ECONOMIC ROOTS OF BOLIVIA'S SOCIAL REVOLUTION

UNCLAS SECTION 01 OF 04 LA PAZ 001332

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON ELAB SMIG SOCI PGOV EINV EPET BL
SUBJECT: ECONOMIC ROOTS OF BOLIVIA'S SOCIAL REVOLUTION

REF: 05 LA PAZ 3065


1. (SBU) Summary: Economic factors, which have fed the
growing political disaffection of Bolivia's majority poor,
have helped fuel the country's rolling "social revolution."
Take persistent poverty. The percentage of Bolivia's
population living below the poverty line has remained
virtually unchanged (over 60%) through the past decades'
"neo-liberal" reforms, and even increased during the economic
crisis of 1999-2003. Unemployment, too, spiked during the
crisis and remains untenably high. Marked social and
economic inequality -- which has a rural-urban, a regional
and also a distinctly racial dimension -- is another decisive
factor, and has spurred significant migration to cities such
as El Alto, Santa Cruz, and Tarija in the past decade. This
urban migration, in turn, has strained the underdeveloped
infrastructures of these cities, and left new urban dwellers
clamoring for access to basic services. In combination,
these factors have undermined the faith of many Bolivians in
the old economic and political order and reinforced public
support for the Morales administration and its "new" economic
experiment. They also explain why President Morales'
populist promises to Bolivia's poor, especially
nationalization of hydrocarbons and other natural resources,
will probably continue to buy him popular support, at least
in the short term. End Summary.

Bolivia's Social Revolution
--------------

2. (U) Many observers mark the beginning of Bolivia's ongoing
social revolution with the infamous Cochabamba "water wars"
of May 2000 in which thousands of protesters forced the GOB
to take over the Bechtel-operated Cochabamba water system.
That event combined key economic factors with the growing
political disaffection of Bolivia's majority and largely
indigenous poor into an explosive and still largely
unresolved mix. In February 2002 and October 2003, massive
protests against a proposed income tax, plans to sell natural
gas to Chile, and unfulfilled campaign promises to provide
jobs led to the ousting of President Gonzalo ("Goni") Sanchez
de Lozada. In June 2005, Goni's replacement, Carlos Mesa,
resigned from the presidency in the face of widespread
protests, partly over the government's management of
Bolivia's vast natural gas resources. In January 2006, after
the transition administration of Eduardo Rodriguez, Evo
Morales, Bolivia's first indigenous president, was elected on
campaign promises to nationalize Bolivia's gas industry,
"refound" the state in a Constituent Assembly, and transform
the supposedly failed "neo-liberal" economic order for the
benefit of Bolivia's forgotten majority.

Neo-liberal Reforms Did Not Meet Expectations
--------------

3. (U) Persistent poverty has been one of Bolivia's most
damning problems. Approximately two-thirds of Bolivia's
roughly nine million people live below the poverty line.
Notwithstanding the promises of politicians, this poverty was
largely impervious to the liberal reforms of the late 80s and
90s. According to a recent news article on Bolivia's
relationship with the IMF, "Bolivia has the best rate of
structural reforms in Latin America, but maintains a low
growth rate per capita and has made almost no advance in the
reduction of poverty." Former Central Bank President Juan
Antonio Morales also noted that Bolivia's neo-liberal reforms
had facilitated four percent annual growth until the economic
crisis of 1999, but that such growth was still insufficient
to keep up with population growth. The result: a per capita
GDP that was lower in 2000 (USD 910) than it had been in 1980
(USD 961). Although liberal reforms pulled Bolivia out of
its dire macro-economic straits in the mid 1980s (with
inflation of close to 12,000 percent),they clearly failed to
meet public expectations for increased incomes and jobs. In
fact, reforms had a palpably negative effect on jobs in the
short term, immediately causing a 17 percent drop in public
sector employment and triggering the dismissal of thousands
of public sector miners when resource draining state-owned
mining enterprises were shut down.

