Ask any European about Bolivia and they will probably think of Butch Cassidy or Che Guevara. A few might know that Bolivia has a volatile political history. It is also the poorest country in South America with a gross domestic product per capita of $890 (?740), yet receives no bilateral British aid. Such is the apparent indifference to its plight.

Bolivia is currently playing out one of the most important political dramas in South America ? keenly followed by Hugo Ch?vez, the populist anti-American president of Venezuela, whom the US has accused of trying to destabilise the country. Others mention darkly the role of European-funded non-governmental organisations in fomenting unrest.

Until recently, Bolivia had enjoyed a rare interval of political stability with democratic elections and economic reform. But these policies were not
perceived to have helped Bolivia?s poor and the discovery of extensive gas reserves produced a political explosion.

In 2003, President Sanchez de Lozada was forced, by violent demonstrations costing 60 lives, to step down and abandon plans to export gas to the US via Chile. The protests seemed aimed as much at Chile, Bolivia?s historic 19th century enemy, as much as the US. But the violence did not end there and in June Mr Sanchez?s successor, Carlos Mesa, was also forced out of office when miners, farmers and demonstrators from El Alto, the slum city above La Paz, again blockaded the capital, stopping food and petrol supplies.

The presidency eventually passed to Eduardo Rodriguez, the president of the Supreme Court, a respected caretaker who promised to hold elections in December and move towards a constitutional assembly, to rewrite the constitution. It is not clear that elections will solve anything. Arguments about gas have become intertwined with memories of Bolivian history, the brutal Spanish exploitation of silver mines and other political issues such as the exclusion of the indigenous population from politics. In reaction to El Alto, the wealthier eastern provinces like Santa Cruz and Tarija have demanded greater autonomy. President Mesa declared the country ?on the verge of civil war?.

The rising figure is the charismatic Evo Morales, who supports free cultivation of the cocoa leaf, the raw material for the production of cocaine, and the nationalisation of hydrocarbons. Mr Morales, friend of Mr Ch?vez and of Fidel Castro, the Cuban president, is far from being on his own. No leading politician, left or right, is resisting the call for nationalisation and Congress has passed a contentious hydrocarbons law retrospectively imposing new contracts on multinational companies and introducing confiscatory rates of royalty and taxation.

All this is a tragedy in the making. Nationalisation will not solve Bolivia?s problems. Yet the country seems hell-bent on squandering its historic opportunity. Bolivia, with the second largest gas reserves in South America, could be a big energy producer on the continent but has already handed the US market to Russia and Indonesia. Brazil, Argentina and Chile also need gas but exports depend on stability and long-term contracts and the present opportunity will not last forever. Brazilians reacted to the turmoil in Bolivia by reducing their demands for imported gas and accelerating the development of big off-shore gas fields much nearer to the industrial markets of Sao Paolo. Argentina, despite some of the same populist anti-multinational rhetoric, is developing its reserves. Peru, too, has the potential to become a significant gas exporter and is increasingly attracting investment.

Progress in Bolivia will slow further without foreign investment, which has collapsed in the past three years. The multinational companies are made to shoulder much of the blame for the inefficiency of the Bolivian state. In 2004, the gas companies provided something like 30 per cent of total tax receipts in Bolivia but how much reached the poor?

In Europe we tend to think the argument for globalisation has been won but this is far from the case in South America. In Argentina, Bolivia, Ecuador and other countries, globalisation and the International Monetary Fund are thought by many to have served only western interests.

If Mr Morales emerges as the victor in Bolivia, Mr Ch?vez will have another strong ally in addition to Mr Castro. America is right to be alarmed. Bolivia?s poor, as always, will be the losers.

Lord Lamont was British chancellor of the exchequer 1990-93 and recently visited Bolivia

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