A Changed World?
Friday, November 2, 2007; 12:00 AM
WASHINGTON -- A few years ago, Bolivia's dependence on Washington as a source of cash was such that its ministers made frequent treks begging for loans to meet the government payroll. They usually had no trouble getting them because Bolivia could be counted on to follow to the letter the economic prescriptions of the international financial institutions located here.
Then in 2006, Bolivia broke with the International Monetary Fund and signaled its desire for independence. Now this week the Andean nation becomes the first country ever to withdraw from the International Center for the Settlement of Investment Disputes, a World Bank body that referees contract disagreements between foreign investors and host countries.
Newfound revenue and a changing political environment have buoyed Bolivia's confidence. The Andean nation believes it now has new tools at its disposal to establish itself as a trustworthy nation.
Bolivia makes more money from its natural resources than ever before. Like other resource-rich countries, it hit the commodity jackpot when the Chinese economy took off, increasing demand. Oil prices have reached the highest levels in a quarter-century while prices for natural gas, zinc and tin (key Bolivian exports) have also been breaking records.
Bolivia's oil and gas revenues have been the biggest story as its renegotiation of contracts with foreign oil companies turned $284 million in royalties in 2005 into almost $1.4 billion last year. This year hydrocarbons should yield $1.6 billion, according to Bolivian officials.
The political change that made renegotiation possible -- the election of President Evo Morales -- also spurred the severing of ties with the IMF and the ICSID. Morales came to office believing he had been given a mandate to reverse a long-running experiment with market-friendly reforms that were meant to counter the foreign debt crisis and triple-digit inflation of the 1980s.
Bolivia's changing relationship with the IMF is not a great source of concern. It follows in the footsteps of Brazil and Argentina, both of which paid off debts with the IMF at the end of 2005 and have not looked back. Some former IMF officials view Latin America's independent streak with pride. The countries' strong fiscal position today is a result of having "adopted the fund's philosophy," argued Claudio Loser, who until 2002 served as director of the IMF's Western Hemisphere Department.
However that might be, Bolivia is charting new territory by withdrawing from the ICSID. The ICSID has been a great source of frustration for Bolivia, which claims that the center unfairly favors corporations at the expense of governments. But in the eyes of foreign investors, Bolivia's action is tantamount to eliminating guarantees that their contracts will be respected.
Still, Bolivian officials are surprisingly optimistic that there are other ways to build confidence in Washington. Bolivian Ambassador Gustavo Guzman said in an interview that, with the exception of Sen. Chuck Grassley, R-Iowa, and his specific opposition to extending trade preferences to Bolivia, "we have not found a door conclusively and definitely closed."
If anything, Guzman added, they've been finding new allies that serve as "keys to opening doors in this city." Guzman was referring to think tanks and nongovernmental organizations that have thrown their support behind Bolivia's pursuit of alternative ways of reducing poverty.
This "alternative Washington" has yielded real and unexpected fruit. A month before Bolivia made official its intention to leave the ICSID, two Washington-based organizations softened the withdrawal with a study that found that 93 percent of the ICSID's cases were against developing countries and that 70 percent of the time the agency ruled in favor of the investor. Bolivia has also received pro bono assistance from liberal Washington public relations firms to facilitate a more convivial -- and less confrontational -- atmosphere during visits of Bolivian officials to this city.
These organizations may help provide a level of legitimacy to Bolivia's new approach, but if the day comes when the La Paz government must raise funds for new development, to expand its gas production, or worse, try to stanch an economic downturn, where will it turn if it has sacrificed investor confidence?
"If the investment is not forthcoming, there are other sources," said Mark Weisbrot, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Private investment can be replaced by state investments, there are other countries: Venezuela, China. ... It is a new world."
If Bolivia and its new allies are proved right, it certainly would be a changed world.