Increasing Poverty? Yes and No
--------------

4. (U) The viability of the liberal economic reforms, which
gave Bolivia macro-economic stability and a platform for
increased private investment, suffered a direct hit during
the 1999-2003 regional economic crisis. The perception that

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the large amounts of foreign direct investment Bolivia
received between 1997 and 2003 as a result of privatization
benefited the rich and not the poor was heightened by the
economic crisis. This perception was not altogether
inaccurate. First off, poverty rates, as measured by income,
spiked. The National Statistics Institute's (INE) 2004
Annual Statistics journal indicates that the percentage of
Bolivia's population below the poverty line (USD 1.20/day)
increased from 63 percent to 67 percent in that period.
According to INE, the rise in urban poverty during those
years, from 51 percent to 60 percent, was even more striking.
That 63% of Bolivians live in cities aggravated the impact
of this rise. Moreover, those city dwellers living in
extreme poverty (USD 0.77 or less per day) also increased,
from 24 percent to 29 percent. Per capita income also
declined during that period and only began returning to
pre-crisis levels in late 2004 and 2005, by which time the
unleashed energies of social protesters had become virtually
unstoppable.


5. (U) Bolivian poverty specialist Luis Leonardo Tellez told
us INE has two ways of measuring poverty, and that the
results differ depending on which measuring tool is used. He
explained that poverty, measured by income (which includes
non-monetary income),has increased during the past decade,
but that poverty, measured by unfulfilled basic needs, i.e.,
housing, water, sanitation services, electricity, health, and
education, has diminished. Tellez attributed the improvement
in meeting basic needs to housing subsidies, the national
health program, NGO efforts to improve health, and the GOB's
rural electrification program supported by multilateral
funds. He also noted it was thanks to massive rural to urban
migration, which has given many poor Bolivians from
undeveloped rural areas access to better (if still
insufficient) education and health care once they reach the
cities. Tellez' assertion is supported by Bolivian census
figures, which show that 85 percent of the population had
unsatisfied basic needs in 1976, 71 percent in 1992, and 59
percent in 2001. A 2002 INE household survey indicated a
small spike in the percentage of unmet basic needs, to 61
percent.

Unemployment
--------------

6. (U) The regional crisis also took a toll on unemployment.
According to one official report, unemployment rose from 4.4
percent in 1997 to 9 percent in 2002, where it remained in
2003 and 2004. However, this measure of urban unemployment
vastly underestimates total unemployment, for which there are
no good statistics. A declaration of Bolivian factory
workers stated that unemployment had reached 13 percent of
the economically active population by the end of 2005. Many
analysts estimate it is higher still, and alarmingly high
once underemployment is factored in. According to one urban
analyst, in the conflictive indigenous city of El Alto, only
a small fraction of the ten thousand new high school and
university graduates who flood into the city's employment
market each year find full-time jobs. This expanding pool of
unemployed and under-employed young people with little to
lose was a central, volatile element in the successive crises
that forced the resignations of President Gonzalo Sanchez de
Lozada in October 2003 and President Carlos Mesa in June

2005.

Regional and Racial Inequality
--------------

7. (U) Marked inequalities have also played a decisive role
in Bolivia's social and political crisis. In addition to
being reflected in a significant (and some statistics suggest
growing) income gap between rich and poor, these inequalities
have a clear rural-urban, a growing regional, and a
distinctly racial dimension. According to INE statistics,
the wealthiest 10 percent of the Bolivian population have 37
times more wealth than the poorest 10 percent (as compared
with the United States, where the top 10 percent have 16
times more wealth than the poorest 10 percent). Rural-urban
disparities are reflected in INE's 2002 household survey
figures, which indicate that average annual per capita income
in urban areas was USD 966 but only USD 292 in rural areas.
According to INE, 90 percent of the population in urban areas
have electricity, while only 29 percent do in rural areas.
In rural areas, sixty percent of families do not have
bathrooms. In urban areas, 86 percent of families get their
drinking water from a pipe (either in the home or outside),

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while only 33 percent in rural areas do so -- with the rest
taking water directly from rivers or wells. Seventy-five
percent of the rural population rely on firewood for cooking,
compared to eight percent in urban areas.


8. (U) Regional disparities, particularly between the
wealthier eastern lowlands and the poorer western highlands,
are particularly acute. For example, in 2001 the percentage
of the population with unmet basic needs in the eastern
department of Santa Cruz (Bolivia's economic center) was 38
percent, while in Potosi (Bolivia's poorest region) it was 79
percent. Additionally, average annual household income in
the city of Santa Cruz was two and one half times higher than
that of El Alto in 2004, according to INE.


