Bolivian May Day Brings Higher Hydrocarbons Revenues and Higher Expectations

Friday, 04 May 2007, Written by Andean Information Network

On May 1, 2006, Bolivian president Evo Morales announced the ‘nationalization’ of the nation’s natural gas resources with a symbolic military takeover of many installations throughout the country. One year later the administration celebrated the first anniversary of the nationalization decree by announcing that Bolivia will triple its hydrocarbons revenues. The President explained, rather vaguely, the creation of new programs funded by this income intended to create jobs, encourage micro-enterprises and reaffirm the nation’s ownership of all hydrocarbon and mineral wealth. Morales also repeated his intentions to “nationalize” the privatized long distance company, the mining industry as well two foreign-owned natural gas refineries. During the preceding weeks the administration announced a much-needed plan to fund housing for low income Bolivians, which has received broad support.

Of course the successful implementation of these initiatives depends on many factors. Past reform announcements, such as universal healthcare for most Bolivians, have sometimes faltered or been delegated to departmental or municipal governments, while others, like the nationalization of hydrocarbons faced innumerable delays and impediments. Planning and launching social reform initiatives represents an important first step in a challenging process to build consensus and implement policies. However, it remains to be seen to what degree this administration will be able to transparently and equitably follow through on these plans.

Implementation lags behind expectations

While some of these projects have the potential to work well and help Bolivian citizens to lead better lives, the administration’s emphasis on the benefits of the nationalization of the hydrocarbons industry have heightened the expectations of many social groups. The signing of 44 renegotiated hydrocarbons contracts with twelve transnational companies finally occurred on May 2, 2007, one year after the initial nationalization decree. Increased hydrocarbons revenue during 2006 was primarily a result of the Direct Hydrocarbons Tax, approved by the Bolivian Congress in 2005 before the nationalization decree took effect. After the signing of the contracts, the president of YPFB, the national gas and oil company, announced “The [foreign] oil companies accept that they are simply YPFB’s partners and no longer owners of the hydrocarbons production.”[1]

According to the Morales administration, in 2006 hydrocarbons revenues increased to $1.65 billion, 40% over 2005 levels, and YPFB predicts that the revenues may reach $2 billion in 2007.[2] The government is using part of this the revenue to increase the nation’s foreign reserves from $1.7 billion in 2005 to $3.4 billion in 2007[3] and is investing at least $3 billion over the next five years in further exploration and exploitation of hydrocarbons.[4] However, in spite of these announcements and promises for reform, some Bolivians feel that the government’s social reforms are not broad enough given amount of additional state income it has publicized.

For example, healthcare workers and teachers have been on strike demanding a one percent increase in salary over the government offer of a six percent raise. The government has claimed that it does not have sufficient funds to give a pension to the disabled or to pay the existing yearly pension to the elderly beyond 2007. In contrast, the Defense Minister recently announced that the armed forces will receive 100 new vehicles, four helicopters, three planes and other equipment during 2007.

Bolivia Inaugurates Solidarity Housing Plan

In April 2007 the government presented a plan to give to low interest housing loans to low income and middle class Bolivians. The “Social and Solidarity Housing Program” is designed to help build over 14,000 homes and improve 26,000 residences. The Minister of Public Works, Services and Housing says that the plan will “directly and indirectly generate thousands of jobs and stimulate the national economy.” [5]

Housing crisis exacerbated by high interest rates

A consensus exists that this assistance is tremendously needed as, according to Habitat for Humanity, “58% of Bolivian families live in huts that do not meet the minimum living conditions, lacking basic services and sanitation. 32% of homes accommodate three or more people per bedroom.” The Ministry of Public Works estimates that there is a need for 300,000 houses in the country and that the housing plan should be able to close this housing deficit within 20 years by giving zero to three percent interest loans to workers. Furthermore, existing interest rates for mortgages run an average of 18% - 24% interest annually, with high penalties and fines for noncompliance.

