural resources belongs to the people, with the state acting as trustee.

Of course, to make these distinctions requires an understanding that there are three factors of production, not two.

[rea]

"And what kind of person thinks engineers come in battalions?"

http://249en.belvoir.army.mil

[JRoth]

Yes, by all means let Bolivia learn from the enlightened USA, where mineral rights are established on a free and open market. Well, at any rate by decades-old laws (without price indexing!) and split land rights that give drillers more rights than homeowners. Sounds good to me!

Look, the current balance of power in Bolivia (and pretty much everywhere else in the world) gives extractive industries rights that private individuals can only dream of, while providing minimal benefit to the commonweal. Unless you think that Lee Raymond's $400M payday represents the optimal allocation of resource valuation, you should accept that there may be others out there who are willing to do something about it.

Bolivia holds a scare resource for which there is almost unlimited demand. The oil and gas will be pumped, either at great private profit or at modest private profit. The rents can either accrue to Bolivians, or to extraordinarily wealthy First World individuals. Under the current system, and, evidently, whatever one you would approve, the latter is the case. I think it's rational for Bolivians to vote for the former.

[Matthew Saroff]

Quite frankly, and I'm speaking generally of 3rd world privatization programs, I have no specific knowledge of Bolivia, other than that the gas fields were privatized 10 years ago, most privatization is the purchase of resources at below market value because you bribe government officials.
Yukos in Russia was the same thing.
Why people run around like their hair is on fire after they are caught with resources that were basically pillaged is beyond me.

[DB]

While having your major extractive industries run by "professionals" is so beneficial as anybody will tell you in DR Congo, Angola, Myanmar, Papua New Guinea, Brazil, Nigeria, Peru, Liberia, etc. etc. etc.
Please, you can do better than that.

[Bruce Webb]

"And what kind of person thinks engineers come in battalions?"

The United States Army Corps of Engineers? The Navy SeaBees? Which stands for "Construction Battallions"?

And while from bitter experience I am not sure I would differ from the following, having had one extractive industry grab Cheney from politics and then had government grab Cheney from oil extractive business, I don't see that we need to be lecturing Morales on this count: "Having your major extractive industries run by political hacks will be very destructive." Ouch. No kidding.

Brad you can do better. I read a lot of coverage of Latin America that seems to boil down to "Castro is sending teachers and doctors! Chavez is sending cheap oil! Morales is using Bolivian resources to benefit Bolivians! Those bastards!" while I am left scratching my head.

[Burlington]

Hilarious!

"Having your major extractive industries run by political hacks will be very destructive."

Perhaps as destructive as having extractive industry hacks run your politics?

Ever heard of Potosi? Or Bush, Cheney, and friends? The "hacks" have been running Bolivia for centuries. Evo Morales can't possibly be any worse.

[Bruce Webb]

There is a current stream of talk that somehow rogue states that also have large supplies of natural gas (Bolivia) or crude oil (Iran) are somehow vulnerable to energy hungry First World nations saying "boo".

Iran has oil and in a pinch has to deliver exactly zero to the West, India and China are right there and thristy for oil. Similarly Bolivia's markets are Latin American, and the extraction technology is not so difficult that losing American engineers is somehow going to be crippling.

Hey it's $75 a barrel oil and those that got it don't really have to give a crap about those who have to buy it. Hugo Chavez has oil, we want it, and thanks to Iraq no longer have the power just to take it.

[Jim Dandy]

It is a well known feature of extractive industries that management expertise can be readily purchased on the international market at competitive rates of compensation. Ownership, on the other hand, previously concentrated among giant multinationals, has increasingly been taken over by national governments.

At the heart of this movement are (a) the underlying economic rationale that ownership confers the ability to extract economic rents and (b) the political drive to capture the benefit of such rents on behalf of nationals.

There is an issue of how the rents become distributed locally when such takeovers occur. But that does not seem to be the professor’s concern here. Rather, it seems that he would prefer the continued transfer of rents to the super-rich corporate executives who own and operate the foreign firms.

[latinreason]

A little more recent historical reference than 1815 France would be very useful here, when referring to this mining and resource rich nation of mostly terribly poor people. Evo Morales was elected following a number of years of social protests which have centered in large part around the question of control of Bolivian gas fields and an earlier wave of privatizations under less democratic circumstances (so much so that the entire period is often referred to as the 'Bolivian Gas War' http://en.wikipedia.org/wiki/Bolivian_Gas_War)

It would be wise to at least consider this context as you are lecturing on 'governance, legitimacy, or the public welfare.'

Certainly one can and should be concerned about HOW this will be carried out, and whether the net result will be less and not more revenues for the Bolivian state, but to assume it's not going to payoff even in the long run, seems to prejudge.

Thirty three years ago Salvador Allende nationalized Chile's large copper mines. Henry Kissinger and ITT Corp. were then determined to 'make the economy scream,' and the Chilean economy did spiral out of control in the next several years. But what is relevant to note is that Chile never re-privatized its large mines.
Not under Pinochet and certainly not under the last three democratic governments. Although Allende remains a divisive figure, most Chileans today would agree that the nationalization of Chilean copper was a wise choice. Copper prices are today at historical highs and the billions of dollars Chile has earned over the period have help undergird Chile's economic stablity and its social spending. Codelco - the state company that took over the running of the mines today produces 21% of world copper output. They somehow found a way to hire a batallion of engineers.

Bolivia's 'nationalization' is rather tame compared to Chile's takeover of its mines (looks more like a re-negotiation of the terms of gas contracts).

Even if Evo Morales manages to greatly botch the economy over the next few years (as Allende did in Chile), it's still an open question what the decision will mean for his country over the next 33 years.

[still working it out]

Pr DeLong,

"And what kind of person thinks engineers come in battalions?"

Committing the ameteurs sin of impugning someone by correcting them when you yourself have your facts wrong suggests to me that you are experiencing some unreasonable prejudice here. When I discover myself making mistakes like this I try to use it as a flag that my thinking on the subject at hand is less than it should be. A little subsequent introspection is usually quite informative about my own prejuces and beliefs. Not always pleasant though.

[No von Mises]

"This looks bad."

The same was said of Venezuela. The spigot remains open and at least *some* redistribution is taking place.

[a]

Hooray for Bolivia, and damn the Clinton wing of the Democratic Party.

[anne]

http://www.nytimes.com/2006/05/03/world/americas/03bolivia.html?ex=1304308800&en=40aa6d14b940b330&ei=5090&partner=rssuserland&emc=rss

May 3, 2006

Bolivia's Energy Takeover: Populism Rules in the Andes
By SIMON ROMERO and JUAN FORERO

Bolivia's nationalization of its energy industry, announced Monday by President Evo Morales, was a vivid illustration that the populist policies, championed most prominently by Venezuela, were spreading.

The impact on international energy markets is expected to be minimal because Bolivia produces mostly natural gas and exports it to just two countries, Brazil and Argentina.

Symbolically, however, the dispatch of troops to refineries and oilfields threatens to inject more nationalistic fervor into the policies of Bolivia and other energy exporters, in Latin America and abroad.