9. (U) There is also a strong -- but not automatic --
correlation of wealth and poverty with race, which is partly
linked to the urban-rural and regional divisions. Most of
Bolivia's majority poor, for example, are of mixed or
indigenous origin. Many of the country's wealthiest
families, by contrast, are of conspicuously European descent.
These apparently race-based social and economic differences
have exacerbated the sense of racial separation, and amount,
in the view of some critics, to a kind of de facto economic
apartheid. (Comment: In Bolivia's 1952 revolution, Bolivia's
"indigenous" peoples acquired full legal, political and civil
rights. Equal economic and social opportunities, however,
have been more elusive. End Comment.) Although "indigenous"
and "white" are malleable, subjective terms and most
Bolivians are of mixed European-indigenous blood, the
correlation between language, skin-color, ethnic identity,
and socio-economic status remains difficult to deny.
Moreover, growing ethnic consciousness has fed increasing
"indigenous" resentment of the dominant "white" minority and
the political system that allegedly sustained it.

Migration/Lack of Services
--------------

10. (U) These inequalities have fueled the massive migration
from rural areas to cities such as El Alto, Santa Cruz, and
Tarija. According to INE statistics, between 1999 and 2003
over half a million people -- or 10 percent of the current
urban population -- migrated to cities. El Alto, Santa Cruz,
and Tarija experienced particularly high annual growth rates,
according to INE data available for the decade 1992-2001, of
5.1 percent, 5.1 percent, and 3.7 percent respectively. In
1992, El Alto's population numbered around 395,000. By 2001
(the year of the most recent census),that number had reached
650,000. Informal estimates put the sprawling altiplano
city's population at close to 1 million today. During the
same period, Santa's Cruz' population mushroomed from 692,000
to 1,136,000. According to Santa Cruz civic leaders, 100,000
Bolivians, most of them from the western highlands, continue
to arrive to seek a better life in the lowlands capital each
year. Meanwhile, Tarija's population trend is moving in the
same direction. According to UNDP Project Manager Gonzalo
Calderon, 300 people are moving there each day.


11. (U) This massive rural to urban migration, in turn, has
strained the underdeveloped infrastructures of these cities,
and often left new urban dwellers without access to basic
services. Even as anecdotal evidence indicates that overall
services access has improved during the past decade, keeping
up with the explosive urban growth is all but impossible and
reaching recent urban migrants is a particular challenge.
Part of the problem is rooted in basic economic laws.
Because prices remain low and service providers are reluctant
to raise them for fear of protests (see Cochabamba water
war),insufficient earnings make investing in the expansion
of those services difficult, which creates a vicious cycle.
According to INE, only 50 percent of households in urban
areas have sewage hookups. Fourteen percent of city dwellers
have no access (neither in home nor outside) to drinking
water from city water networks, while 47 percent get drinking
water from city water pipes outside of their homes. Only two
percent of urban households have natural gas or electricity
hookups for cooking, while 86 percent rely on liquid
petroleum gas (LPG) and 8 percent use firewood. An LPG
shortage in September and October of 2005 led to daily street
protests and blockades (reftel). Potential LPG shortages
(although the result of perverse government economic
incentives) and the lack of in-home gas hookups have created
popular support for the Morales administration's plans to
gain control of the hydrocarbons industry to "ensure that

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domestic needs are met."


12. (SBU) The heightened expectations of newly arrived urban
dwellers also feed the dynamic of frustration. Although new
city dwellers generally have better service access than they
did in the countryside, they also feel an increased sense of
relative deprivation due to the wealth they see around them.
So while "better off" in an absolute sense than they were
before, they increasingly view access to such services as
water, gas, and electricity as a right that the political and
social system owes them -- a right they are willing to take
to the streets to demand.

Comment
--------------

13. (SBU) In combination, these essentially economic factors
have undermined the faith of many Bolivians in the old social
and political order. They have also fueled public support
for the Morales administration and its "new" economic
experiment. If the old order worked for so few, the popular
logic goes, what is there to lose in seeking to create a
different one? While President Morales' populist promises
may represent more a retread of a failed "old" approach than
a genuinely "new" one, they will probably continue to buy him
popular support in the short term, in part because the
traditional political order is seen as having failed so
absolutely. That said, it is hard to see how the current
government will avoid a collision with the same stubborn
economic obstacles that proved so difficult for its
predecessors. When that happens, more popular disappointment
and frustration, and also renewed social and political
turmoil, will certainly follow. End comment.
ROBINSON