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Bolivia: the damnation of tin, natural gas, to coca leaves and cocaine

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Good morning ladies and gentlemen.

As you all probably know, in China, in the Jiansu province, there is a city with an odd name. The name of the city is Wuxi, which means "without tin".
When I was there, many years ago, I asked my guide the reason why the people had chosen such a name for their city.
The answer shocked me, a young journalist coming from Bolivia, a country with a lot of tin mines, tin miners and tin cities. The guide told me that 3.000 years ago, people living in that city were sure that in every place where there is tin, bad luck reigns. Therefore, the name Wuxi was used as an amulet to ward-of bad luck.
It seems that the idea in that part of China is that in every place were you found tin or any raw material, people forget to work the land, people don't produce food, because they have money to buy every thing they need, there is violence, robbery, prostitution, alcoholism, etc. Tin invites sin.
In Bolivia too the miners use to link not only tin but any metal, to the devil. Augusto Céspedes, a Bolivian novelist wrote a historical novel about the tin influence in Bolivian economic and political life. The title of the novel is "El metal del Diablo", the devil's metal.

I would like my country to become a Wuxi country.

Bolivia's history is filled with disasters related to minerals and mineral resources.
The last two international wars fought by Bolivia broke out because our neighbors decided to take for themselves some raw materials we had in our territory.
In the case of the first of these wars, people of the country that invaded our territory wanted to exploit the sulfur deposits there. When sulfur lost its value, we thought our neighbor was about to give that territory back to Bolivia. It is, after all, the driest desert in the world. But our neighbor's leaders decided to retain that territory when foreign miners discovered copper there, the biggest deposits in the world. So Bolivia lost all hope of recovering those territories, at least while copper is exploited there. And, as you probably know, that territory was also Bolivia's only connection to the sea.
As you can see, minerals seem to bring bad luck to Bolivia.
I have to say that the raw materials, or natural resources don't necessarily bring bad luck to all countries. I think it depends on the way each country handles their exploitation.
For the moment I am not sure that the neighboring country that took our territory by the sea has handled the mineral trophy it found there well. Still today, almost 60% of all Chileans exports come from copper sales. I don't know if we are looking at a case of Dutch disease but I think that maybe some of the bad luck stayed with the cooper. However, we have to admit that the bad luck Chileans got from our raw materials is somewhat different.

I mentioned two wars. In the case of the other one the intended trophy was the oil deposits situated in another desert, on the south east of our territory. As a result of that war, our neighbor kept the desert and Bolivia retained the oil deposits. Still, we may ask ourselves who really won the Chaco war.
If it was fair or not the outcome of that war is still to be decided. Bear in mind Wuxi. The political problems Bolivia faces since 2003 are in no small way related to the fact that there are large deposits of natural gas in the region we kept control of after the Chaco war.
On my way to Washington I read, in The Economist, a story about the people of Pinedale, in Wyoming. The article says that after the natural gas boom, now comes doom in Pinedale.
In Bolivia's case, the natural gas boom turned into a political doom when a consortium of oil companies started to study the project to export liquefied natural gas to the US. The project meant to use a seaport controlled by Chilean authorities, close to the driest desert in the world.
Riots and protests erupted then in Bolivia. The people were against the project because they thought Chile was about to benefit not only from the natural gas that would go there to be liquefied, but also from billionaire investments.
I wrote then that it was the first time an issue of external policy was decided by the people in the streets. The people in Bolivia did not want to approve a project that would benefit a neighbor responsible for the fact that Bolivia is a landlocked country.
Popular anger triggered by that protest grew on and on and it ended only when the president was deposed and chased-out of the country; now he lives far away from Bolivia, in fact he lives here in Washington.
Today we are before the consequences of a XIX century conflict that was not properly solved to leave room for cooperation between neighbors. It is a pending task that becomes an obstacle to energy solutions and cooperation in the southern cone of South America.

Contact with the oil industry was also a shocking experience for Bolivians since the very beginning.
Probably you have all heard about the Standard Oil Company, which split up into seven pieces almost a hundred years ago, in 1911 to be precise. One of the pieces of that company ended up in Bolivia and incorporated my country in the oil industry's world map.
The problem was that the company that exported Bolivian oil to Argentina forgot to report it to the Bolivian government, at least to the revenue office. Bolivia's baptism in the oil industry was a violation.
That baptism has marked the Bolivian attitude towards the oil industry since then. What followed was an arduous legal case between the Bolivian state and the Standard Oil of New Jersey.
It was then that the Chaco war started and during the fighting, the company that forgot to pay taxes and inform Bolivian officials about the oil exports to Argentina, refused to sell gasoline to supply the Bolivian warplanes. I don't have the time to talk about the hidden connections between the oil company, other neighbors and the country we were fighting with.

However when the war came to an end, in 1937, the Bolivian government, unsurprisingly, decided to nationalize the Standard Oil of New Jersey. The company that forgot all its obligations towards the Bolivian state and refused to supply gasoline for Bolivian airplanes during the war, got a payment of 1.7 million dollars as indemnification, a lot of money at the time.
That's how Bolivia came to have a state owned oil company. It started with a violation, followed by a war and it was completed with a confiscation. And finally came the bill. So, after such a traumatic process, we have Yacimientos Petroliferos Fiscales Bolivianos, YPFB.