"We're experiencing the supremacy of emotional politics at this time," Gonzalo Chávez, an economist at the Catholic University of La Paz in Bolivia, said in a telephone interview. "The nationalization was received with great enthusiasm, but we'll have to wait and see how the economic impact of all this plays out."

Many countries have already taken steps to assert greater control over their natural resources, spurred by nationalist politics and lofty energy prices.

Major oil suppliers like Saudi Arabia and Iran nationalized their oil interests decades ago. Russia recently reorganized its domestic energy industries as well. But it is in the Andean region where momentum is quickly building for a greater government role.

Venezuela, a top supplier of oil to the United States, is at the forefront of this trend, recently forcing foreign energy companies to accept state control of important ventures.

Ecuador imposed rules in April that increase the state's share of windfall oil profits, while in Peru, Ollanta Humala, a presidential candidate, has called for a more aggressive government role in natural gas and mining operations.

On Tuesday, Bolivia's vice president, Álvaro García, said major mining companies would also have to pay higher taxes. "There are not going to be company expropriations, of course," he told a local radio station, according to Reuters, "but we're going to assume a greater level of state control."

The government said it expected the nationalization of its energy sector, which includes the second-largest natural gas reserves in Latin America, behind Venezuela's, to raise its annual revenues by more than $300 million, to $780 million.

"I don't think the game is over," said Lawrence J. Goldstein, president of the PIRA Energy Group, which is based in New York and is supported by the petroleum industry. "It's going to move from the Americas to the Africans. This is a very dangerous precedent."

Bolivia's step highlighted the region's changing political landscape, pointing first to the weakening influence of the United States, and to the rising profile of Venezuela's president, Hugo Chávez, who has been empowered by soaring oil revenues.

But it also threatened to open a schism among the region's new wave of left-leaning leaders. Brazil's president, Luis Ignácio da Silva, while nominally left-leaning, has drifted more toward the center since his election in 2002. Now he will have to negotiate a way out of the current crisis for his country, which is one of the biggest investors in Bolivia's energy industry and the main buyer of Bolivia's natural gas....

[anne]

http://www.nytimes.com/2006/05/03/opinion/03wed3.html?ex=1304308800&en=cf4b7350954055d2&ei=5090&partner=rssuserland&emc=rss

May 3, 2006

Peru's Looming Disaster

The revolt of Latin American voters against the political class began in Peru in 1990, with the election of an obscure agronomy professor named Alberto Fujimori. The anti-establishment mood has spread, leading to populist soldiers and a coca grower taking the presidencies of Venezuela, Ecuador and Bolivia. Now Peru may elect the most dangerous leader yet. Last month Ollanta Humala, a military man whose family advocates the shooting of gays, Jews and Chilean investors, came in first in presidential elections. Since Mr. Humala did not get 50 percent, there will be a runoff on May 28.

More bad news: the other candidate will be Alan García, a spectacularly irresponsible and corrupt president in the late 1980's who wrecked Peru's economy and presided over the commission of widespread war crimes. This sorry duo topped a field that included several excellent candidates.

The roots of the appalling choice facing Peruvians are evident. As in Venezuela, traditional politicians in Peru have failed to improve the lives of the majority, especially indigenous people. The current president, Alejandro Toledo, has presided over five years of peace, lowered corruption and sustained the strongest economic growth in Latin America. Yet his approval rating is in the single digits. Mr. Toledo squandered the opportunity seized by countries like Chile and Mexico to spread the benefits of growth through targeted education, health or rural development programs.

Both candidates would make things worse. Mr. Humala is no fan of democracy and wants to hold a constituent assembly to rewrite Peru's Constitution. He was an army captain in command of a military base during Peru's war with the Shining Path guerrillas. There is credible testimony from several families in his zone that men directly under his command tortured and killed peasants, and that he participated in terrorizing and ransacking the business of a storeowner who demanded payment from his soldiers. Many of his closest aides have ties to Vladimiro Montesinos, a jailed racketeer.

All this is widely known in Peru, yet a large chunk of voters are unbothered. There could be no clearer warning than this of the importance of economic development that includes the poor.

[david]

Lovely comments to an unlovely post. Since it's Galbraith week, maybe you could talk about the interpenetration of the public and private sectors around oil and gas. It might help explain why the 10 year privatization in Bolivia didn't quite live up the hype, and why Exxon can pay that kind of money and yet still have plenty left over to buy politicians on climate change.

That op-ed Anne posted has a very strange claim about Mexico and redistribution, one that doesn't much correspond to what's happened since the devaluation left everybody shocked so shocked that Carlos Salinas (the visionary leader!) might have led Mexico into a sewer.

[benton]

http://www.wood.army.mil/5th/

But, I think the question of how the track record of economic nationalism/expropriationalism fares versus engagement with foreign investors is an empirical one. We have a track record here by which to assess whether:

1) Bolivia is getting a particularly raw deal
2) the deal they're getting, raw or not in compariative perspective with others, is a fair one
3) the trade offs of taking another path (paging Alain Garcia and Jacobo Arbenz et al) are worthwhile

Does the historical record provide answers?

[anne]

Thank you for the criticism, which I well accept and wish more of, Slink and David.

I thought about the New York Times editorial, which is troubling, and decided to post it for comment or criticism. Latin America from Mexico to Argentina has variously languished in growth and equity and opportunity, while we have given little attention to the needs and problems.

[J.Goodwin]

The appearance is a little bad (sending in the military before you start negotiating isn't a sign of strength), but I'm not sure that the outcome we will see here is going to be significantly different than what we now have in Venezuela.

For the record, I don't see a problem with what Venezuela did at all. Then again, I also believe that the US should immediately default on the national debt to decrease the impact of default, which I consider inevitable.

[Tracy]

Yeah, you people are right and Brad is letting his training get ahead of his sense. There is only one way to get control of the benefits of extractive industries: you, you know, like, take control of them. There's only one way to make that work: you get control with massive public support and you start to stand on your own feet. Sure, that'll hurt some. But in a world which may very well have reached that peak oil position everyone always dreads, that's a hound that won't hunt. Whatever hurt there is won't last long and the long term benefits will be substantial, especially if Morales follows through on the rest of the Bolivian economy.

[anne]

Possibly I am quite naive in this matter, but I do not find setting development in a populist frame, with the convincing election of the first Indian president in Bolivia's history, a disappointment. I am hopeful that Latin Americans are looking to the sort of development model of China, where investment in domestic resources and markets are allowed with an accompanying technology transfer and revenue from domestic resources is finally used for infrastructure development, especially including schooling at all levels. I find no reason why if our state department can turn from the lunacy of occupying Iraq to the promise of Latin America, we should become in the least less friendly and helpful in Latin America. Actually, we could be and should be far more supportive of equitable development.

