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Jim Shultz: The Curse Of Wealth Under The Ground

The Curse Of Wealth Under The Ground


By Jim Shultz
The Democracy Center

Cochabamba, Bolivia - When Bolivians went to the polls earlier this month to vote on how to develop the nation's vast oil and gas reserves, they went with history on their minds.

Just outside the old colonial city of Potosi sits the mountain known as "cerro rico" (hill of riches). Beginning in the mid-1500s silver extracted from the hill, mostly by forced Indian labor, virtually bankrolled the Spanish empire for three centuries. Today Bolivians remember very well that their country sat atop one of the planet's greatest treasures of mineral wealth yet ended up the poorest country in South America.

Last October, as President Gonzalo Sànchez de Lozada pressed ahead with plans to export the nation's gas through Chile and onward to the US, the country erupted into a month-long series of road blockades and protests. When the President sent out troops to quash the demonstrations, leaving more than sixty people dead, a surge of public anger forced him to flee to the US in exile.

As Bolivia's Vice President, Carlos Mesa, stood before a special session of Congress to be sworn in as the nation's leader he pledged a commitment to one of the protest's key demands - to put the gas issue before the people directly, through the nation's first-ever public referendum.

The history of possessing great mineral wealth and being left deeply poor is not one unique to Bolivia. "Countries rich in natural resources are likely to have slower economic growth, greater poverty, higher debt, less democracy, worse governance, and greater likelihood of civil war than countries lacking resource wealth," said Svetlana Tsalik, director of the Revenue Watch program at the Open Society Institute in New York.

Poor countries with wealth under their feet are cherished targets for exploitation and abuse from abroad. In the eyes of many in Bolivia, the Spanish conquistadors have been replaced by multinational petroleum corporations such as Enron, Shell, British Petroleum and others who do business here.

Until the mid-1990s Bolivia was the owner of its petroleum resources, which it developed in association with foreign corporations. Through a variety of royalty and tax arrangements the government and the companies split the earnings fifty-fifty. In 1995, amidst complaints of official corruption and mismanagement and under pressure from the World Bank and IMF to do so, Bolivia privatized its petroleum resources into the hands of foreign companies. Those privatization deals also slashed the government's share of the profits down from half to just eighteen percent.

Theoretically, privatization was to give the corporations a powerful incentive to boost production and, while Bolivia's portion of the profit pie would be smaller, its total net earnings would increase - theoretically. However, even as production increased threefold, depleting a key nonrenewable resource at an escalated rate, Bolivia's earnings basically stayed flat. Foreign companies, meanwhile, were reaping a financial bonanza. "The profits that the companies were making were extraordinary in comparison to what the state was making," said Francesco Zaratti, President Mesa's specially appointed delegate in charge of the gas issue.

Bolivians found themselves losing not only as producers of petroleum but as consumers as well. The foreign companies that control Bolivia's oil now sell a portion of it back to Bolivia to be refined as gasoline for domestic use - at a price not based on low local production costs but by what those barrels can fetch on the world market. Today gasoline in Bolivia sells for $1.60 per gallon, almost as high as in the US. But here the minimum wage is $66 per month. "We are paying the same for gasoline as if we were buying it from the Persian Gulf," said Roberto Fernàndez Teràn, an economist at the University of San Simon in Cochabamba.

Against this backdrop Bolivians went to the polls on July 18th in the national vote on what to do with its oil and gas resources. As social movements around the country demanded re-nationalization and foreign companies and the World Bank issued warnings against any steps back toward public ownership, President Mesa set forth a ballot with five questions designed to win support for a plan somewhere in the middle. The President also threatened to resign if that plan was rejected, shorthand here for a step into political turmoil.

Mesa's plan passed overwhelmingly, but what the people actually voted for is open to broad interpretation, especially on the question of getting back the petroleum resources privatized away a decade ago. The most important question among the five asked voters, "Are you in agreement with regaining ownership of the petroleum for the Bolivian state?" That one passed with the largest majority, ninety two percent.

Zaratti, the President's special delegate, said this mandate is limited to trying to win back some form of ownership in contract negotiations in the future and warned that the government "can't take away the property of the businesses." A full return to national ownership and operation, he argues, is not a realistic option. Nonetheless, many here interpret the vote for "regaining ownership" as exactly that and are prepared to take the issue to the streets once again if needed.

"We are preparing a large national mobilization to warn the government to respect the will of the Bolivian people and the vote in the referendum," announced Evo Morales, the socialist opposition leader who came in a close second in Bolivia's 2002 Presidential election. Morales and his Movement to Socialism party were key supporters of the "regaining ownership" question.

As in all poor countries with great natural wealth the questions facing Bolivia still remain the same - who will control those resources, what share of the profits will go to the Bolivian people, and how will those profits be invested. Whether those issues will ultimately be decided in the political process or in the street remains to be seen. Last Tuesday, just as the Bolivian government announced the final tally in the vote, it also received delivery of a $700,000 tank that uses high-pressure water guns for crowd control - a gift of the US government.

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THE DEMOCRACY CENTER ON-LINE is an electronic publication of The Democracy Center, distributed on an occasional basis to more than 2,000 nonprofit organizations, policy makers, journalists and others, throughout the US and worldwide. Please consider forwarding it along to those who might be interested. People can request to be added to the distribution list by sending an e-mail note to mailto: info@democracyctr.org. Newspapers and periodicals interested in reprinting or excerpting material in the newsletter should contact The Democracy Center at "info@democracyctr.org". Suggestions and comments are welcome. Past issues are available on The Democracy Center Web site.


THE DEMOCRACY CENTER

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