GOB UNVEILS ECONOMIC DEVELOPMENT PLAN

UNCLAS LA PAZ 001660

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
USAID FOR LAC/SA/JBAKKEN, MKARBELING
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON EAGR EAID EFIN EINV ELAB PGOV BL
SUBJECT: GOB UNVEILS ECONOMIC DEVELOPMENT PLAN

REF: A. LA PAZ 1248


B. LA PAZ 1596

C. LA PAZ 1517

D. LA PAZ 1614


1. (SBU) Summary: The GOB released its five-year national
development plan on June 16. The plan proposes a strong
state presence in the economy and natural resource management
and substantial public investment in order to create jobs,
diminish poverty, improve health and education, and provide
universal access to basic services. The state will assist
production by providing technical assistance and financing
through a national development bank. Bolivia will seek to
regain sea access and promote the international acceptance of
the coca leaf. The plan also proposes the elimination of the
independent regulatory system which oversees hydrocarbons,
electricity, telecommunications, transportation, water, and
forestry, while proposing state take-overs of 51 percent of
six companies (in addition to the three hydrocarbons
companies that were nationalized on May 1) that were
partially privatized in the 1990s, including two with U.S.
investment -- Ferroviaria Oriental/Genesee and Wyoming and
Corani/Duke Electric. End summary.

Development Planning Minister Presents Five-Year Plan
-------------- --------------

2. (SBU) Development Planning Minister Carlos Villegas made a
powerpoint presentation on the GOB's five-year national
development strategy to President Morales; Vice President
Garcia Linera; the cabinet; representatives of diplomatic
missions, aid agencies, and social organizations; and the
press on June 16. The plan, "A Democratic, Dignified,
Sovereign, and Productive Bolivia," proposes strong state
involvement in the economy and substantial public investment
in order to create 90,000 jobs annually, diminish poverty
from 59 to 50 percent, improve health and education, and
provide universal access to basic services within a five-year
timeframe. Villegas referred to the GOB's "first term"
several times, implying that the GOB would seek to alter the
one-term presidential limit in the upcoming Constituent
Assembly. Based on Villegas' presentation, the
highly-theoretical plan, which aims to "eliminate colonialism
and neoliberalism and construct a multicultural society and a
communitarian state in which the state, private, and
community economies live harmoniously together", contains
several laudable poverty-reduction goals but lacks a
realistic explanation of how these goals can be achieved.

Goals: Improved Income/Education/Health/Services
-------------- --------------

3. (U) The plan aims to decrease poverty, reduce illiteracy
by training 1.2 million people, improve access to health care
through universal insurance, build 100,000 homes (in part to
promote the construction business/generate jobs),and
increase access to potable water, electricity, and natural
gas. The GOB intends to generate jobs and promote increased
production through a mechanization program and
industrialization of the coca leaf. Following are overall
plan projections:

2005 2011
Poverty rates 58.9 percent 49.7 percent
Extreme poverty 35.3 percent 27.2 percent
GDP per capita growth 1.8 percent 4.3 percent
GINI coefficient .59 .58
Unemployment 8.4 percent 4.0 percent

GOB Support for Production
--------------

4. (U) The plan proposes a number of government programs to
support production, job training, and job creation, including
"My First Job" for urban youth and "My Business" for
fledgling entrepreneurs. The plan discusses a three-level
"production matrix" in which the state is the principal actor

made up of "the strategic sector" -- hydrocarbons, mining,
electricity, water, forests, and biodiversity; "the
employment generating sector" -- industry, manufacturing,
tourism (GOB to promote training and community tourism),and
agriculture (GOB to promote irrigation and food sovereignty);
and "the infrastructure sector" -- transportation (GOB to
promote construction of an integrated national road system),
telecommunications, technology, and financial system.
Although government support will focus on indigenous
communities and small enterprises by providing technical
assistance and financing, the plan foresees a role for all
economic actors, even large agricultural producers and big
business. Villegas added that foreign companies must respect
state sovereignty, employ Bolivians, and buy Bolivian
products.

Resources: Hydrocarbons, Mining, Electricity, Water, Land
-------------- --------------

5. (U) Villegas referred to the GOB's May 1 decree that
nationalized hydrocarbons and gave the state control over
prices, volumes, and new contract rules (ref A). On mining,
he said that the GOB would change the mining code and tax
rates (ref B),define COMIBOL's (state mining company)
participation in the sector, promote industrialization and
mining exploration programs, and strengthen cooperative and
small mines. The plan aims to provide universal access to
electricity and turn Bolivia into an "energy center" that
generates sufficient electricity to meet domestic demand and
export, while providing legal security to investors. The GOB
is currently promoting a bill in congress to revise the water
law, granting water management to the state and proclaiming
that access to water is a human right. On land, the GOB will
apply the 1996 land law and actively redistribute
unproductive lands and well as available government lands
(ref C).