[anne]

http://www.nytimes.com/2006/04/02/world/americas/02peru.html?ex=1301634000&en=c13c8c0cf1caa656&ei=5090&partner=rssuserland&emc=rss

April 2, 2006

Nationalism and Populism Propel Front-Runner in Peru
By JUAN FORERO

MOQUEGUA, Peru — In a presidential campaign filled with symbolism, the front-runner here found a perfect image for his hard-charging crusade: on Tuesday, he jumped on a chestnut mare and, with his followers sprinting behind him, galloped to the central plaza to promise to revolutionize this Andean country.

The candidate is Ollanta Humala, 43, who was seeking to evoke the image of the authoritarian man on horseback known as the caudillo. He says that if elected on April 9, he will waste no time before cracking down on the multinationals he says cheat citizens and arresting the crooked politicians he says have plundered Peru. As the leader of the newly formed Nationalist Party, he also says he will ally himself with President Hugo Chávez of Venezuela, who wants to form a bulwark against the Bush administration.

Mr. Humala, whose first name means "warrior who sees all," is as populist as they come on a continent that has been swept by leftist leaders mining popular discontent with free-market policies and suspicions of the United States. His antiglobalization stance and talk of transforming the economy provoke fear in the entrepreneurial class; the stock market suffered its biggest tumble in five years when he rose in the polls.

But his message — Peruvians first — is compelling to many in this country of 27 million.

"We nationalists are going to found a new country," said Mr. Humala, a wiry man with close-cropped hair who campaigns in a red T-shirt that says "Love for Peru."

"Who is afraid of change?" he said. "Are the people afraid of change? No! Those who are afraid are the ones in power because they know if the nationalists get to power, Peru will change."

It is a simple, scripted message from which he rarely deviates, repeating it to reporters and his growing following, with little elaboration. The polls show it is working. His approval rating, 11 percent in November, has grown to 33 percent, putting him ahead of Lourdes Flores, a former member of Congress who stands at 27 percent, and Alan García, a former president whose administration from 1985 to 1990 left Peru a shambles, now at 22 percent.

Mr. Humala says he hopes that voters in Andean villages, where his support is strong, will help give him more than 50 percent of the votes so he can avoid a runoff.

"He's with the people," said Victor Herrera, 40, who was among the thousands who followed Mr. Humala on his recent swing through this arid desert in southern Peru. "He's not like the other candidates, who are with the big businessmen."

Though Mr. Humala wants to be thought of as another in a long line of leftist leaders to surge in Latin America, his background is a far cry from that of President Evo Morales of Bolivia, President Luiz Inácio Lula da Silva of Brazil or Mr. Chávez, who all grew up poor and spent years building social movements.

Rather, he attended an elite private school in Lima, served in the army, which has been criticized for widespread rights abuses, and studied in France.

Mr. Humala's father, Isaac, founded an ultranationalist movement, etnocacerismo, named after a 19th-century military hero. It speaks of the superiority of the Indian race over those descended from the Spanish, advocates revenge by Indians and mixed-blood Peruvians against the descendants of the Spanish and includes ideas like sentencing corrupt officials to death and closing the borders.

His mother said homosexuals should be shot so "there is not so much immorality in the streets." A brother, Antauro, a former army officer, led an attack by 150 army reservists on a police station last year, killing four officers. He was demanding the resignation of President Alejandro Toledo. A thousand soldiers retook the station and arrested Antauro, who remains in custody....

[gre]

> FT.com / Americas / Latin America - Bolivia set to seize foreign-run gas fields

You are repeating propaganda produced by class friends of those who robbed Bolivia for decades and now are compelled to give at least something back.

[tom f]

anne:

Slightly off topic, but Juan Forero merits the same attention many WaPost journalists get on this blog.

The following story on Chavez is closer to a hit piece than journalism. It features unbalanced quoting of US right wing think tanks wringing thier hands over Chavez's foreign policy. It drips with cynicism and hypocracy.

Chávez Uses Aid To Win Support In the Americas

April 4, 2006, Tuesday
By JUAN FORERO (NYT); Foreign Desk
Late Edition - Final, Section A, Page 1, Column 6, 1309 words
DISPLAYING FIRST 50 OF 1309 WORDS -President Hugo Chávez is spending billions of dollars of his country's oil windfall on pet projects abroad, aimed at setting up his leftist government as a political counterpoint to the conservative Bush administration in the region. With Venezuela's oil revenues rising 32 percent last year, Mr. Chávez has been...

[maracucho]

The Curse of Oil and Gas
This oil and gas business is very complex. On the one hand, the big oil companies have helped loot many resource-rich countries - that’s what happened during the reign of Venezuelan president Carlos Andres Perez - he sent millions to private offshore bank accounts, oil production increased, the big oil companies were happy, as was the Exxon-oriented Clinton State Department. The lot of average Venezolanos worsened; they eventually voted in Chavez, a caudillo with socialist clothing, stronger on rhetoric than long term socialist deeds. Chavez sees his historical role as promoting independence from the gringos all over South America and he’s been successful, abetted by ideologues in the US State Department like Otto Reich . However, Chavez placed political cronies into PDVSA, the state owned oil company, fired technocrats, and production fell. It’s still a bit down from levels before the 2003 strike, which Chavez eventually broke. Chavez wants to build a giant gas pipeline to Argentina which would include Bolivian gas. The real question about the Bolivian nationalization is whether this will derail plans with Mercosur and the Gran Gasoducto del Sur. Most likely not, because Chavez and Morales want to get along with de Silva and Kirchner.

Unfortunately state owned petroleum companies have a poor record for finding new fields and have often been quite corrupt. Mexico is a classical example on both counts. Maybe the smartest thing is to let the private companies find the oil and gas and then nationalize the fields. If BP and Exxon aren’t interested, Chinese companies are available It’s certain that the great oil company finds in Latin America were never used for the benefit of locals- as is true in Nigeria today.

Which kind of corruption is worst? Short term focus on profits and stock market rationality at the expense of human needs, which Brad seems to favor, or socialist rhetoric which tails off into a spiral of government corruption? I find both the Exxon model and the Chavez model unsustainable. The US is in no position to lecture the Bolivians.

[anne]

Again, thank you Tom. I am told by people knowledgeable about Latin America to be careful of the reporting of Juan Forero, and I will be, trying to question as I read and relying on comments such as yours and clarifying letters.

[anne]

http://www.nytimes.com/2006/04/05/opinion/l05chavez.html

Chávez's Foreign Aid

To the Editor:

The hand-wringing by Bush administration officials over how Venezuela is spending its oil wealth is both hilarious and breathtakingly hypocritical.

President Hugo Chávez is "spending considerable sums involving himself in the political and economic life of other countries in Latin America and elsewhere, this despite the very real economic development and social needs of his own country," complains John Negroponte, the American director of national intelligence.

The exact words could be used to describe the Bush approach.

Perhaps if we spent our foreign aid on popular programs that aided the poor rather than military invasions, we would be received with the enthusiasm that Mr. Chávez is enjoying.

John Eklund
Milwaukee, April 4, 2006

•

To the Editor:

I was puzzled by your article, in which Venezuela's efforts to aid poor people in the Western Hemisphere, including Mexicans needing eye surgery and Americans needing heating oil, were described as "pet projects" of President Hugo Chávez.

