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Evolution: How Evo Morales made an Andean Country an Asset

Original Photography by Randal Sheppard, Edited

The recent protests by Argentina’s unions against inflation and crime barely scratch the surface of public discontent with Latin America’s declining economies. The region’s weakening finances have led to a 50 percent price increase for consumer goods in Venezuela, a 25 percent inflation rate in Argentina and a $4 billion deficit in Brazil — the biggest deficit in its history. But there is a dark horse bucking the trend: Bolivia, which grew at the astonishing rate of 6.5 percent last year.

The country’s turbulent economic history makes its current success highly unexpected. In the past 30 years, Bolivia has struggled to recover from hyperinflation, which peaked at 24,000 percent, instilling widespread panic throughout the population. At the time, the inflation rate increased by 1 percent every 10 minutes. Some refer to the 1980s as Latin America’s “lost decade,” because most nations were experiencing financial downturns. Bolivia’s particular misery was the region’s worst case, compounded by the country’s limited opportunities for recovery: Bolivia is landlocked, and its inability to support a fishing industry and overreliance on agriculture led it to fall behind the rest of the Western Hemisphere. The country’s industrialization was further hampered by inadequate access to schooling and employment for its indigenous peoples, which constitute 62 percent of the state’s population. For decades, these factors have made it extremely difficult for the country to advance. But recently, Bolivia has achieved newfound stability and growth.

This is largely due to the revolutionary — and controversial — policies introduced by Bolivia’s charismatic president, Evo Morales. A former coca-growers’ unionist and activist, as well as the country’s first indigenous leader, Morales helped his party, the Movement Toward Socialism (MAS), gain two-thirds of the seats in Congress in the 2006 elections. While many have opposed the administration’s leftist tendencies, Morales’ election elicited bold transitions for Bolivia’s economic policies. The Bolivian president has set the ambitious goal of completely eradicating extreme poverty in the country by the year 2025. This has been an especially onerous task for the administration considering that a quarter of the population, which is largely rural, lives on less than two dollars a day. Morales continues to enact socialist economic policies, lending to increased dissent among the wealthier elite classes as well as the more conservative members of the international community. But his policies — the nationalization of certain industries, conditional transfer payments to low-income families and pro-labor initiatives — have helped turn the country’s fortunes around.

One of Morales’ first presidential actions was to nationalize Bolivia’s oil and natural gas reserves. Currently, Bolivia has about 10 trillion cubic feet of proven reserves of natural gas, the fifth-largest amount on the continent. Natural gas accounts for over 6 percent of the nation’s gross domestic product. Venezuela and Argentina, major regional energy producers that have also nationalized energy companies in the past, sit just ahead of Bolivia in terms of natural gas production. Bolivia’s shift towards nationalization may have been risky, since it has given some foreign investors fundamental doubts about the security of their Bolivian investments. But on a political level, it demonstrates how Morales has adopted his own unique spin on the leftist policies that dot Latin America’s present and history.

Unlike his leftist contemporaries, Morales did not seize any foreign assets, nor did he replace foreign companies as he implemented his nationalization policies. The administration also required less demanding terms than governments like Venezuela’s, since it actually allowed companies to keep most of their autonomy post-nationalization. In the cases of Mexico’s Petróleos Mexicanos, Brazil’s Petrobras and Venezuela’s Petróleos de Venezuela SA, politicians shut their doors completely to foreigners. But to balance the interests of foreign investors and Bolivian nationalists, Morales decided to take the more measured step and increase taxes on production in order to maintain direct oversight of foreign investors attempting to develop the nation’s natural resources.

Overall, the strategy has been a success; since nationalization in 2006, the hydrocarbon sector, Bolivia’s biggest exporter, has contributed $16 billion in revenue to the government. Bolivia has been able to achieve this primarily by meeting the high demands for natural gas from its neighbors, especially Brazil and Argentina. The policies’ accomplishments are rooted in Morales’ signature brand of politics: a complex leftist political stance heavily influenced by his devotion to communitarianism and Andean values.

