Monday, March 23, 2009

Why Bolivia's Murder-Bribery Scandal Matters

It reads like a crime thriller: an oil company executive robbed and shot to death while carrying 450,000 dollars in cash to the house of the brother-in-law of an influential political figure. More than a month after the fact, the murder-bribery scandal involving Evo Morales former #2, Santos Ramirez continues to rivet Bolivians as more and more details come out about the widespread corruption and inefficiency not only in the oil company but in the entire Bolivia state. It poses the strongest challenge faced by the Morales government, and its future plans.

This crisis raises key questions about Bolivia's political and economic future. In some ways these issues are as important as the discussions on autonomy. It matters and will continue to matter for a long time for some of the following reasons:

Evo's Plans:Evo has said that natural resources are the "fundamental base of the countries development". He is in power in large part because of his calls for nationalization of the industry. Yacimientos Petroliferos Fiscales de Bolivia YPFB, the national oil and gas company. which (in theory) manages the hydrocarbon production which is at the heart of these plans. The government is going to appropriate a one billion dollar loan from the Central Bank this year to "strengthen" the company.

MAS Plans: YFBP is the building block in MAS conception of a centralized, state-directed economy, set out in the party's rhetoric, its 06 economic plan, countless decrees and laws, and meant to be enshrined in the approved Constitution. Many Bolivian experts see this as a return to the statist approach of the nationalist-military period that started in 1952 and ended in 1985 with the collapse of the economy.

Close to Evo: Santos Ramirez co-founded MAS with Evo, led the senatorial MAS block, helping draft and push through both the oil and gas nationalization and the new constitution. Ramirez got married recently, Evo was best man. He was seen as a potential VP candidate.

MAS Scandal - It is the biggest scandal in the oil industry in Bolivian history: Corruption at YPFB is nothing new - every government since the 50's used it as a piggy bank. Never has there been a case this big, involving the chief executive caught in flagranti. It is also the largest in scope, because revelations continue to come out involving all levels of the company starting with wrongdoing and incompetence at management to lower level employees kicking back portions of their salaries to the ruling party. In addition, the scandal is touching key government ministeries and regulatory agencies involved in the fiasco, as well as those where similar shenanigans are coming to light.

MAS big - For comparison: another soap opera in neighboring Peru, a scandal involving politicians and a VP of the national oil company rigging the bidding to favor a Norwegian company, caused the sacking of ministers, the entire cabinet resigning, protests in the streets and Garcia's popularity plummeting further. While that scandal showed the vulnerability of the the bidding process, and involved powerful figures in and around the government, Bolivia's scandal directly involves the CEO of the national oil company, one of Evo's 4 or 5 major collaborators, with his hands directly in the pot. Call it a blatant example of corruption 101- showing a total lack of transparency in the company and absolute impunity.

Evo's fault: While not directly linked to any ill-gotten gains, he pretty much put his "compadre" in a position where ripping off the state was easy as taking candy from a baby.. Evo signed A series of decrees granting the higher ups at YPFB authority to award no-bid contracts to outside suppliers, directly, and further giving the president of the company (Santos) the right to directly authorize payments without approval of the board, as well as directing that funds be available in the state bank for immediate disbursal. That is why Santos alone was able to sign a contract to build a 86 million dollar plant with a front company incorporated only 3 days before. Company being able to draw from a government bank without any proof of work done, and literally being able to withdraw nearly half a million dollars in cash. ,

As Carlos Miranda the Bolivian hydrocarbon industry expert put it, this set of measures - combined with the nationalization decree - did away with "20 years of contracting experience" set out in the previous hydrocarbons law, which required open and international calls for bids and approval at least by the board of directors of the company. Miranda was writing last October when he said that this new regime could lead to "graver" situations than the (then) unfolding Peruvian case. This results from the MAS governments attempts to erase the past, by deligitimizing institutions and laws from prior governments. Evo's government readily breaks existing laws -Evo himself admitted to doing. These laws are "neo-liberal" in his conception, tainted and therefore illegitimate.