Don't all countries seek foreign allies? Why is it particularly nefarious for Venezuela to do so?

Similar efforts by the United States government are described in the article as "development programs." Why are these not also "pet projects"? Why the asymmetry in your reporting?

Robert Naiman
Urbana, Ill., April 4, 2006

[anne]

What I am learning from the fine comments is what we in America keep forgetting, the importance and promise of diplomacy. Why should we not believe that Latin American diplomacy cannot both result in agreements that further the development of Bolivia's natural gas resource and further the use for infrastructure development as never before since the government has a mandate to better insure equity?

[CalDem]

You are way off on this one Brad. I lived in Bolivia during part of the period of privitization of the gas recourses and am now a card carrying economist. The contracts were bought with bribes, plain and simple, therefore they are not legal or valid and the legitimitealy elected Bolivian government has the right to renegotiate those leases. When you steal a country's property through bribery, you can expect that soldiers will come to your door to take that property back at some point. If they they to run the fields themselves then that is stupid, but I expect they will be able to find someone willing to run the fields for a small profit rather than running the fields for a large profit as currently.

And even in the worst case where the fields are completely shut down 99% of the Bolivian people are no worse off because almos all profits go to foreign oil companies or to a very small number of families.

your position seems to be that the oil companies stole the fields fair and square and they should not have to give it back. Shades of Andrew Jackson to the Cherokee.

[liberal]

JRoth wrote, "The oil and gas will be pumped, either at great private profit or at modest private profit. The rents can either accrue to Bolivians, or to extraordinarily wealthy First World individuals."

Right. Though to be more precise, the "great private profit" really consists (in the economic, not accounting, sense) of profit (return to capital) and rent (natural resource rent).

There's zero justification for private oil companies capturing any natural resource rent, as you appear to agree.

Why Brad doesn't see this is odd...

[kharris]

Maybe we are in the wrong part of the text book. Brad has started with the conclusions. Nationalization alienates foreign capital. Nationalization alienates foreign expertise. True, but is that the whole story?

Let's just guess that, resource prices rising, the royalty scheme in Bolivia (or whatever scheme Bolivia has) left a far larger chunk for the extraction companies with the CRB at 355 than at 300 a year ago. Even if local hacks are going to run the resource industries, isn't there a chance that Bolivian's will benefit from keeping more of the value of their domestic resources? The cost of production cannot have gone up as fast as the price of commodities. If the royalty scheme doesn't rachet up payments to the government handily, the incentive to nationalize the resource just becomes overwhelming. Bolivia may be able to pay for engineering and save enough from resource earnings to pay its own way in capital markets. I know it doesn't always work out that way, but at today's prices, the incentive is large. We can guess that production will drop. Do we know that it will drop enough to overwhelm the revenue increase due to booting the foreigners? Isn't there a good chance that a payment scheme that looked fair to Bolivians would have been a better starting point for the foriegn firm that one that doesn't, as suggested by the FT?

[rich]

Bolivia signed several investment treaties, including one with Spain: http://www.worldbank.org/icsid/treaties/bolivia.htm.

These treaties provide foreign investors with simplified access to arbitration for a foreign investor who incurs loss due to a government act, such as nationalization. (http://www.ustr.gov/Trade_Sectors/Investment/Model_BIT/Section_Index.html) Most investment treaties provide for compensation for lost profits where a natural resource concession is lost or its terms substantially change. This represents a significant part of the infrastructure that provides for the mobility of capital into developing countries.

In Bolivia as in Venezuela, a government sceptical about the worth of foreign investment has succeeded one favorable to foreign investment. It may be that Morales's decision is a good one--there could be an "efficient breach" here--one where Bolivia could pay off Totalfina et al and do better on its own. That would depend on the terms of the concession.

It's also possible that these nationalizations will result in disinvestment in Bolivia, or undermine the system of investment treaties. The former government, perhaps, opted for more gas available today in return for less gas revenue later. I don't know how or why they did that. It may have been a horrible decision. But it also probably brought a bunch of Europensioner money to the Eurobond market to pay for stuff that Bolivia may not otherwise have yet.

It's possible that Morales will make a more efficient or fair use of these revenues than would have happened otherwise. (Look how much stability the 1970s nationalizations in the Arab world has brought their citizens...) But this move may not be cheap in immediate or long-run consequence.

[J.Goodwin]

"It's possible that Morales will make a more efficient or fair use of these revenues than would have happened otherwise. (Look how much stability the 1970s nationalizations in the Arab world has brought their citizens...) But this move may not be cheap in immediate or long-run consequence."

The stability of plutomonarchist totalitarianism. The current instability in the middle east is a direct result of that very "stability." However, I think that the potential for a government that represents the people rather than rules the people is more likely than not at this point in South America. The personality cults that drive populist leaders to power are just as likely and capable of driving them out of power if they fail to carry out the people's mandates.

In the Middle East, popular discontent isn't enough to do that.

[Dan]

Anne: what does him being the first Indian President have to do with anything except elections???

Toledo could say the same thing 5 years ago and his approval rating is hovering around 12%.

Yes, you read that right: 12 percent!

There are political hacks and then there are corrupt and harmful political hacks. If Morales, Chavez, Ollanta or any of them could reduce the baseline and extreme level of corruption in their countries then we would be on our way to something good. If they simply seize oil rents, then they will meet varying degrees of domestic success (the more oil -- Chavez -- the better), but achieve nothing in the long run.

Anyone who has lived in Southern Cone and Andean countries can tell you what the main difference is between Chile and her neighbors: the police don't take bribes. That is just a symbol for the entire political process.

When Peruvians vote for Ollanta, they are voting:
1. For a dramatic change. When you have nothing, there is nothing left to lose.
2. For a disciplinarian in the Pinochet mold, albeit with more government.

I am an American expat and will probably not benefit when (if) Ollanta does win, but compared to that clown Garcia he will at least be a step to push the country forward. Either he fails miserably (and Peru returns to the fold of the United States) or he does relatively as well as Fujimori, lifting 1000s of people out of poverty and lasting as long as he can keep his personal theft to a minimum.

Dan (in Peru)

[Charles]

This post illustrates how unaware Americans, even very well-educated Americans are when it comes to Latin America. I've done a post titled "Misplaying Bolivia," explaining that a low-key response from the US is far likelier to protect US interests than the hysteria endemic to the Bush Administration. But considering US interventions in Latin America, perhaps completely discrediting ourselves would be to everyone's advantage.

The likelihood is that this is a re-negotiation of royalties and that nothing much will change. However, if Washington insists on seeing this as the reincarnation of Che Guevara and the Sierra Maestra, it might turn out a lot worse for the US.

The reality is that Evo Morales says he feels as if he is under house arrest by the oil companies. He has also seen what the US did to Chavez, ousting a legitimately elected leader with a coup. Unlike Chavez, Morales does not have the full loyalty of the military. So, he had to do something that would rally the Bolivian people, including members of the military. Nationalism works well in such situations.

