Bolivia Country Brief - April 2009
Introduction/overview
Bilateral relations between Australia and Bolivia are modest. Australia works with Bolivia in a number of multilateral forums, particularly in the World Trade Organization through membership of the Cairns Group of agricultural exporting countries which Bolivia joined in 1999. The Hon Mark Vaile visited Santa Cruz, Bolivia, in his former capacity as Trade Minister for a Cairns Group Meeting in October 2002.
Political Overview
Political System
Bolivia is a democratic republic with a directly elected President who serves a five year term. Consecutive re-election is now permitted under Bolivia's new constitution. Bolivia has a bicameral system of government: the Senate has 27 members (nine departments elect three members each); the Chamber of Deputies has 130 members (half of whom are directly elected and half who are elected indirectly through party nominations).
Bolivia attained independence from Spain in 1825 but then suffered a period of economic decline and the loss of territory in disputes with neighbouring nations, most notably the loss of coastal areas to Chile. This occurred during the War of the Pacific, which Bolivia fought with Peru against Chile in 1879, and remains an ongoing source of resentment, with Bolivia strongly pushing the issue of its maritime aspirations in the form of a ‘corridor' to the sea.
After a long period of instability marked by coups and military rule, democratic civilian rule was established in 1982. However, the proliferation of political parties since has resulted in political fragmentation. Organised labour has historically been strong, and organises large demonstrations in opposition to free-market reforms. The church has played a significant intermediary role between the government and social groups.
Recent Political Developments
Bolivia's most recent presidential elections were held on 18 December 2005, with the candidate for the left-wing Movimiento al Socialismo (MAS), Evo Morales, winning 53.7 per cent of the vote. Morales' vote was unprecedented and constituted the first majority won by a candidate since the return of democracy. Morales is the first candidate of indigenous origin to have become President in Peru. The candidate for the major opposition party, Podemos, ex-President Jorge Quiroga, received 28.7 per cent of the vote. The MAS won a majority in the Chamber of Deputies with 72 out of 130 seats but only won 12 of the 27 seats in the Senate. Morales was sworn in as Bolivia's President in January 2006.
During his time in office, President Morales has eschewed the free market policies espoused by his predecessors and sought to increase state involvement in the economy. He announced the nationalisation of Bolivia's hydrocarbon sector in May 2006 and required multinational companies to sign new contracts with the Government, which saw ownership of the underlying hydrocarbons resources revert to the Bolivian state.
Another key issue in Morales' agenda is the promotion of indigenous rights – a grouping that represents approximately 60 per cent of Bolivia's population. To this end, the Government set up a Constituent Assembly, whose delegates were elected in August 2006. The assembly was tasked with drawing up a new constitution in an attempt by the MAS to enshrine indigenous rights, and to allow the possibility of consecutive presidential election and the removal of a bicameral parliamentary system.
In November 2007, a draft Constitution was approved in a controversial process which excluded opposition parties. This sparked violent protests which left four people dead and over 130 injured in clashes between opposition supporters on the one hand, and police and government sympathisers on the other.
The draft Constitution was approved by a relatively strong majority (59% to 41%) in a referendum held in January 2009. It formally promotes the official use of the country's 35 indigenous languages, sets aside a number of indigenous seats in the legislature, provides for increased ‘autonomy' for indigenous communities and supports new restrictions on private agricultural land holdings to a maximum size of 5000 hectares. It also grants the national government greater involvement in the Bolivian economy (thus opening the way for further nationalisations),
The Constitutional reform process has highlighted a growing polarization in Bolivian society between the rural poor (concentrated in the highlands) and those better off (mostly located in the eastern low-land provinces and urban areas). The growing divide is not just geographical but increasingly ideological: opposition provinces favour a more neo-liberal, open market philosophy whilst Morales' support base endorse greater state control of resources and centralised administration.
Ongoing tensions between pro-Morales
and opposition supporters erupted again in violence in September 2008.
Thirty people were killed when demonstrations organised to oppose the
2009 referendum clashed with indigenous supporters of President Morales.
