EVO: OPPOSITION WAGING ECONOMIC WAR

C O N F I D E N T I A L SECTION 01 OF 02 LA PAZ 003038 SIPDIS SIPDIS E.O. 12958: DECL: 03/07/2017 TAGS: ECON PGOV PREL AGR AADP FAO FAS IFAD IICA BL SUBJECT: EVO: OPPOSITION WAGING ECONOMIC WAR Classified By: Ecopol Chief Mike Hammer for reasons 1.4 (b) and (d). -------------- Summary -------------- ¶1. (C) President Evo Morales declared in a November 15 speech that opposition forces are trying to sabotage his administration through economic means. As a defensive measure in this "economic war", Morales temporarily eliminated the tariff on key agricultural imports, prohibited the exportation of wheat, rice, corn, and meat, and transported 15 tons of beef to La Paz from the northeast to distribute at below market prices. Exporters will also now be required to register all sales abroad of basic agricultural products with the government. The administration blames the opposition for "suspicious inflation" and economic disruptions and is trying to set itself up as the defender of low prices and economic stability. End Summary. -------------- Conspiracies Abound -------------- ¶2. (SBU) Rather than address the economic forces that will likely push inflation past 12% this year, Morales prefers to blame the "imperialists" and "oligarchs" who are conducting economic warfare on his administration through "suspicious inflation, speculation, and the raising of prices on some products like flour, corn and meat." He claims to see similarities in Bolivia to Isabel Allende's account of how the right wing, with transportation stoppages and the killing of cattle in the fields, destabilized the Allende Presidency in Chile. He also points to Venezuela, where the private sector tried to topple Chavez with economic stoppages. According to Evo, despite calls within his party for increased nationalization in the transport and intermediary sectors, he doesn't see the need yet, but he did inform his ministers to prepare to confront economic stoppages. -------------- Measures Taken -------------- ¶3. (C) Through powers granted in a series of decrees, government intervention in agricultural markets continues to expand. First, tariffs will be eliminated on rice, corn, soy oil, wheat, and beef until May 2008 and exports of those same products will be frozen. While this may provide temporary relief through imports, it is likely to have a negative impact on local production. For example, rice farmers are now preparing for summer planting, but without tariff protection during the harvest season many claim to be contemplating cutting back on their seeded acreage. As to soy producers, (the heart of political resistance in the agricultural sector) Archer Daniels Midland Company (ADM) executive, Maria Alejandra Molina, said that tariff elimination would not impact the business in a substantial way because the local markets are already flooded with contraband production. ¶4. (C) Of greater concern to ADM was the new requirement that exporters register exports of basic agricultural products with the Ministry of Production and Small Business (MPM). They saw this as yet another government hurdle to doing business and attempt to further control the private sector. As with other recent decrees, it is currently difficult to say exactly what the impact will be because the actual procedures and norms that define the decree will not be issued for another month. In defense of the measure, Pablo Rabczuk, the Viceminister of Exports, commented that the government wanted more official information in order to not "place at risk our food security". ¶5. (C) Lastly, the government is casting increasing inflationary blame on middlemen. Susana Rivero, the Minister of Rural Development, Livestock, and the Environment claims that there are far too many people in the food distribution chain. To illustrate her point, the government shipped 15 tons of beef to the La Paz area for distribution at cost to LA PAZ 00003038 002 OF 002 associated butchers. The measure was popular in the local market, where the reduction in price to the consumer was around 30%. The government plans similar programs in Cochabamba and Santa Cruz over the next three weeks. Rivero also foresees additional future actions and even contemplates creating "popular meat lockers" for a government distribution network. -------------- Economic War Not Just In Agriculture -------------- ¶6. (C) While recent actions have centered on the agricultural sector, Morales may be setting himself up to use economic disruptions for increased intervention in the electricity sector as well. Power shortages are a likelihood for the coming winter (June or July),and Jose LaFuente, General Manager at Corani Electrical Company (a subsidiary of Econergy, headquartered in Bolder, CO) fears that the government will use the shortages as an excuse to nationalize the business. Unfortunately, he sees Corani as caught in a catch 22. On the one hand, the government has threatened that if sufficient investments are not made to supply the market the company will be nationalized. In fact, in a March meeting, Minister Villegas told Corani specifically that if they did not invest, the government would take control (there have been no government communications since, despite company efforts). But on the other hand, with this threat of nationalization, Corani is hesitant to make any investments to boost energy production. LaFuente said they "want" to invest, however plans for a $10-15 million dollar generator are on hold. Much as rising prices provide an excuse for increased government interference in agriculture, blackouts may result in additional government intervention in the electrical field. -------------- Comment -------------- ¶7. (C) Bolivia is headed for choppy, economic waters. Gas production, the backbone of much of the economy, is under increasing strain, inflation is headed toward a yearly total of over 12%, and current diesel shortages are hampering the summer planting season in the East. We heard again today from an opposition figure that the economy is "Evo's Achilles heel." In fact, the opposition is counting on economic troubles to erode Morales' popularity, still hovering around 60 percent. ¶8. (C) Morales is taking the lead by blaming the private sector and saying that they are out to create an economic war to oust him from power. While it may not be a stretch to blame the opposition for the failure of the Constitutional Assembly and call it "political war;" it is absurd to blame inflation on your opponents and call it "economic war." But, this message resonates with Evo's base. Morales is a master at blaming others for any problem and he is now positioning himself to blame economic failures on the sectors of society which oppose his administration. Rising economic difficulties are a given, who takes the blame is not. GOLDBERG