Here are some points to consider:
1. Evo Morales is president of *Bolivia*. He is obligated to consider *Bolivian* concerns first and American/French/Brazilian/UK concerns only as they impact Bolivia.
2. Lula and Morales are friends. Morales undoubtedly wants to help Lula stay in power. Count on Petrobras coming out of this fine. My guess is similarly for Spain. Chevron, BP, and Total... maybe not.
3. With gas wealth estimated at $70B, the living standards of Bolivia's indigenous population are unacceptable. If the choice in raising living standards is between cultivating coca and getting higher royalties on gas, we should all vote for the latter.

There's more, but I think everyone should spend more time reading up, and less time reacting.

[anne]

Again, Dan and Charles, et. al :) the arguments are cogent and convincing. As for foreign investment, I am completely convinced that the need is for technology transfer as part of foreign investment from resource development to agriculture to manufacturing. China has shown this clearly, and Brazil has sought this effectively for agriculture investment. Also, I would like to see subsidies used to support small farmers, again after the Chinese useage.

[mikep]

"Last month Mr Morales expelled EBX, a Brazilian steelmaker, for allegedly breaking environmental law. Repsol’s chief executives were imprisoned in March on oil-smuggling charges..." "This looks bad."

Omigod, they're actually requiring corporations and their executives to obey the law. What a radical concept. I hope it spreads. I can understand why Americans, especially Americans with large investments in corporate equities and securities would find that alarming. But for the rest of us, it's a breath of fresh air. I can't believe that anyone would object to a government enforcing the law. And, of course, if they didn't they would be accused of corruption.

Since this is basically about oil royalties, note the significance of the "oil-smuggling" charges. That means that the corporates were trying to smuggle oil out of the country, presumably without paying the royalties they were legally obligated to. Why would anyone object to a government terminating contracts with companies that have proven they don't abide by them?

[sm]

It's worth remembering when Mossadeq led Iran into nationalization one of the big issues was that Iranians had no role whatever in the technical side or admin side of the oil business in Iran.

US support for British interests in Iran, at the cost of destroying constitutional govt there, was the beginning of US troubles in the Middle East.

No one in Latin America has any sane reason to think that US interests, govt or private, will act reasonably.

[Altoid]

I have to agree with the comments taking Brad to task here. But it's finals season so I'm inclined to cut him some slack and give him a chance to rethink this.

I do have to add one other observation that cannot be far from the mind of any Latin American of almost any political stripe. It is that the amount of money to be made by getting Bolivian gas to the market is too enticing for any capitalist entity to pass up simply for ideological reasons.

It might be different if there could be effective monopoly or oligopoly control. But given that we don't have as much political leverage over the Europeans as we did during the Cold War, and given that the Chinese and others would be happy to take what they can get, I don't think getting new deals will be a problem. The Seven Sisters gulped and gave the world Aramco, didn't they?

This isn't to say that there wouldn't be attempts to undermine Morales, as with Chavez. But it would be very difficult to pull off anything serious in a land-locked country that had support in the region-- much more difficult than conducting influence operations in a coastal country with a comparatively richer and more educated populace that had a long history of contact with the US. Even there, Venezuela also had a president with military experience as well as a good deal of popular support, and that seems to have made a bit of difference so far.

It isn't always the case that short-term greed trumps longer-term greed, but it surely would be with Bolivia and all that gas.

[Doctor Memory]

Right, Brad, because as everyone knows, the nationalization of the (imperial british dictated) oil fields of Saudi Arabia, Iran and the gulf states led to their disconnection from the world economy, impovershment and eventual collapse.

...oh wait, none of that happened at all.

What's strange here is not that the South American petroproducers are finishing the trend of nationalization that swept the middle east in the 60s and 70s. What's strange is that it took so long. Anyone interested in the reasons behind that 20 year gap would do well to pick up nearly any damn history book ever. Free hint: a pile of bodies, bought and paid for by your tax dollars.

Consider this an unintended side-benefit of the US Army being permanently pinned down in Iraq: it reduces their ability to put the boot down elsewhere.

[still working it out]

"learned nothing, and forgotten nothing"

Lets hope this will not be true about neo-liberalism as well.

[Charles]

Altoid, the US has negotiated bases in Paraguay that would be ideal to control South America, especially areas like VZ and Bolivia.

Anne, responding to a comment on another thread, I suggest you look at Barclay iShares. Blackrock has also done some amazing EFTs, but Merrill will screw them up.

As for rural development, it requires a lot of attention and oversight to prevent corruption and diversion into show projects.

There have been some wonderful examples of tech transfer-- Cobiotech has done some very interesting stuff-- but that's at a different level and tends to have a slow impact. "Trees, Water, People"-style rural development has an immediate and widespread impact.

[anne]

Agreed, Charles :) Increasingly the Chinese are finding that agrarian environmentalism adds to immediate development, besides being critical as such. Same for South Africa.

[jon livesey]

There seems to be a pretty consistent thread running through these comments, which is that the Bolivian affair is Bolivian people versus evil Western companies.

In fact, Western companies are largely owned by institutional investors, which includes pension and insurance plans.

But I guess it doesn't sound quite so romantic phrased as Marxist demagogue versus European retirees.

[anne]

http://www.msci.com/equity/index2.html

Well, through all the populist changes Latin American investors have done quite nicely the last decade, nicely even in Venezuela. Curiously the continually weakest Latin American market might be thought mistakenly to be the strongest, Chile. Investors in Venezuela, oh my, can be well pleased :)

[Tepid]

I find these comments great. More power to the Bolivian people!

But if nationalization is good for Bolivia, why not the United States?

[anne]

The Latin American stock index is up 28% in dollars this year, and has gained 16% a year over the last decade. So, sweet innocent European retirees are safe safe safe :) Though why does Chile lag so?

[john c. halasz]

Boy! Since no one yet has cited the figure, Bolivia was contractually receiving 18% of market value in royalties, an amount that even the World Bank considered excessively low, negotiated under corrupt/coercive conditions when energy prices were languishing, and enforced by fantstical WTO rules that require wealthy MNC's to be compensated not just for losses or investments, but for forgone profits. It's small wonder that a nativist/populist leader, elected by a clear and dynamite-tossing majority might not construe the benefits of access to global capital markets quite the same way as a Berkley econ. professor. Of course, the reason Chavez has been capable of renegotiating/renationalizing oil production in Venezuela to the tune of 60% state ownership is that oil prices are sky high and little likely to crash to earlier levels, so he has the leverage to do so, with most of the foreign companies caving into his terms. The same applies to Morales and the Bolivians with the added proviso that their reserves are in natural gas, the most benign fossil fuel from the greenhouse gas/global warming point of view, such that the future value of those reserves is all the more assured. The only surprising question here is: why Prof. Delong's capacity for analysis gives way when neo-liberal tenets are violated, especially, in part, due to the consequences of their application?

[john c. halasz]

Oh. One other thing I forgot to mention is that most of Bolivia's gas reserves are located in a lowland province dominated by wealthy white cattle ranchers with secessionist tendencies: that might go to explain why the military was called out.

[Dustin]

Nationalization of Industry? What an exciting concept! New Economic thinking!