The long list of bureaucratic prerequisites to obtain credit in the formal banking system, such as formal employment and property as collateral, make it almost impossible for most citizens to obtain a loan. Savings and Loan cooperatives, which have less strict requirements, accept a third person to guarantee loans or collateral, have higher interest rates, and largely unregulated fines and penalties. This system has lead to skyrocketing debt for poor families and frequent foreclosures on properties. For instance, one family that was unable to pay back a $3,000 debt found that the cooperative planned to sue them for over $19,000 in back payments, interest and fines. This common situation has led to the formation of a “small debtors” defense movement in recent years.

Accessible low interest loans

The bulk of the approximately $90 million available for the program comes from the pre-existing housing fund. Bolivian law requires all formal employers to pay the equivalent of two percent of each of their employees’ salaries to this fund. Only twelve percent of the loans to be granted under the new plan will be exclusively for these workers. This has led some private enterprise interests to protest the plan, because those who have contributed to the governmental housing fund will not receive preferential treatment in the loan process. MAS representatives counter that previous administrations mismanaged the housing fund so badly that employees could not benefit from it and that the new program can more effectively serve them.

In a nation where 67 percent of the population works in the informal sector, the government feels that all workers, whether they have contributed to the fund or not, should be eligible for housing loans. The Vice Minister of Housing, Marcelo Zurita, replied that, “The law…says that the State administers these resources…We seek the best form of investment instead of squandering them like in former administrations.” Zurita referred to the idea that private businesses and banks were the only ones who benefited from past housing programs.

As a result of these difficulties, the application process for the new program is relatively straightforward and free. Thirteen financial organizations have authorization to make loans through the plan. As both the loan and repayment amounts for urban workers are based on family income, applicants must show proof of work, identification and credit history and prove that they have no pending loans or are already homeowners.

For example, the lowest loan available is $2,500 dollars and accrues no interest. To secure this loan, a worker would need to demonstrate a family income of $46 dollars a month and the monthly repayment would be about $11 dollars, approximately 25% of the monthly income, over 20 years. Up to 20% of the loan can be used to purchase land on which to build the home.

The majority of the applications to participate in the program are from the three major cities, La Paz, Santa Cruz and Cochabamba. The plan will divide up the money regionally so that 41% goes to the western highlands, 32% to the east and 27% to construct homes in valleys, such as Cochabamba.

Plan enjoys widespread support

Praise and support for the plan came from unexpected sources. The president of the Cochabamba Private Enterprise Federation, a staunch adversary of the Morales administration, agreed that the housing plan was a badly needed development. An editorial in La Razón, a newspaper generally critical of Morales initiatives affirmed,

“The housing plan proposed by the government has characteristics that similar social programs didn’t include or could not achieve. The plan is flexible, accessible, possible and realistic. The plan stimulates the economy and generates employment and [addresses] social expectations that have not been met in the country for a long time. President Morales’s government deserves recognition for social housing [policy], as it is presented in the plan.” [6]

Beyond improving housing conditions in the nation, according to the Ministry of Public Works the plan will provide employment for 73,000 people. In anticipation of a construction boom, SOBOCE (Bolivian Cement Society) has thrown their weight behind the plan. The company, owned by opposition UN party leader Samuel Doria Medina, announced a 25% discount in the price of cement for beneficiaries of the program. In Bolivia one bag of cement costs over $6, while the workers who pour the cement earn about the same amount per workday. According to the SOBOCE director, “In a low income home, between 7 and 10% of the total cost is cement and…Soboce’s business philosophy is to support the country’s development.”

Other Morales Administration Initiatives:

Minimum Wage Increase - The government decreed a five percent increase in the formal sector minimum wage from $63 to $67, retroactive to the first of January. The Morales administration raised the minimum wage last year by 13.6%.

The measure has drawn criticism from both representatives of private business owners and the Bolivian Workers Union (COB). According to the secretary of the Private Enterprise Federation, “The raise is small; it’s more a political move than it is effective.” He complained that the government needs to take steps to prevent contraband if they expect business owners to raise wages. The COB stated that the increase was too small given the large increase in state revenues that the government has been celebrating.

In contrast, the governor of the Santa Cruz Department announced an agreement between some private businesses and the Regional Workers Union (COD) to increase the state minimum wage to $89 a month with an additional $38 in bonuses. Santa Cruz businesses have been asked to pay this “dignified wage,” but are not legally obligated to pay more than the new national minimum wage.

