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Bolivia Update: Working with a New Constitution

February 26, 2009

New Constitution, New Beginnings

In the wake of a January 25 vote where 61 percent of Bolivians approved the new national constitution, President Evo Morales wasted no time in unveiling his new government. On February 8, one day after signing the new constitution into law at a ceremony in El Alto, the President announced the creation of three new government ministries and a cabinet reshuffle.
The new “plurinational” government now includes 20 ministries with the addition of the culture, autonomy, transparency, and anti-corruption posts. The Ministry of Autonomy, which has a portfolio that includes oversight of the new constitution’s guarantee of four levels of local autonomy—departmental, regional, municipal, and indigenous—will be headed up by former rural development minister Carlos Romero. Widely credited with brokering a deal with the opposition to allow the constitutional referendum to move forward, Romero has emphasized the importance of working with the four regions that insist on autonomy. But he has already encountered difficulties with the opposition prefects, who have rejected the government’s invitation to participate in the reorganization process. The United Nations has agreed to be an observer in the implementation of the new constitution, but opposition prefects are requesting guarantors, not only observers, in the process.

Other changes include former public works minister Óscar Coca replacing Saúl Avalos as energy minister, making him the fourth energy minister in the administration’s three years. Walter Delgadillo, who until February 7 was responsible for the ministry of labor, now heads the ministry of public works, services and housing. To boost the representation of indigenous groups, Morales named indigenous leader Julia Ramos as minister of rural development.

Key challenges await Morales’ new cabinet with the implementation of the 411-clause constitution, a process expected to be both highly complex and drawn out. For example, new land reform recognizes public, private, and communitarian ownership and sets limits on the size of landholdings.

Economic Outlook

In 2008, a record fiscal surplus and healthy reserves, resulting from increased taxation of foreign companies and the commodity boom, have left Bolivia with a financial cushion in the midst of the global financial fallout. However, according to the Economist Intelligence Unit, the solid 6 percent average growth in GDP will likely not be maintained as the crisis’ effects spread and create a wide-ranging deceleration.

The ratification of the new constitution presents concerns to foreign investors, particularly with regard to Morales’ continued execution of his state-led development policy through strategic sector nationalization. For example, constitutional changes provide the government with more power over the country’s vast natural resources, including the second-largest natural gas reserves in the world. While the nationalization program, now empowered by the new constitution, has generated concern that already-penned oil contracts will be adversely affected, government officials maintain that policy changes are not retroactive. Still, private investment has dropped almost 75 percent since 2006, reaching the lowest levels seen in a decade.

Lithium is a bright spot for Bolivia, which holds the world’s largest deposits, estimated to comprise 40 percent of global supply. Several companies, including Bollore, LG Group, Mitsubishi, and Sumitomo, are courting the government for the rights to explore mineral deposits. Increasingly, lithium is important to the auto industry, since eco-friendly cars use lithium-based batteries. But tough preconditions are being asked for by the president, who seeks not just lithium exportation but investment guarantees in building a full-fledged domestic lithium industry, and perhaps even auto manufacturing as well. If a deal is struck, Bolivia should see an important influx of capital in 2009.

Investment and Corruption

The constitutional signing was marked by a presidential pledge to root out corruption.  This comes in light of a scandal that broke two weeks earlier in which a private contractor was murdered while allegedly attempting to deliver a $450,000 bribe to the family of Santos Ramírez, then-president of Bolivia’s state oil company, YPFB. A few days later, Morales replaced Ramírez with his former energy and then planning minister, Carlos Villegas—now YPFB’s sixth chief since 2006.

Morales is focusing on attracting new investment to the oil and gas industry. Following a September agreement with France’s Total and Russia’s OAO Gazprom for exploring the Azero find in southeastern Bolivia—a project to be carried out in conjunction with YPFB—Morales visited France and Russia last week. He was accompanied by his new energy minister who has pledged to move forward with plans to take over four power companies so that “energy is guaranteed in this country from here on out.” At the same time, Petrobras has announced its intention to reduce exposure to Bolivian natural gas, despite expressing a commitment to renew its variable-supply contract in 2019.