I'm absolutely certain it's going to work this time. Dictatorsdhip of the Proletariat!

And Brad, I hate to say it as I don't wanna get banned, but you kind of asked for this response. Even exempting many liberals' (who should know better) fixation with Latin American populists, the patrons to the best economics weblog should generally be better informed about Chavezonomics than they currently are; and I hope you will (if you care) ponder whether you are responsible for any of that.

[JRoth]

Oy, way too late, but when I learned better, it was during the morning rush to work, and now is my first chance to do this:

I humbly retract (much) of my comment, way up there at the top. It was based on news reports at 6 PM EDT on Tuesday indicating that Morales' move was aimed primarily at redefining the terms of mineral extraction in his country. This morning I learned that what has happened appears to be full-on nationalization.

I have no fundamental problem with the former. It may be poorly done, but so may the existing terms of mineral extraction. I would still defend the right of poor countries to take strong stances to defend equitable distribution of extractive wealth. However, I think that straight nationalization, particularly under the terms that Morales seems to be creating, is doomed to ineffectiveness at best, and more likely outright disaster.

My apologies to Prof. DeLong, and to my fellow readers, for posting under-informed, inflammatory comment.

[Bruce Webb]

Dustin, more links, more carefully constructed arguments, and fewer ad hominenum attacks might serve you well here.

Demonstrate your informed views on Chavezonomics. Because in the end you, minus actual economic arguments, add up to a screen name. You are making an implicit claim to authority vis a vis the other posters here but are backing it up with what?

I read the comment threads here daily and quite frankly I am not familiar with your blog or academic credentials. In the words of our Commander in Chief "Bring it on". With numbers and cogent argumentation.

[Jon Fernquest]

"The contracts were bought with bribes, plain and simple, therefore they are not legal or valid and the legitimitealy elected Bolivian government has the right to renegotiate those leases. When you steal a country's property through bribery, you can expect that soldiers will come to your door to take that property back at some point...I expect they will be able to find someone willing to run the fields for a small profit rather than running the fields for a large profit as currently."

This is the most reasoned comment I've read here and it doesn't bode well for other countries such as Thailand, hovering on the edge of privatisation.

The threat to the privatisation of Egat, the Thai government electricity monopoly, is not foreign bribes though, rather rent-seeking business people in the country itself. One important issue in the debate is over whether public assets such as land can be made public. In the end though, debate paralyzed the privatization process perhaps permanently.

Jon Fernquest
The Bangkok Post

[José del Solar]

This kind of post is what makes many people (I among them), doubt the commitment of neo-liberal economists like deLong to better the lot of the poor in the "Third World". So now Evo Morales is an authocratic Bourbon king. Does deLong have no shame?

Environmental concerns aparently do no matter when those having them are the governments of poor countries: they are just excuses for denying multinationals access to resources by greedy Third World governments.Because, of course, these corporations are always so respectful of environmental laws. Why the double-standard, Mr. deLong? I read some silly article of yours a couple of months ago criticizing Argentina for trying to bring down the price of beef by redirecting its sales towards their domestic market. As far as I know, it's working. And the absence of any acknowledgement that you might have been wrong is telling.

[gcs]

apropos lord bradford

"the absence of any acknowledgement that you might have been wrong is telling "

[gcs]

apropos lord bradford

"the absence of any acknowledgement that you might have been wrong is telling "

[gcs]

apropos lord bradford

"the absence of any acknowledgement that you might have been wrong is telling "

[anne]

http://www.nytimes.com/2004/11/20/international/asia/20china.html?ex=1258606800&en=6af924a356976d31&ei=5090&partner=rssuserland

November 20, 2004

China Widens Economic Role in Latin America
By LARRY ROHTER

SANTIAGO, Chile - The expected arrival here on Friday of President Bush, who personifies for Latin Americans the economic and political power of Washington, is being greeted with an uneasy mix of protests and hopes for greater growth.

But while the United States may still regard the region as its backyard, its dominance is no longer unquestioned. Suddenly, the presence of China can be felt everywhere, from the backwaters of the Amazon to mining camps in the Andes.

Driven by one the largest and most sustained economic expansions in history, and facing bottlenecks and shortages in Asia, China is increasingly turning to South America as a supplier. It is busy buying huge quantities of iron ore, bauxite, soybeans, timber, zinc and manganese in Brazil. It is vying for tin in Bolivia, oil in Venezuela and copper here in Chile, where last month it displaced the United States as the leading market for Chilean exports.

While President Bush is spending the weekend here for the Asian-Pacific Economic Cooperation forum, President Hu Jintao of China is here in the midst of a two-week visit to Argentina, Brazil, Chile and Cuba. In the course of it, he has announced more than $30 billion in new investments and signed long-term contracts that will guarantee China supplies of the vital materials it needs for its factories.

The United States, preoccupied with the worsening situation in Iraq, seems to have attached little importance to China's rising profile in the region. If anything, increased trade between Latin America and China has been welcomed as a means to reduce pressure on the United States to underwrite economic reforms, with geopolitical considerations pushed to the background.

"On the diplomatic side, the Chinese are quietly but persistently and effectively operating just under the U.S. radar screen," said Richard Feinberg, who was the chief Latin America adviser at the National Security Council during the Clinton administration. "South America is obviously drifting, and diplomatic flirtations with China would tend to underscore the potential for divergences with Washington."

Chinese investment and purchases are seen as vital for economies short on capital and struggling to emerge from a long slump. In Argentina earlier this week, for example, Mr. Hu announced nearly $20 billion in new investment in railways, oil and gas exploration, construction and communications satellites, a huge boost for a country whose economic vitality has been sapped since a financial collapse in December 2001.

China is also increasingly willing to venture outside the economic realm. In March, for example, after Dominica, in the Caribbean, severed diplomatic relations with Taiwan, Beijing responded with a $112 million aid package, which includes $6 million in budget support this year and $1 million annually for six years. In Antigua, it has pledged $23 million toward the construction of a new soccer stadium.

Political relations seem to be advancing most rapidly with Brazil, Latin America's most populous nation, where the left-leaning government has repeatedly floated the idea of a "strategic alliance" with Beijing.

The Brazilian government has made clear that it views closer ties with China as a card that can be played to offset American influence and trade dominance. While not suggesting that China could soon replace the United States as Brazil's main customer and partner, the aim is to force trade and other concessions from the United States and rich industrialized nations.

"We want a partnership that integrates our economies and serves as a paradigm for South-South cooperation," President Luiz Inácio Lula da Silva said in May during a state visit to China during which he was accompanied by nearly 500 Brazilian business executives. "We are two giants without historical, political or economic divergences, free to think only about the future." ...

[anne]

http://www.nytimes.com/2005/04/25/international/americas/25latin.html?ex=1272081600&en=0fc71bf8c5a5bb91&ei=5090&partner=rssuserland&emc=rss

April 25, 2005

Fiscal Growth in Latin Lands Fails to Fill Social Needs
By JUAN FORERO

QUITO, Ecuador - Last year, Ecuador's economy grew at an astounding 6.6 percent, its inflation rate was the lowest in 30 years, and foreign investment surged. Wall Street celebrated, with a New York-based analyst of Latin American economies, LatinSource, praising Ecuador for "outperforming even the most optimistic scenarios."