MAS Incompetents: From the beginning of the Morales administration YPFB was staffed by political hacks, cronies and family of MAS bigshots. Santos Ramirez notched it up when he came in, adding almost 500 people to the 1000 person roster. "Administrators" replaced oil and gas professionals and technical people, at all levels of what is an organization dedicated to exploring, extracting, and commercializing hydrocarbons. To make matters worse, in the supposedly "autonomous" company, salaries offered were at first lowered making it uncompetitive with the regional standards. And people with experience in multi-nationals and previous governments were dissuaded and/or barred from working there. The result a brain drain of Bolivian hydrocarbons talent to places like the gas fields of Peru.

Even MAS Incompetents: Directing this lunacy is Evo and the handful of ideologues who are clueless. The MAS/officialist leadership has had SIX different presidents and five hydrocarbons ministers in only three years. The company once required its president to have 10 years of executive experience at a high level in the hydrocarbons industry. Now it seems enough to have a college education. Santos (prez #5), was a rural schoolteacher and lawyer. The current president Carlos Villegas - who at least is an economist - was most famous for authoring angry polemics against the multinationals using suspect numbers. He is also one of the main geniuses behind the disastrous nationalization process, and specifically authored decrees barring transnationals from the domestic hydrocarbons industry. In other words he now has to deal with the shortages and lack of investment caused by his own stupid advice. Not to mention the corruption that went on under his own watch as Minister of Hydrocarbons - when the actual contract in question was signed. Morales government is so low on qualified people it has to recycle people like Villegas to try to set the house in order. In Peru by comparison, everyone connected with the scandal was fired.

NO MAS Investment: Evo's war against multi-nationals, including Brazil's state company Petrobras has meant a significant drop in investments, causing production to level off the last couple of years, even at a time when demand in the continent was high,. That has the practical effect of making it hard to supply the internal market when demand grew, since associated products like diesel and keresone depend on gas production - and on infraestructure investments. Evo has placed YPFB in control of the entire cycle of production and commercialization internally, excluding the multinationals from the downstream side of the business . In the end that explains why there are chronic shortages of products like cooking gas, diesel, and gasoline in Bolivia a country that has been self-sufficient in the past.

MAS Irrationality and Improvisation: As a result of both the improvisation, ideological silliness and incompetence YPFB is a mess. Its mistakes are masked by the record earnings that are largely the result of sectorial policies of the governments Evo rails against. It lacks transparency, no more public information available on budgeting and contracting - it took a murder to publicize this crooked contract. Meanwhile the company seems to be acting on government whims, It is spending millions on building gas stations. Meanwhile, only four wells were drilled last year, in comparison to the 65 drilled annually at the beginning of the decade. Peru in contrast drilled 153 last year, with smaller gas reserves. All the while Evo continues feuding with multinationals, and presses forward with constitutional provisions that seem to doom international investors in the sector.

MAS Refounding: The chaos and corruption scandal is in big part a result of an ideological attitude that puts politics above practicality. This ideological obsession which attempts to re-impose the heavily statist economy and centralize government that operated in Bolivia for years. Attempting to recreate this model is silly in light of the obvious evidenceof its failure worldwide. Not to mention the fact that its spectacular collapse in Bolivia led to world-record inflation. Evo's schemes in ypfb show that a really bad idea, executed with incompetence is even worse. Simple reality shows that Bolivia needs foreign investment and expertise to properly manage its natural resources. And that continuing on this path is disastrous. It also resurects the demons of corruption and impunity that proliferated in Latin American countries with centralist governments whose economies were anchored by large state-run enterprises, before the type of reforms that made possible world-class companies like Petrobras.

The government still barely concedes mistakes in 3 years of mis-management . While they now will bring in experts from Norway, Holland, and Canada and GASP! the World Bank, Evo has so far refused to announce any change of direction, even reaffirming that the billion dollar loan will go ahead. They prefer to make big media productions of such events as a drilling rig arriving from Venezuela. Failing to note later that said drill has been sitting idle for months, while PDVSA is asking for money for rental. And underneath all the revolutionary bla, bla, bla, the government has only unlocked the oil company making it vulnerable to the same old school corruption that plagued Bolivia for years. And again it says something that it took a murder to uncover it.


Anonymous said...

Excellent commentary.

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