Nationalization has exacerbated the hesitancy of foreign investment. But that problem really originates in the 2009 implementation of the new constitution, which gives the government primary control over the economy — and provides the legal basis for Morales’ nationalization platform. Foreign investment, along with job creation, has been deterred by constitutional legal ambiguities regarding hydrocarbon and mining laws and the Bolivian commerce code. Skepticism about investment resurfaced when Indian company Jindal Steel and Power reclaimed its $2.1 billion investment for an iron ore deposit after the Bolivian government failed to deliver the promised volume. With Jindal setting the stage for other possible asset withdrawals, there are heightened concerns about Bolivia’s long-term economic gains and stability. In the short run, however, Bolivia’s export industry, especially in the energy sector, is in high demand and has hugely contributed to the nation’s positive economic growth.

Despite tenuous foreign investment, the administration has been able to keep inflation steady, evading a repeat of the nightmare of 1985. Most impressively, Bolivia has overcome China as the nation with the highest ratio of international reserves to GDP, at 50 percent. It has done so in part by directing its central bank to buy foreign currency and local gold, allowing it to issue global bonds for the first time in over a century; the last time they attempted such a feat was in the 1920s. Moreover, Standard & Poor’s Financial Services has boosted Bolivia’s credit rating, which has made the country’s bonds more internationally appealing and reaffirmed Bolivia’s rising status.

In fact, Bolivia’s recent economic successes are what led to its 2010 transition from a low-income country to a medium-income one in the World Bank’s rankings. The World Bank Director for Central America, Latin America and Caribbean Felipe Jaramillio praised the nation’s “exemplary and very positive” management of fiscal and monetary policy, while concurrently advocating for the strengthening of the “investment climate” in the country. This advice reflects the divide Bolivia is edging towards: Nationalization policies and leftist economics have been a boon, but they risk isolating international investors, even as the country’s economics solidify. Bolivia must achieve a fine balance in order to ensure long-run stability.

Besides economic policies, Morales has also implemented various positive social and urban development projects. Since coming into office, Morales has decreased the poverty rate by 26 percent through increased public spending on health care, education and small businesses. The government also provides conditional cash payments to families to ensure that their children attend school and to pregnant women in order to provide them with adequate health care. These measures have combined to strike at economic inequality; in 2011, the richest 10 percent of the population had 36 times more income than the poorest 10 percent, a drastic improvement from about 15 years ago, when the ratio was 96 to 1. This decrease in economic inequality has had a real impact on the social inequalities that plague many of Bolivia’s disadvantaged communities.

Morales’ nationalization policies demonstrate how he has adopted a unique spin on the leftism that dots Latin America’s history.

Although this decrease has boosted Morales’ popularity with some constituencies, there is still much discontent among the population. With a large and growing amount of foreign reserves, many people believe that the government should be doing even more to mitigate the poverty that half of the Bolivian population still experiences. This has not been aided by Bolivia’s expulsion of institutions committed to poverty reduction. For example, Morales removed the United States Agency for International Development last year on claims that it was intervening in political affairs and conspiring against the Bolivian government. While some Bolivians are still favorable towards the United States and its endeavors in foreign aid, the actions taken by Morales reflect the leftist sentiment sweeping many countries in Latin America. Like his progressive corollaries, Morales is particularly weary of US power abroad, especially after Secretary of State John Kerry referred to South America as “America’s backyard” — to which not only Morales took great offense. Bolivia’s offer to Edward Snowden for asylum back in July 2013 highlights this tension. In sum, these events demonstrate an alignment with other Latin American countries, like Venezuela, Nicaragua and Cuba, that have also eschewed US influence. While this tactic has proven useful in many countries as a piece of unifying nationalistic rhetoric, Morales’ radical economic program and heavy-handed statesmanship have not earned him unanimous support, and his position is still somewhat precarious.

As the 2014 presidential elections approach, Morales’ reelection hangs over the political climate. Part of the tension arises from a loophole that allows Morales to run for a third consecutive term. While the Constitution states that presidents can only be in office for two terms, Bolivia’s Constitutional Court decided that Morales’ first presidential term should not count, because it occurred before the new Constitution was created. This caused further discontent among the middle- and high-income classes. Nevertheless, 41 percent of the population said that they would reelect him in 2014 — a high enough percentage in a country that uses a proportional representation system for its elections. But “high enough” reveals a critical truth about Morales: Although his economic successes and strong political ties to powerful constituencies like Bolivia’s indigenous population have given him a base level of popularity, his signature brand of practical populism still has political limits.

About the Author

Alexandra Garcia ‘16 is an International Relations and Economics concentrator and a Sales Associate at BPR.