But those rosy numbers did not translate into better lives for Ecuador's poor or political support for Lucio Gutiérrez, who took power 28 months ago, was removed from power by Ecuador's Congress on Wednesday and left Sunday for asylum in Brazil.

Though his interference with the judiciary was ostensibly the reason for his fall, many Ecuadoreans had become deeply disillusioned with his government, saying little had changed despite promises of more jobs, better schools and health care.

At the shabby, 57-year-old Baca Ortiz public hospital in Quito, considered the country's leading children's hospital, patients have to bring their own medicine, and doctors say they lack clean facilities, decent living wages and even the most rudimentary equipment.

"The last thing the state cares about is education and health care," said José Acosta, a staff doctor. "If the state doesn't provide medicine, doesn't provide funding, how are we supposed to provide good care?"

The discontent over a lack of state attention to basic social needs, despite increasingly positive macro-economic figures, is being played out across Latin America.

Economic growth for the region hit 5.5 percent last year, the best in a generation, inflation is down, foreign reserves are growing, and credit ratings are solid. But the positive economic news has not translated into housing for the poor, more teachers, better hospitals or social peace.

After years of fiscal prudence, privatizations and other market reforms prescribed by Washington, unjobless and poverty rates have hardly budged. Poverty remains pervasive, engulfing 44 percent of the population.

"The growth rate is not always an accurate benchmark for a country's authentic prosperity," said Larry Birns, director of the Washington-based Council on Hemispheric Affairs, which tracks social and economic trends in Latin America. "Expectations have risen, and they've risen faster than the growth rate."

The high price of oil and other commodities provided by these countries is fueling the solid economic growth across Latin America. Wall Street is particularly bullish about Peru, which has had strong long-term growth. The economy of Bolivia, one of the region's poorest countries, grew by nearly 4 percent last year, while Mexico topped 4 percent and Brazil, Latin America's largest economy, registered 5.2 percent growth....

[econBras]

I find it slightly disgusting to hear all these liberal First World scribes with little or no knowledge of Latin America or energy markets cheering Bolivia's self destruction.

For one thing, gas is not oil. That is not a commodity that you can sell wherever you feel so. Lest you can invest a few billion dollars on a natural gas liquifying plant, you depend on pipelines and long-term customer relationships.

In other words, if Bolivia pisses off Brazil, which they did, Brazil might find another source of gas. Alas, a certain country whose name starts with the letter "V", and whose president's last name starts with "C", has already offered to build a very long pipeline from its gas fields to Sao Paulo and Buenos Aires.

For the average not-so-smart liberal from the North, Chavez is double crossing the Bolivians, who do not have capital or expertise to develop the export potential of their gas resources. It will likely be a generation before any investment will come to Bolivia's gas industry.

[Charles]

You know, EconBras, granting that your post is more substantive than the crackpots crying "Communist!" every time a developing nation doesn't bow low enough for their tastes, such bitter diatribes don't go down well at this website.

I want to assume you have something to say. First, because I happen to know something about the oil industry, and second because I want to make money off of it. But I don't want to make money off of destroying the planet, grinding people down, or corrupting governments. I have seen those things at fairly close quarters and they are ugly.

Let's review your argument. (1) any pipeline from Venezuela to Brazil will be many, many years in the construction-- assuming that it doesn't create environmental backlash to block it. So, Brazil may want to dump Bolivia now, but they can't. (2) what Bolivia is actually doing is still unclear. Having followed this story for a long time, I think that there's a fair amount of kabuki. I think Morales is trying to prevent a coup by rallying his base. The Bolivian people put him in office because they want those leases renegotiated. It is not in the interests of anyone-- except those who think you can create prosperity under military occupation-- for Morales to fail. (3) There are in fact things one can do with gas besides transport it by pipeline. One can, for example, use a fraction in chemical manufacturing. Or generate electricity and distribute that through lines that are much easier to construct than pipelines. Or liquefy it and transport it by truck or ocean going vessel, (4) depending on route, it's possible Bolivia could use a pipeline constructed by Chavez. It's your interpretation that Chavez is betraying Bolivia, but since the pipeline is still a pipe dream, it's too early to say.

What's best for Bolivia? The Bolivian people-- and not "First World liberal scribes" or CIA officials or even PetroBras executives should decide this.

So, unless you are Bolivian, I would say your opinion is no better than anyone else who posts here.

[anne]

Nicely done :) but possibly because America appears to have forgotten about using diplomacy, we may be forgetting. There is every reason to believe that Latin Americas and European leaders will be able to negotiate a comfortable natural gas agreement with Bolivia's leaders. Also, China is an active investor in Bolivia and China is an endless energy market. What I wish to find is our diplomatic involvement in Bolivia.

[anne]

There has, by the way, been no sign at all of a problem on Latin American stock markets which are in the midst of a striking bull market from Mexico to Argentina. Chile, as usual, is the lagging market. Venezuela is especially strong. Currencies however are strong enough to be worrisome by past standards. Brazil's currency especially bears notice.

[Charles]

Is there any American diplomacy not being run by Ollie North types, Anne?

The reason I am optimistic about South America is because they are finally starting to assert their own independence. All things being equal, a free people can always outperform a people whose energy is squandered through repression of dissent.

That's a lesson this country began with, and probably needs to review.

So... how far out of line do you think Brazil's currency is?

[econBras]

Charles,

Liquefying the gas is not an option, Venezuela does NOT have a plant to liquefy gas. Those plants cost billions of dollars and years of investment, Bolivia will not have such a plant in 5 or 10 or 15 years.

Bolivia's action has a clear reaction: Brazil will understand that it should not rely on Bolivian gas, and hence it will diversify away from it.

Like I said before, gas is not a commodity, like corn or light oil. Gas needs infrastructure and large upfront investment. If Bolivia does not treat well its potential customers, they will turn their backs on Bolivia. And Bolivian gas will go undeveloped, in detriment of... Bolivians.

Alas, Lula may have finished losing his reelection bid with this Morales incident.

[cossack]

econBras: And Bolivian gas will go undeveloped, in detriment of... Bolivians.

Yeah, right, and afterwards a huge deposites of gas will be discovered on Jupiter. Baby, you do not fail to develop this shit, you wait so it becomes million times as valuable.

[econBras]

cossack,

I thought everybody in tis thread was concerned about the current poverty of Bolivians.

So are you the one telling the poorer people in the Americas that they should sit on their natural resources... because it may be worth more in the future!!??!?

...That is National Review worthy.

[cossack]

So are you the one telling the poorer people in the Americas that they should sit on their natural resources... because it may be worth more in the future!!??!? ...That is National Review worthy.

I dont't know what it is worthy but if you have half a brain think about Nauru. Or Nigeria. Or Sudan. But you don't.