If the first nationalization of the oil industry in Bolivia came after an international war, the second one followed an internal guerrilla, the well know one that was led by Che Guevara. In fact, in 1969, two years after that guerrilla, the state owned company took control of the Bolivian Gulf Oil Company. Also in that case there was a bill to be payed. The check was for 120 million dollars.
In 1972 Bolivia became a natural gas exporter. It was a 20 year contract to sell natural gas to Argentina, until 1992.
When the contract was close to ending, in 1990, YPFB struck the most important natural gas deposit in Bolivia, the San Alberto field.
The news was received with some disappointment in Bolivia because YPFB was looking for oil - there was no market for greater volumes of natural gas in the region. And Argentina claimed then that it would not renew its contract to go on buying Bolivian natural gas.

Enter Brazil. The biggest country and market in South America decided then to buy Bolivian natural gas. To do so, Brazil sent its own oil company, Petrobras in-to Bolivia.
In 1993 Petrobras and YPFB combined efforts to establish San Alberto as a mega gas field. Petrobras, associated with YPFB, faced the project to build a pipeline, the longest one in South America. Brazilians announced their willingness to finance the pipeline even within the Bolivian territory, as an advanced payment for the natural gas.
But there emerged different plans. President Gonzalo Sanchez de Lozada had decided then to destroy YPFB. He carved-up the company and sold its parts to international oil companies. The process was called capitalization because the companies were invited to invest as partners of the Bolivian state. Even the pipeline that was financed by the Brazilian Petrobras went to an international company, Enron. That was a few years before the whole thing blasted out as the most spectacular and corrupt bankruptcy in capitalist history.

But I do not want you to think that every-one of Bolivia's problems has been created by foreigners or its greedy neighbors. As you can sea now, Bolivians are perfectly capable of creating a disaster all on their own. The tension that erupted in my country in the last few days was caused by the decision of the government to regain control of all the natural gas revenues. Evo Morales prefers to handle that money himself instead of giving that privilege to the governors, whom he hates.
He doesn't seem to realize that the riots erupted last week in response to his decisions worsen the already bad reputation that Bolivia has among foreign investors.
That is the major difficulty Bolivia is facing now to develop its natural gas deposits. If there is a consensus today among control risk analysts it is that Bolivia is a bad place to invest in.
When the deposits were found, more than ten years ago, our neighbors were happy because they believed they suddenly had a reliable provider next-door. Step by step, riot after riot, Bolivia has been able to scrap that image. By now, Brazil and Argentina are looking to find an alternative to Bolivian natural gas. Leaders of those countries may not want to admit that they are trying to find substitutes to Bolivian gas, but they are taking serious steps towards this goal.
It's hard to blame them; during the last two years alone there were at least three attempts by protesters from southern Bolivia to interrupt the normal flow of natural gas going to Brazil and Argentina.
Also, the special nationalization president Morales performed on the oil industry has discouraged investors that wanted to put their money in Bolivia.
The oil industry can wait, natural gas is going nowhere, and in a few years this regime too will pass, and the price of gas can only get higher.

As a result of all this, Bolivian natural gas production fell in such a degree that now there is not enough output to meet domestic demand. This year exports to the Cuiabá thermoelectric plant in Brazil, were halted and exports to Argentina were halved.
It seems that the energy sector needs very serious partners for arrangements between sellers and buyers. It needs partners that mean business.
I think that it will be very difficult for the region to count on Bolivian natural gas and incorporate it into a serious economic policy.
Bolivia is now in the middle of a new revolution. The idea is to split the decisions of the Bolivian state among three-dozen nations within Bolivia. The leaders call it a nationalist stand. With 36 nations inside a single country I think there is room for an inflation of nationalism.

Bolivia's government is empowering native-peoples and these peoples are taking that offer very seriously. So the oil companies working in Bolivia have to pay extra taxes, royalties and internal tariffs to the native-peoples.
Even the government was shocked by these peoples immediate response to its offer. Now the government that invented this process is trying to take back, for the central administration, some advantages that they had offered the native tribes. I think that it will be very difficult to reestablish state authority in Bolivia.
Former governments had empowered foreign companies and they used this power to pay fewer taxes. This one chose to empower natives and the problem now is the opposite, they want too many kinds of taxes for the investors to pay.



If you are still skeptical about Bolivia's bad luck with its natural riches, I suggest you consider a special alliance metals have in my country.
Bolivia's link to the international economy is the most ancient in South America. My country was born in connection and in the vicinity of a silver deposit, the biggest one in the world, Potosi.
Spaniards that exploited that silver deposit since 1545 decided to use the coca leaves to solve some glitches in the production system.
Workers were forced to remain in the mine from Monday to Saturday. The workers needed to solve the problem of feeding themselves.
The solution was the coca leaves. By chewing them, miners were able to forget eating, to forget drinking water and even to forget to sleep and to rest.
The coca leaves became one of Spain's allies. Even now mine workers chew coca leaves while working. Coca production grew at the same pace as the silver production during the colonial era. Nobody worried about the coca leaves. Coca was only a poor and obedient allied for miners.

But coca had its own planes. In 1860 it showed a component that was to transform the leaf into a sin.
The innocent leaf that was the companion of the mine workers became the new star of Bolivia's economy.
Now we have a president that is the leader of the coca growers. Sometimes I suspect that this situation is a time bomb left by silver.
Silver exploitation invented the coca boom in Bolivia. Coca leaves are now responsible for the doom.

Thank you.

 

Humberto Vacaflor 

 

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