Instability Shakes Heart of South America

(International Relations and Security Network, 20/06/2005)


After generations of marginalization and mistreatment at the hands of corrupt Bolivian leaders, two-thirds of Bolivia's 9.1 million citizens have become a powerful force for change in the heart of South America. Evo Morales, who leads the Movement Towards Socialism (MAS), has successfully organized a critical mass of poor indigenous peasants, workers, miners, transport drivers, coca growers, and others. Since May 16, they have effectively pursued their political agenda for the nationalization of the control over access to Bolivia's natural resources with road blockades and street protests.


These blockades have cost the Bolivian economy over US$20 million a day. They have closed-off access to Peru, Argentina, Brazil, and Chile and constricted supplies of food and gas entering La Paz. Ultimately, they have led to the resignation of Bolivia's embattled president Carlos Mesa in the late afternoon of 6 June after only 19 months in office.


Mesa's announcement pushed Bolivia closer to the edge of nation-state disintegration. It created a de facto power vacuum in the government's central power position. And with access to billions of dollars of revenue from the sale of natural gas at stake, this vacuum represents the inability for Bolivia's leaders to appease both the demands of international companies and the organized, voting poor.


Once Mesa's resignation was accepted, late on the 8th of June, political forces from the country's rich lowlands region of Santa Cruz, and political forces from the poor highlands, represented by MAS leader Evo Morales, began making demands and hardening their position.


Santa Cruz voters, representing some 33% of Bolivia's citizenry, control a majority of the country's economic engine. They have demonstrated a desire to secede from the union on numerous occasions with referendums that demonstrate that over 60% of the region's population favors secession. Millionaire and Senate President Hormando Vaca Diez is from Santa Cruz, and with Mesa's resignation in place, he was in line to become the next president of Bolivia by constitutional law.


Evo Morales, who vehemently denounces Vaca Diez, and the second possible candidate for presidency, Chamber of Deputies leader Mario Cossio Cortez, stated on 8 June that the indigenous movement is "unstoppable," adding that it would trigger a civil war if Congress continues to block indigenous demands. With a choke-hold on the country, Morales was in a position to make good on his threat.


The Bolivian Army, led by Admiral Luis Aranda, has remained on high alert, claiming there would not be a coup and that the Bolivian military would protect constitutional law and the rule of Democracy in Bolivia.


As soon as 4 June, Bolivian Episcopal Conference president and bishop of El Alto, Jesus Suarez, entered talks with the Bolivian Congress hoping to avoid bloodshed. As tensions heightened at the end of last week, the Church and Army came together to broker an outcome that would avoid certain balkanization of Bolivia if either Vaca Diez or Cossio assumed presidency.


Finally, just after midnight on Friday 10 June, Bolivia's third candidate for presidency, Supreme Court chief Justice Eduardo Rodriguez assumed presidency. Content with Congress' decision, Evo Morales announced he would remove blockades around the country to remove pressure on Rodriguez, allowing him to assemble his government. He remains able to resume blockades at a moment's notice.


According to Bolivia 's constitution, Rodriguez has 180 days, or until September 10, 2005 to organize and hold general elections. A constitutional assembly will most likely soon follow. And another round of general elections will take place once a new constitution is signed and submitted to popular approval. In this second week of political upheaval in Bolivia, it seems the country has just avoided balkanization.


The Pillar of Instability


But political stability will unlikely become a reality until well into 2007. Only with a solid government in place will there be room enough to debate the one item at the center of South America 's latest fiasco - natural gas. Will access to Bolivia 's natural gas be controlled by the state or shared by a consortium of international energy companies?


Bolivia is second only to Venezuela in the region as a known source for natural gas. Argentina, Brazil, Chile, and export markets all depend on Bolivian natural gas. As demand has grown over time, and Chavez's intentions for Venezuela less predictable, Bolivia 's resources have become more and more valuable.


Bolivia is home to some 9.1 million citizens, who contribute to an annual GDP of US$7.8 billion. Access to natural gas reserves of 800 billion cubic meters has been valued at US$70 billion. It is the goldmine at the center of the debate that has perpetuated political instability in Bolivia for over two years.


After weeks of protests and blockades Gonzalo Sánchez de Lozada, resigned from office in October, 2003. By constitutional law, his Vice President, Carlos Mesa took control of Bolivia's executive branch. Again, after weeks of road blockades and protests, Mesa tendered his resignation in early March, only to have it rejected by Congress, giving Mesa a mandate to fight on.


Hot debates over Bolivia's hydrocarbon legislation followed. Evo Morales and the MAS party demanded that Bolivia nationalize her natural gas industry, levy heavy taxes on international companies wishing to export gas from Bolivia, and use revenues to improve the lot of millions of poor Bolivians. Congressional members with an eye on the interests of Bolivia's competitive position in international gas markets refused to concede to demands that would force international companies to look elsewhere for natural gas, leaving Bolivia 's untapped reserves in the ground.


In its current form, the hydrocarbon bill places a 32% extraction tax on foreign companies in addition to the previous 18% royalty tax. It also increases state controls but falls short of complete nationalization - the central demand of Morales and his MAS supporters. When the hydrocarbon bill was finally passed by Bolivia's Congress, Mesa would not sign it into law. Pressing his advantage, Morales stepped up road blocks. Buckling to the pressure, Mesa resigned for the final time on 6 June. The future of his successors, unfortunately, looks challenging if not bleak.


Regional Reactions to Bolivian Instability


On 12 June, Mesa said that foreign companies that fear nationalism should be patient. Since 1997, international companies have collectively invested some US$3.5 billion in the Bolivian gas sector. Facing the nationalization of their assets, some companies have threatened to take Bolivian to international courts. Mesa agrees that they may have a case, but such action may push Bolivia closer to civil war, a situation, Mesa argues, that is not in the best interests of any stakeholders involved. Polarizing the country are the demands of the poor from the highlands and the threats of secession made by the rich in the low lands surrounding Santa Cruz.


The weekend before Mesa's June 6 resignation, government officials from Chile, Uruguay, Paraguay, and Brazil discussed the possibility of running a pipeline from Peru's Camisea gas project through Chile, around Bolivia, and into Southern Brazil. Considering Bolivia's proven reserves of natural gas, and tense relations between Chile and Peru, this was not a viable proposition just weeks ago. The price tag for this infrastructure project has been reported at US$2.5 billion, another stumbling block. Yet talks are underway and more announcements are expected soon. Peru will not oppose being the region's short-term supplier of natural gas.


Spanish energy company, Repsol YPF has already announced its intent to stop the development of a LNG (liquid natural gas) project to export Bolivian gas to North America. Due to the Bolivian situation, the company has decided to move to plan B, in Peru, where it plans to develop and LNG project to export gas from that country's Camisea gas fields.


Here in Argentina, where cheap Bolivian gas helps maintain downward pressure on the price of gas, the government, wary of Bolivia's situation, has begun exploring the possibilities of investing in an expensive process of offshore exploration and production. In Brazil, both the energy and mines industries, as well as the federal energy company, Pertrobras, have already begun drawing up contingency plans to prepare for the possibility of an interruption of gas exported from Bolivia to Brazil. Bolivian gas contributes to 20 million cubic meters a day (Mm3/d) of Brazil 's current 36 Mm3/d demand.


International companies have the investment capital necessary to tap into Bolivia's vast gas fields. With out their participation, Bolivia is unable to monetize the very prize her people are fighting for. It would behoove Morales, his MAS supporters, and other Bolivian leaders to realize this reality. And so in their fight to bring justice and Democracy to their struggling nation not keep up this strangle hold in her greatest time of need for political stability and international investiment.