Health and Education Programs
--------------

6. (U) The plan proposes a subsidized school breakfast and
lunch program, "Bolivia without Hunger," as well as universal
health coverage, a health program targeting municipalities,
and a "Zero Malnutrition" program. The plan also aims to
reform higher education and focus the educational system more
on technical areas and science through the "Education for
Production" program.

Justice, Security, and Democracy
--------------

7. (U) According to Villegas, the GOB aims to improve the
justice system so that it is more transparent and respects
women's and indigenous people's rights. To reduce crime, the
GOB plans to create "citizen security groups." The state
will tolerate "zero corruption" and will reform the national
police. The plan envisions a new role for the armed forces,
which will promote development by participating in
infrastructure projects. To promote democracy, the plan aims
to make the political system more inclusive, facilitate a
national dialogue, and form a transparent National
Development Council.

State Financing and Macroeconomic Policy
--------------

8. (SBU) Villegas said that the state would provide financing
for artisans, small and medium enterprises, farmers, and
indigenous people through a state development bank (ref D).
He said that the GOB had USD 300 million for funding the
bank, of which USD 140 million would be earmarked for
production, USD 100 million for exports and imports, USD 30
million for infrastructure, and USD 30 million for housing.
Villegas said that although the GOB desires macroeconomic
stability, stability would not be the GOB's primary goal in
designing monetary and fiscal policy. Instead, the
government would implement policies that generated jobs,
income, and exports. The plan optimistically predicts GDP
growth of 7.6 percent by 2011, almost double the 2005 figure.
This prediction assumes large growth in the metallurgy,
electricity, refining, and construction industries. The GOB
expects public investment to increase significantly, totaling
USD 6.8 billion between 2006 and 2010, and projects private
investment at USD 5.8 billion for the same timeframe. The
GOB is counting on receiving foreign assistance to fund this
public investment and a projected public deficit of 2.1
percent (which seems unreasonably low given the significant
spending plans) in 2011 and will organize a donor
consultative group within the next few days to discuss,
Villegas said.

Foreign Policy
--------------

9. (U) Via foreign policy, Bolivia will seek to maintain its
sovereignty, recoup its access to the sea, promote
international acceptance of the coca leaf, promote the
sustainable use of its natural resources, and protect
Bolivian citizens abroad, ensuring their right to vote in
Bolivian elections. The state will review bilateral treaties
and "guarantee legal security to foreign companies with clear
rules of the game." The state will negotiate trade
agreements that support "solidarity amongst peoples," promote
Bolivian export diversification, and protect the domestic
market. International cooperation will be aligned with state
priorities.

Elimination of Independent Regulatory System
--------------

10. (U) According to press reports following the plan's
release, the GOB will eliminate the six independent
regulators -- hydrocarbons, electricity, telecommunications,
transportation, basic services (water and sanitation),and
forestry -- created by law in 1995 during the process of
privatization of state-owned enterprises. Regulatory control
would pass to the relevant ministries by January 2007, after
the approval of a new law.

GOB Take-Over of Partially Privatized Companies
-------------- --

11. (U) Press reports about details of the plan not discussed
by Villegas indicate that the GOB intends to take control of
nine companies that were partially privatized in the 1990s --
three hydrocarbons (of which two, Chaco/Pan-American and
Transredes/Prisma, have U.S. investment),two railways (of
which one, Ferroviaria Oriental/Genesee and Wyoming, has U.S.
investment),three electricity companies (of which one,
Corani/Duke, has U.S. investment),and one telecommunications
firm (the GOB intends to increase telecoms coverage and
assure that all schools have Internet and communications
services). The hydrocarbons take-overs were announced
previously in the May 1 decree, after which the GOB named
company board members (ref A). The GOB intends to take the
same tack with the other six capitalized companies -- take
control of the collective capitalization fund which was held
in trust to pay Bolivian citizens' pensions (which accounts
for roughly 45 percent of company shares),purchase the
balance of shares needed to control 50 percent plus one share
from the private investors, name 4 out of 7 board members for
each company, and delegate operating control to either a
private or GOB-controlled entity. (Comment: These measures
will mean significantly more state control over the
decision-making in these sectors. The state is likely to
manage these enterprises for political gain by providing
subsidized services to the poor while neglecting profit and
long-term sustainability. End comment.)


12. (SBU) Comment: The long-awaited GOB plan contains several
lofty, laudable goals with respect to poverty elimination,
job creation, and expanded services access. However, the
plan lacks a realistic explanation of how these goals can be
achieved, or how the state would maintain a low deficit while
substantially increasing spending, or how Bolivia would
continue to attract foreign investment after partially
nationalizing the hydrocarbons and other sectors. The
government has also paradoxically guaranteed Bolivians that
it will continue to pay their pensions, even though it has
taken over the fund dedicated to such use and will use the
funds for other purposes. Also, the elimination of the
independent regulatory system and increased government
control over electricity, telecommunications, and
transportation seems to leave the door wide open for
increased corruption and deterioration of the progress made
in expanding services in these areas over the past decade.
End comment.
GREENLEE