Bolivia Country Brief - January 2008
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 not allowed. 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 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. 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, 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.
At the same time as the election of delegates for the Constituent Assembly, Bolivians voted in a referendum asking whether greater autonomy should be given to each of its nine departments. Although the majority of Bolivians voted no, a majority yes vote was recorded in four wealthier lowland provinces (Santa Cruz, Tarija, Beni and Pando). In December 2007, following the conflict over the constitutional process, the governors of these provinces declared autonomy from the central government in La Paz. This was also seen as a move to distance the provinces from the new constitution which currently proposes higher taxes on these provinces in order to redistribute the country’s wealth. Talks between Government officials and regional governors are continuing.
This series of contentious issues – the bogged down Constituent Assembly, renewed claims for greater autonomy by lowland provinces, a claim by Sucre (Bolivia’s historical capital) to regain its administrative role, as well as controversy over the proceeds of Bolivia’s hydrocarbons tax- has led to regular protests and civic strikes across the country, which are likely to continue in the coming months.
Economic Overview
Despite international uncertainty, Bolivia’s economy continues to grow strongly, largely based on a boom in resources exports. Mining activity surged by 13.5 per cent in 2006, and Brazilian and Argentinean demand for Bolivian natural gas remains high (Bolivia has South America’s second largest reserves, behind Venezuela).
However, populist rhetoric and a lack of policy pragmatism continue to disenfranchise key interest groups and deter critical foreign investment in Bolivia. Inconsistent and radical policy announcements have resulted in little investment in the key hydrocarbons and mining sectors; although potential exists in the agricultural sector based in the lowland east of the country. However, the decision by Brazil’s state oil company Petrobras to consider resuming investment in Bolivia would be a major boost to Bolivia’s oil and gas industry. The industry has, however, recently experienced supply restrictions, and Bolivia has failed to meet some contractual supply obligations to Brazil and Argentina in recent months. Similar shortages are plaguing the mining industry and concern remains about the long-term viability of the sector, particularly when the current resource boom ends. While the level of direct foreign investment in Bolivia of US$237 million in 2006 was a marked improvement on 2005, investors are tending to deem the risk too high.
Recent inflationary pressures remained strong in 2007. Major increases in government spending on wages have increased consumer demand, and the country has also experienced supply disruptions due to floods in early 2007.
Trade Policy Directions
As well as its membership of the WTO and the Cairns Group, Bolivia is also a member of the Andean Community with Colombia, Peru and Ecuador (Chile as an associate member) and is an associate member of Mercosur. The US Andean Trade Promotion and Drug Eradication Act (ATPDEA) allows various Bolivian products to enter the US duty-free, including some textiles (which account for 22 per cent of Bolivia’s exports to the US). 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 recently extended in December 2006 for a further six months. Similarly, the expansion of the Economic Complementation Agreement between Chile and Bolivia in 2006 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, totaling approximately A$6.9 million in 2006-07. Australia’s exports to Bolivia were A$614,000 in 2006-07, including meat, furniture pharmaceutical products and civil engineering equipment. Imports from Bolivia totaled A$6.3 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.