Thursday, May 19, 2005

Bolivia's Economy and Current Mess.

A little background on the present crisis. For Spanish speaking wonks, here you can find 'Instituto Milenio's report on Bolivia's Economic performance in 2004, the Institute is tied in to the MNR party. Basically, the report lays out the fact that Bolivia's economy has been growing - albeit at a slower rate than the rest of South America, and the fact that the trade balance is favorable and the government's deficit is down. That is partially explained by increases in gas prices and increased gas exports.
But, the new oil and gas law, which on its face sets an additional 32 per cent tax on gas revenues, has already had a negative effect. Foreign investment has nearly halved, and will continue to drop as companies will refuse to invest the kind of money needed for expanded production and additional exploration. Further consequences can include an emphasis on the biggest gas fields, to the detriment of the smaller ones dispersed in different areas, as well as lost market opportunities.
So in other words all the work done over the past 19 years or so, to first of all discipline Bolivia's battered economy in the 1980's, and to set the stage for the efficient use of her natural gas resources, has gone to naught. Goni's failed legislation to export gas via Chile to the U.S. was the culmination of a lot of work that different people of other parties, and the Gas and Oil Sector in Bolivia had done for decades. The people who ran YPFB might have been political appointees but they usually were drawn from the private sector, and truly were among the 'best and the brightest' in Bolivia. They had drawn up the plans to attract more foreign companies in joint ventures to explore for oil and gas, and to build a framework for these conditions to be met. Inefficient parts of the company were sold off, and foreign investment increased. All this investment paid off in more exploration, which found more natural gas.
A Bolivian financial expert, I talked to a couple of weeks ago, was despondent at how 'suicidal' the whole thing was. Talked about 'just giving up' on the country he loves so much.

Thats F'd up.

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