Evo & Lula friends again

05.14.2006

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Evo's now-rivals-now-friends rhetoric towards Brazilian (and other foreign interests) investments in Bolivia's hydrocarbons keeps getting duller. Frankly, I think it's becoming clear that Evo's "nationalization" was a populist stunt to gain support on his party's way to the July constituent assembly election (the announcement was made the day the campaign officially began & dominated the news cycle). Today's La Razón opens w/ a story on Evo's promises to Lula (Brazil's president).

Meanwhile, the only thing's that really changed (so far) is that the nation's social security pension fund (the BONOSOL, a yearly pension fund for the country's elderly) has been turned over to the historically corrupt & inefficient state-owned YPFB. I'm guessing that money will soon be used to pay for either the purchase of the foreign investor's shares (something Bolivia seems ready to do) or as investment capital. And, w/ that, kiss Bolivia's social safety net goodbye.

A note on Bolivia's "privatization" (or, more properly "capitalization"). When Goni's first government (1993-1997) privatized most state-owned industries, it didn't actually sell them. The Ley de Capitalización provided for a public, televised auction (as a means for transparency) where foreign investors "bid" for the state-owned industries. But they didn't buy them outright. Instead, they had to match the value of the company w/ a mix of capital investments. The Bolivian state then retained control of 51% of the new "capitalized" industry (which essentially doubled in value overnight), but the foreign investors gained management authority. The "profits" from the capitalization were turned over to a public social security pension fund (the country's first ever) that gave every elderly Bolivian citizen a yearly payment (the BONOSOL).

Why do hydrocrabon companies make such large profit margins on their Bolivian investments? Because by the capitalization law, the foreign investors carry all (yes, all) of the risk. Often, when people complain about the profits a company like Petrobras makes on a Bolivian oil well, they forget that it cost Petrobras (and not Bolivia) millions to explore the well & lay the infrastructure to exploit it. And, don't forget, that for that one working oil well, Petrobras may've dug several wells that produced nothing. This is why if the profit margins aren't large enough, the oil companies will either leave, or insist that Bolivia also participate in risk-sharing (not just profit-sharing).

Either way, we can probably kiss the BONOSOL goodbye.

Posted by Miguel at 01:55 PM

Comments

I was thinking about how any company from abroad would make any money in Bolivia. At the Santa Cruz airport I saw a Subway.
How does that chain make any money in Bolivia?

Posted by: Matt at May 15, 2006 12:35 AM

Those who can afford to fly can afford to buy a Subway sandwich. The low cost of labor doesn't hurt either.

Posted by: eduardo at May 15, 2006 10:19 AM