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Thursday, January 12, 2006
Morales: Oil and Gas Reserves to be Nationalized
By Dr. Steven Taylor @ 7:46 am

Via Bloomberg: Bolivia to Seize Oil and Gas Reserves, President-Elect Says

Bolivia’s president-elect said his government plans to seize oil and gas reserves owned by international companies, leaving other assets such as pipelines and refineries in the hands of foreign operators.

“The state will exercise its right of ownership, and that means it will decide on the use of those resources,” Evo Morales told reporters yesterday in Pretoria, South Africa, where he is visiting the country’s President Thabo Mbeki. Oil companies “will be partners, not owners,” he said.

This is an interesting hybrid nationalization, as Morales is reclaiming the state’s control over the reserves, but not the actual assets of the companies, nor is he booting them from Bolivia:

Morales said he will cancel any contract that gives foreign companies ownership rights to oil and gas. His plans do not call for confiscation of multinationals’ technology or other assets, he said.

I have no idea, nor does the article detail, what that means financially to the companies in question.

Interestingly, the companies which hold substantial shares of the reserves are European and Latin American, including Bolivia’s neighbor, Brazil:

All reserves are now in the hands of foreign companies such as Spain’s Repsol YPF SA, which owns 35 percent of the country’s 55 trillion cubic feet of natural gas, and Brazil’s Petroleos Brasileiros SA (Petrobras), which holds 17.5 percent. Bolivia has Latin America’s second-largest gas reserves.

It creates a rather interesting political situation, to be certain. In the past such nationalizations would have been anti-imperialist in nature (especially rhetorically–although also in purpose), and normally aimed at holding by US companies. This is more of a reversal of the privatization wave that swept through the region in the 1980s and 90s. Further, there is a more diversified set of investors and the lack of the Cold War mentalities make polarizing rhetoric from the Bolivian side less useful, and also makes the likelihood of over-reaction from the US and other states less likely.

Indeed, Morales’ victory would have set off giant alarms in Washington thirty years ago–and now, while there is little doubt that they administration isn’t happy about his victory, it is hardly a crisis. Compare such an attitude to the election of Salvador Allende in Chile in 1970.

As one who has studied Latin America for roughly twenty years, I am heartened by the fact that the ascension of Morales came via a legitimate election, and that the political climate in this hemisphere has allowed for a moderated response to dramatic elections and policy actions.

Again, in another era someone like Morales would be even more of a firebrand, and would likely have engaged in nationalization policies that would have antagonized its neighbors and the US. Further, the US would probably be seeking clandestine ways of destabilizing his government.

Now, in the current climate, Morales can engage in a fairly radical move, yet still act in a way that does not wholly alienate those whom he needs: the companies in question to actually extract the resources from the ground.

There will be clashes between the US and Bolivia over coca farming. Of that I have no doubt, but somehow I think that it will be a manageable conflict.

Of course, we shall see.


  1. Steven, How much of the success of the democratic resurgence in Latin America has to do with the fact that the region has been at the margins of the US foregin policy radar since 9/11?

    It reminds me of Andre Gunder Frank’s contention that the less developed countries are often better off when the major countries are paying less attention to them.

    Comment by kappiy — Thursday, January 12, 2006 @ 10:20 am

  2. I think that the main variable here, although not the only one, is the end of the Cold War. The US had a particularly bad record vis-a-vis intervention in the region because of fear of growth of Soviet influence. Ironically, the US concern over the influence of leftist during the CW meant that US policy was frequently inimical to democracy.

    Plus, in the post-CW era there really isn’t a viable alternative to some form of democratic capitalism. Even those who come from the left, such as Lula and Morales are aware of the need to maintain an economy that is basically capitalistic.

    As I try to point in the post–the current climate makes the US more relaxed, so to speak, over leaders who may not be exactly what is best for US policy, but also it makes those on the left end of the spectrum less radical.

    There is a lot more to say about that thesis, anda more sophisticated way of developing it, but I think that generically is provides at least a flavor on the current political climate.

    Comment by Dr. Steven Taylor — Thursday, January 12, 2006 @ 10:29 am

  3. Between Bolivia, Argentina and Venezuela (sp?), it seems to me that investing in South America has become riskier. If they’ll expropriate, i.e. steal, the property of others, it’s quite possible they’ll take the next logical step and take the production assets as well.

    For safety’s sake, if I were a business I would stick to buying raw materials from them and having them shipped to production facilities elsewhere.

    Comment by Robert Prather — Thursday, January 12, 2006 @ 1:35 pm

  4. I should also add that I agree with you that it’s nice to have the Cold War behind us. South America can make its own policy choices and live with the consequences. There’s no need for us to interfere or worry about it much, since it’s their own doing.

    Comment by Robert Prather — Thursday, January 12, 2006 @ 1:37 pm

  5. I agree it is riskier to invest in those places, and raising the specter of nationalization isn’t an economically wise move.

    Still, it clearly is a different sort of move than we saw in past decades.

    Comment by Dr. Steven Taylor — Thursday, January 12, 2006 @ 1:45 pm

  6. Interesting post and thread of comments. To Robert, I would say that it is a mistake to lump Bolivia, Venezuela, and Argentina together as places that are risky for investors for fear of expropriation of assets. Venezuela, perhaps, because democracy is really on life-support there and the government is indeed radical and hardly checked in any way. Argentina remains what it has been for some time: A country governed by a single dominant party (Peronism) that is today little more than a collection of provincial governors’ political machines. The risk there is not expropriation, but continuing cycles of inflation and default. Bolivia is uncertain, but Morales is no Chavez and the bastardized federalism of Argentina–the underlying problem of recurrent fiscal crises there–has no analogue in Bolivia, where fiscal management has been quite good since 1985 and i slikely to remain so thanks to the reforms of the Paz Estenssoro government of that time. The recent election in Bolivia also shows that party competition is quite healthy there, as the new opposition alliance won more votes than any previous governing party had won in two decades (as I have noted at Fruits and Votes).

    To Steven, just one point: I would not call the idea–promoted by Morales–that a nation’s democratic government should own reserves and natural resources “radical.” The idea–which is not, as you note, promoted by Morales–that the government of a less developed country should take over extraction and production is not specifically radical, either. It is stupid. And it is good to see that Morales recognizes that.

    Comment by Matthew — Thursday, January 12, 2006 @ 2:39 pm

  7. Bolivia and Morales’s “socialism”

    I want to call readers’ attention to an excellent radio program on Bolivia. On Open Source, it aired on January 3, but I just now have had a chance to listen to it.
    It features Jeffrey Sachs and Miguel Centellas. Sachs, of course, is an intern…

    Trackback by Fruits and Votes — Thursday, January 12, 2006 @ 7:25 pm

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