Opposition provinces had earlier voted to have autonomous governments
from La Paz and thus refused to endorse a new Constitution that consolidated
power in the hands of the national Government. The disharmony drew the
attention of President Lula of Brazil who called on Morales to govern
for all the country including the business sector and not only the poor
and underprivileged.
Economic Overview
The Bolivian Government faces considerable challenges to its economic health, not least from declining foreign investment in critical sectors of the economy. Some analysts have pointed to populist Government rhetoric and a general lack of policy pragmatism as the principal deterrents to investment, particularly in the key hydrocarbons and mining sectors. In recent times, for example, Bolivia has failed to meet contractual supply obligations to Brazil and Argentina and has suffered supply restrictions from other nations. This has seen annual foreign investment in hydrocarbons fall from US$581 million in 1999 to US$149 million in 2007. The net effect has seen capacity, output, and Bolivia's international competitiveness in these sectors fall.
The Global Financial Crisis
The effects of the global financial crisis have begun to flow through the Bolivian economy. The deterioration in the global economy helped to slow Bolivia's GDP growth from 6 per cent in 2008 to an expected 1 per cent in 2009. Slower growth amongst key trading partners (particularly Brazil and the United States) has also resulted in lower foreign investment, reduced private consumption and rising unemployment.
The Morales administration has sought to increase public spending in an attempt to stimulate the economy (as well as to solidify support in the run up to the December 2009 election). Yet this task is complicated by high inflation and a drop in its current account position due to the falling price of oil. This means that Bolivia will find it increasingly difficult to fund many of its programs. To date, Bolivia has relied heavily on borrowings from Venezuela, but with the public debt to GDP ratio expected to rise from 42.9 per cent in 2008 to 43.5 per cent in 2009 analysts hold growing concerns that Morales' plan to boost public investment to create jobs and lift the economy may fail.
Trade Policy Directions
As well as its membership of the WTO and the Cairns Group, Bolivia is also a member of the Andean Community (CAN) with Colombia, Peru and Ecuador (Chile as an associate member). Bolivia also looks at developing markets through membership in the Bolivarian Alternative for the Americas (ALBA) whose members include Venezuela, Cuba and Nicaragua and is also a member of the newly created Union of South American Nations (UNASUR). Bolivia is an associate member of Mercosur.
Until recently, the US Andean Trade Promotion and Drug Eradication Act (ATPDEA) allowed numerous Bolivian products to enter the United States duty-free, including alpaca and llama products and, subject to a quota, cotton textiles. In December 2008, the US suspended Bolivia's participation in the program based on its failure to meet international counternarcotics obligations. The ATPDEA was an expansion of the Andean Trade Preferences Act of 1991. The ATPDEA initially came into effect in August 2002 for four years, and was extended in December 2006 for a further six months.
Bolivia has an Economic Complementation Agreement with Chile that was established in 2006 that allows some 6,600 Bolivian products duty-free access to Chile.
In April 2006, Bolivia signed a 'People's Trade Agreement' with Cuba and Venezuela as a "means toward development with social justice in the framework of genuine fraternal Latin American and Caribbean integration". The Agreement provides for the export of Venezuelan and Bolivian natural resources in exchange for Cuban medical services.
Bilateral Economic and Trade Relationship
Two-way merchandise trade between Australia and Bolivia is small, totalling approximately A$10 million in 2008. Australia's exports to Bolivia were A$3.5 million in 2008, including telecom equipment, aircraft, spacecraft, and parts, and civil engineering equipment. Imports from Bolivia totalled A$7.2 million, made up principally of fruit and nuts, cereals and clothing.
Australian investment in Bolivia is primarily concentrated in the mining sector, and opportunities exist in the supply of mining services and technology. There is also growing interest in Bolivia's agribusiness sector. Prospects for Australian investment and trade exist in the agricultural region of Santa Cruz, particularly in the beef and soya sub-sectors. A number of beef producers from Santa Cruz attended the World Beef Conference in Rockhampton, Queensland in 2006. Opportunities in tourism and related industries also exist.