[econBras]

Non-sense.
Throwing Sudan when discussing Bolivia makes me so angry that I am having trouble typing. Bolivia is not Sudan. Repeat with me, slowly, so you can get it: "Bo-li-via is not Su-dan". There is absolutely zero probability that a genocide would happen in Bolivia, or anywhere in South America.

your comment is as idiotic as claiming that Texans should not explore the Gulf Coast oil because the janjaweed (sp?) might come to murder their little children.

[cossack]

your comment is as idiotic as claiming that Texans should not explore the Gulf Coast oil because the janjaweed (sp?) might come to murder their little children.

You are a moron, aren't you? The key to any wealth, including mineral, is how it is managed. Countries that had no mineral wealth to speak of (Japan, Tailand, Singapur) developed very fast once they found the way that worked for them. On the other hand, countries that had mineral wealth without cohesive society (Nigeria, Sudan, Namibia, Nauru) found nothing but death and destruction. Yes, it is much better to develop society that will be able to use the mineral wealth in the national interest rather than wasting it on the luxuries of corrupt few. Is it so hard to understand?

[anne]

http://www.nytimes.com/2006/05/06/opinion/06powers.html

May 6, 2006

All Smoke, No Fire in Bolivia
By WILLIAM POWERS

La Paz, Bolivia

OUT for a stroll here this past Monday, I stopped in my tracks. Bolivian soldiers had surrounded my local gas station, where a banner read, "Property of the Bolivian State." They were among several thousand soldiers posted at the more than 50 oil fields and refineries around this landlocked nation, which holds the continent's largest natural gas reserves after Venezuela. Latin America's newest populist leader, President Evo Morales, had just issued a decree nationalizing Bolivia's petroleum.

In reaction to the news, the European Union warned that the move could tighten global energy supplies and increase prices at the pump. Other international analysts have expressed concern about a resurgence of dangerous "energy nationalism." However alarming Bolivia's move might appear on the surface, though, there is surprisingly little in it to worry the United States and the West.

This is simply the way democracy sometimes works. Oil and gas nationalization has been the main political issue in Bolivia for the last several years. Mr. Morales, an Aymara Indian farmer, won a landslide victory in December on a promise to nationalize the gas industry. Now he's delivering on that promise he made to the country's nine million citizens.

And when viewed from a Bolivian perspective, this is less of a nationalization than a return to constitutionality. Mr. Morales has a strong legal argument that the privatization that took place in the mid-1990's was unconstitutional. Under the Bolivian Constitution, the contracts that gave control to private companies were supposed to be approved by Congress, and they were not.

Add this to resentment on the street over Bolivia's Transparency International corruption ranking last year (placing its leaders among the world's most dishonest) and a long history of swindles where natural resources like gold, silver, timber and petroleum have been "privatized" into the global economy to the sole benefit of a few very wealthy Bolivians.

Nor is this a classic nationalization in the sense of the confiscations that took place in the region in the 50's and 70's. In those days, Latin American governments expropriated everything and kicked out the companies the next day. This time Bolivia will exert greater control over the companies, including significantly higher taxes and 50 percent-plus-one state ownership, but Mr. Morales has pledged to create an environment conducive to private profit-making, and the government has repeatedly stated that it is a "nationalization without confiscation," with no expulsion of foreign companies nor expropriation of their assets.

Then why did Mr. Morales send in the army? In a word, politics. His dramatic televised decree — delivered in a hard hat from a Tarija oil field — was necessary to placate masses of radicalized Bolivians who demand "confiscation without compensation" to the companies. The majority of Bolivians support nationalization out of acute frustration over two decades of failed "neoliberal" policies by the International Monetary Fund, which tied sorely needed loans to privatization, debt reduction and relaxation of labor standards.

Bolivia was one of the first Latin American countries to adopt this approach back in the mid-1980's. State-owned companies were sold off. Government spending and regulation was scaled back. Foreign capital was courted. All on the promise of a new dawn of well-being.

Twenty years later the average Bolivian is worse off than before....

[anne]

http://www.nytimes.com/2006/05/06/business/worldbusiness/06oil.html?ex=1304568000&en=a48701ae844f4138&ei=5090&partner=rssuserland&emc=rss

May 6, 2006

As Profits Surge, Oil Giants Find Hurdles Abroad
By JAD MOUAWAD

To many Americans, oil companies like Exxon Mobil or Chevron appear all powerful, pocketing record profits as energy costs soar. But in many countries around the world, high oil prices are also making life considerably harder for big oil companies.

Sharply higher energy prices have shifted the power to oil-producing countries, as some governments seek a larger share of the riches. As a result, even as Western oil companies expand their reach through acquisitions and multibillion-dollar projects, a resurgence of nationalist policies is weakening their influence.

"We've seen a return to a 1970's style of resource nationalism riding along the crest of high prices," said Daniel Yergin, the chairman of Cambridge Energy Research Associates, a consulting firm. "During times of low prices, governments are keen to open up. But when prices are high, they have the high cards."

This trend could lead to fewer investments by Western oil companies, lower production, and with more limited supplies, even higher prices at the pump. So far, the power shift has taken on various shades and tones. In Bolivia and Russia, governments have taken outright control of oil and gas fields; in Venezuela and Britain, they have increased taxes; and in Nigeria and Kazakhstan, they have given highly preferential treatment to state companies.

Last week, Bolivia said it would seek 82 percent of the sales from the biggest fields, up from less than 18 percent.

In Venezuela, the government recently asserted its hold on 32 small oil fields developed by foreign companies and increased taxes to 83 percent from 56.6 percent.

The Congress in Ecuador recently approved a law that introduces a 50 percent royalty fee on existing fields.

Even the British government changed the tax regime in the North Sea at the beginning of the year, increasing its taxes by 10 percentage points, to a total of 50 percent. And if the talk in Congress over windfall profit taxes is any indication, the same might be said — at least to a limited degree — in the United States.

For all their riches, global oil companies have been on a long path of decline, progressively losing out to national oil interests around the world. These days, with higher costs, lower returns and increased competition, the screws are tightening even more, leaving executives anxious about the future of their industry.

"Oil companies," Mr. Yergin said, "are feeling cramped."

Exxon's oil production of 2.5 million barrels a day, for example, accounts for less than 3 percent of the world's daily output. The top seven international oil companies — Exxon, BP, Royal Dutch Shell, Total, Chevron, ConocoPhillips and Eni — control less than 5 percent of the globe's reserves. Most are having trouble finding enough oil to replace what they pump out each day....

[anne]

What puzzles me about Brazil's currency is the increase in value relative to all other Latin Americas currencies and the dollar and Yuan. I would think that Brazil's exports especially agricultural exports would begin to lag and the economy would slow unless monetary policy were soon loosened. But, Brazil's central bankers worry about domestic inflation.

[Håkon]

Just one (maybe) interesting piece of information. The 80-20 split (state-private) the Morales is doing now is almost excatly the same split as we have here in Norway. A newspaper here did a compare an contrast with the Norwegian wording and Morales's for this decision and (barring flowery south american language) it was almost excatly the same.

This is an issue where I think Brad is just wrong.

Håkon