The Aftermath of Bolivia’s Gas Golpe

COHA Memorandum to the Press:

Lula comes through: four leaders perform damage control as a result of Morales’ takeover and repair their ties:

Navigating the Nationalization and Denaturing the Strife: The Aftermath of Bolivia’s Gas Golpe

• The furor over Bolivia's dramatic nationalization of the country’s natural gas begins subside, but difficulties remain
• At an emergency summit, Pink Tide leaders demonstrate their determination to contain the anger and disappointment: Morales hangs in, Chávez is constructive, Kirchner controls his temper, and Lula is sentimental
• In the aftermath of the decree it has become clear that the pink tide countries widely differ in their tactics
• Key for Morales will be whether he will exercise restraint in his management of the negotiation of contracts with foreign investors whose involvement in the gas industry is crucial
• Washington may soon be persuaded by U.S. rightwingers to respond to the nationalization, something which White House hardliners already have begun to push, as they see Morales’ action as a clear sign of a dangerous growth in Chávez’s influence

Morales Goes to the Summit
Four days after President Evo Morales exploded with a resounding decree which nationalized Bolivia’s natural gas resource and rattled the global economy, multinational energy corporations, and regional leaders alike, the uproar over the decision has begun to subside. A hastily arranged summit in the Argentine border city of Puerto Iguazu near Brazil managed to smooth the irritations which had emerged, particularly in Brazil and Argentina, who are major importers of Bolivian gas. Yet the declarations from that meeting, principally an affirmation of Bolivia’s sovereign rights, suggest that the turbulence which likely lies ahead can be tamed and diverted to constructive channels. It also should be noted that the price of natural gas sold in the U.S. market is much higher than was the case with the commodity in Brazil, and that foreign producers of Bolivian hydrocarbons paid lower taxes and royalties than the prevailing world price, with the cost of this sweetheart arrangement being that several Bolivian presidents were overthrown by the population.

A Region Divided
On one key count, the mixed reaction to Morales’ decree revealed the many gradations of the “pink tide,” a collection of leaders with ideologies ranging from New Deal-type pragmatism to exuberant socialism. While the newly formed ALBA alliance between Cuba, Venezuela and Bolivia is symbolically powerful, it is not likely to expand to include other regional nations. Indeed, while the summit saw a public reconciliation over the nationalization, largely at the insistence of Lula, it also indicated a clear differentiation between the more socialist leaders of Venezuela and Bolivia, and the more orthodox Argentine and Brazilian heads.

The implications of this split in the pink tide are significant: to date, the left-leaning leaders in Latin America have largely been successful in maintaining the regional unity necessary to counter Washington’s influence. They have been able to do this because they haven’t had to make irrevocable decisions up to now; even the momentous trade issue is fungible. But tensions within MERCOSUR and the Andean Community, combined with the strains created by the nationalization, may threaten that solidarity if the region’s leaders do not commit to again strengthening ties between their countries. One thing is all but certain: there is no prospect that either Argentina or Brazil will sign on to the non-specific ALBA trade treaty between Cuba and Venezuela, which was expanded to include Bolivia on April 29 in Havana. This reluctance is because both the crepuscular language and the misty goals are too abstract for either Kirchner or Lula – let alone Tabaré Vazquez of Uruguay – to relate to.

La Paz has found itself at the economic and political nexus of the pink tide, linked by ideology to Caracas, but economically bound to Brasilia and Buenos Aires. One thing that Morales knew, however, was that he couldn’t repudiate his campaign pledges to the electorate or deprive Bolivia of the revenue that is so urgently needed.

Bolivia on the Line
Critics of the nationalization, or at least its implementation, have noted that Morales perhaps unnecessarily antagonized foreign investors, including the Brazilian state oil company Petrobras, which is the largest player in Bolivian gas. Certainly, sending in the troops was a needlessly provocative and almost infantile action in the eyes of the international market, and perhaps may have been an overreaction to the desires of his clamorous base which will likely raise expectations for unrealistic immediate gratification. Even with financial and technical assistance from Chávez and Petroleos de Venezuela (PDVSA), Bolivia’s state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB) is far from capable of assuming total responsibility for running the gas industry in the event of a large scale withdrawal by energy companies, without some negative impact because of its admittedly inadequate capacity. The repercussions of such an outcome are serious, as the Bolivian poor could receive as few benefits from an inoperable gas industry as an arrogantly controlled foreign multinational. Additionally, while energy integration projects offer real prospects for the future, the fact remains that Bolivian gas has a market mainly limited to Brazil and Argentina, and thus YPFB holds few good cards in its hand.

Right now, Morales must now negotiate carefully with the key players, chiefly Spain’s Repsol YPF and Petrobras. Aside from Spain’s Prime Minister Zapatero’s rather crude denouncement of Morales’ rhetoric, there is evidence to suggest that, as political tempers cool, business leaders are also becoming reconciled to the nationalization and are beginning to integrate it into their thinking. On Friday, Repsol even expressed its willingness to cooperate with the Bolivian government, reversing its previously belligerent attitude. Petrobras’ initial reaction to cancel new investment in Bolivia simply was the result of a hasty call to arms, and will ease off once the doable details are spelled out. After all, didn’t Lula say that the halt of new investment could be overturned? This, however, is where some danger lurks. The companies are willing to work with Morales, but need to see a return on their investment, and the process of revising contracts must take the profit-motive into account.

Geopolitically, Morales must also be attuned to the needs and concerns of other regional leaders. Lula and Kirchner’s opinions, whose countries previously received preferential pricing on Bolivian gas, cannot be easily discounted. Both leaders are concerned with ensuring their country’s energy supplies, and for Lula, finding a path between keeping industrialists dependent on gas imports happy and maintaining the ghost of his leftist credentials will be crucial for his reelection. La Paz will need to display a deft touch in convincing Brasilia to propel further Petrobras investment, since it is the Brazilian company which has the greatest commercial interest in Bolivia, and thus offers the best possibility for future development as a partner with YPFB. While Lula remarked at the summit that Petrobras would continue to “invest wherever it sees a chance to obtain a return for its investments,” it is up to Morales to ensure that Lula continues to see Bolivia favorably.

Northern Scrutiny
While much of the international fireworks are now fading, there is an ominous undercurrent which still threatens. Some in Washington, who comprise the ideological heart of the anti-Chávez crusade, have taken the nationalization as a sign that the Bush administration, distracted by Iraq, has thus failed to effectively contain Caracas’ spreading influence and that Washington is in real danger of losing Latin America. The nationalization’s high media profile could force the State Department to take a tough approach to the region, even to the point of mobilizing the CIA and the U.S. military, but it is more likely to work its way by undermining the all-important chink in the armor – the Latin American armed forces.

This analysis was prepared by COHA Director Larry Birns and Research Fellow Michael Lettieri

May 6, 2006

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COHA Memorandum to the Press 06.28

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