Job Creation - The government announced the creation of 230,000 jobs by the end of the year, 160,000 of those will be temporary jobs. The government also unveiled three new programs designed to create 22,900 permanent jobs in addition to the promised 70,000 jobs the administration plans to generate with the housing plan. The Center for the Study of Labor and Agrarian Development (CEDLA) estimates that there are 261,000 jobless people in the nation’s cities.

Production Development Bank - Small business owners and entrepreneurs are eligible to apply for a $3,000 - $10,000 loan from the Production Development Bank, which is making available $60 million. The loan program is designed to increase investments in textiles, leather, and wood production and in the food and tourism industries. Bank funds will also be used to build infrastructure and fund technical assistance programs throughout the nation. One-sixth of the funds will be available to medium and larger businesses affected by El Niño flooding in the first part of the year.

Further “Nationalization” on the Horizon

Long Distance and Mobile Phone Company - The Morales administration announced the nationalization of Bolivia’s largest long distance telephone company, Entel, which was privatized in 1995. The MAS government claims that co-owner Euro Telecom Italia (ETI) has violated its contractual obligation to invest sufficiently and owes back taxes, totaling $82.2 million. The government now wants to buy ETI’s 50% share of the company’s stocks to make it a state-owned company again. ETI has stated that the government’s actions are damaging Bolivia’s image in the European Union and the nation will be seen as having an unstable investment climate.

Refineries - The Bolivian government is negotiating the buy back of two natural gas refineries from the Brazilian gas company Petrobras. The company acquired the Guillermo Elder (Santa Cruz) and Gualberto Villarroel (Cochabamba) refineries in 1999 for $104 million. The plants have a refining capacity of 60,000 barrels a day and are worth $180 million. Despite rumors of moving the negotiations to international arbitration, a Petrobras executive said the ownership of the refineries does not matter to the company, only securing a good price for the sale, stating, “We will reach an agreement, we always do.”[7]

Mining Industry - Morales announced on May 1 that the Bolivian Mining Corporation (Comibol) would also soon be “refounded.” The president affirmed that all mineral resources are owned by the state and suspended any new mining activity until a national survey can be completed to find out how much mineral wealth exists in the country.

ICSID Withdrawal - Bolivia, along with Venezuela and Nicaragua, announced plans to withdraw from the ICSID, the International Center for the Settlement of Investment Disputes, an organization for international arbitration, citing the need to have greater control over foreign investment in their respective countries.


Clearly, enacting lasting social change in Bolivia is a formidable task. Planning a government program and announcing its creation are merely the initial, and most straightforward, steps of a long uphill battle to achieve successful implementation. For these initiatives to prosper, they must achieve broad political acceptance and develop effective mechanisms to transparently administer and equitably distribute program resources to citizens in all regions of the nation. In spite of a stated zero tolerance policy for corruption, denunciations of impropriety have complicated MAS’s efforts to enact its policies. Efforts to continue the nationalization process will also depend on the government’s ability to successfully redefine its relationship with international investors. Perhaps the most significant challenge for the Morales government is juggling the multiple, and sometimes conflicting, demands of diverse social sectors who have heightened expectations for long postponed changes.


1. ABI. “Yacimientos asumió control de la producción de hidrocarburos tras protocolización de contratos.” May 2, 2007.
2. ABI. “Nacionalización logra $US 1.321 millones más de lo que el país recibía al año con la capitalización.” May 1, 2007.
3. Banco Central de Bolivia. “Reservas Internacionales.” March 20, 2007.
4. ABI. “Las empresas petroleras proyectan invertir $US 3.000 millones en cinco años.” May 2, 2007.
5. ABI. “El Programa de Vivienda Social dará empleo a miles de bolivianos directa e indirectamente.” April 20, 2007.
6. La Razón. Editorial. “Aciertos en el plan de vivienda.” April 7, 2007.
7. ABI. “Petrobras expresa optimismo por éxito de las negociaciones con Bolivia sobre las refinerías.” April 28, 2007.

First published by Andean Information Network

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