BOLIVIAN EXPORT BAN COULD DEVASTATE ECONOMY

C O N F I D E N T I A L SECTION 01 OF 02 LA PAZ 000638

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/19/2018
TAGS: ECON PGOV PREL FAS AGR FAO IFAD BL
SUBJECT: BOLIVIAN EXPORT BAN COULD DEVASTATE ECONOMY

REF: LA PAZ 589

Classified By: Acting EcoPol Chief Brian Quigley for reasons 1.4 (b),(
d).


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Summary
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1. (C) On March 19, President Morales issued a decree
banning the exportation of four types of cooking oil. If
maintained for any length of time, the move would destroy the
most important sector of the economy in the opposition
stronghold of Santa Cruz and force the withdrawal of American
firm Archer Daniels Midland (ADM). More than 80 percent of
cooking oil produced in Bolivia is exported and it represents
the third largest commodity export earner after hydrocarbons
and mining. The government justifies the move as a step
against inflation and unscrupulous oligarchs who are
exporting cooking oil instead of supplying the domestic
market. Reaction from the Santa Cruz producers was swift.
They promise to fight the decree through the local Santa Cruz
government and have announced a national congress of farmers
and oil producers on March 25 to determine further actions.
End Summary.

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American Investment Directly Affected
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2. (U) On midnight of March 19, the Bolivian government
banned the export of both crude and refined soy and sunflower
oils. These products are principally exported to the Andean
Community of Nations and represented some $200 million in
export earnings in 2007. Of Bolivia's total cooking oil
production, only between 15-20 percent is consumed
domestically. According to the General Manager of the
Chamber of Santa Cruz Exporters (CADEX),Oswaldo Barriga,
around 300,000 families could be left without work and eight
oil companies will be severely hurt by not being able to
export the 80 percent of production left over.


3. (C) For Archer Daniel Midland (ADM),one of the four
principal producers of seed oils in Bolivia, the losses could
mount quickly. The General Manager, Valmor Schaffer told
EconOff that at midnight trucks loaded for export were
stopped at the borders (despite having been loaded before the
ban) and ADM expects three shipping vessels in the next week.
Schaffer estimates that paralyzed trucking will cost the
company some $15,000 a day, while moorage costs for the ships
will run between $30,000 to $40,000 a day. Even greater
losses loom if contracts are canceled. Schaffer worries that
with prices for oil having risen by around 20% since some
contracts were signed a year ago, buyers may use delivery
delays as an excuse to cancel their orders. Losses would be
in the millions.

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The Government Justifications
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4. (SBU) The government has justified the ban as both a
fight against inflation and a move against unscrupulous Santa
Cruz businessman. The price of cooking oil has risen by
around 70% over the last year. By flooding the market with
oil previously destined for export, the government hopes to
drive down prices. Taking a more political stance, the
Minister of Agriculture, Susana Rivero, justified the ban by
saying that in 2007 oil production totaled 420,000 tons, of
which 70,000 went to the domestic market and 350,000 was
exported. She claims that in only the first two months of
2008, "the big businesses" have already sent more than
350,000 tones out of the country and little oil will remain
for domestic consumption. Rivero said that "you can't allow

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them to think first about business and not about the Bolivian
population."


5. (C) Schaffer, from ADM, did not know where the minister
was getting her figures. To him, they are completely false.
Moreover, he said that each month ADM crushes enough soy for
the domestic market in three to six days. What are they
supposed to do for the remainder of the month? Gary
Rodriguez, the general manager of the Bolivian Institute of
Trade (IBCE) is quoted as saying that he could understand
that that President Morales may not be aware that only 20% of
oil production is consumed domestically, but "it is the
responsibility of his ministers to be more in touch with
reality." Illustrating possible confusion (or deceit) within
the Morales Administration itself, Schaffer additionally said
that he was scheduled to meet with a high level trade
official on March 24 in order to finalize agreements to
better serve the domestic markets. He said meetings with
that same official earlier in the week had be amicable.
However, the move is not out of sync with past Morales
Administration actions that directly harm the productive
sector (Reftel).

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Reactions in Santa Cruz
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6. (SBU) Six private business associations took out a half
page ad in two national newspapers denouncing the ban and
accusing the Movement Toward Socialism (MAS) of using the
economy as a political weapon to hinder the autonomy
movement. The group assured that with these types of
actions, the MAS government is breaking any chance of
dialogue. A congress of farmers, producers, and all those
who are part of the agro industrial chain of production will
meet on March 25 to discuss further necessary actions.
Additionally, if the government does not rescind the ban,
local groups promise to go to the departmental government to
request the implementation of a new system with the power to
guarantee the production and exportation of their products.

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Comment
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7. (C) If left in place, the export ban would be a disaster
for the Bolivian economy in general, and catastrophic for the
department of Santa Cruz in particular. It is difficult to
say exactly what the Morales Administration hopes to gain
through this action. It is possible that they don't truly
understand the implications of their actions and will back
away from the ban over the coming weeks. What does seem
clear though is that the ban is yet another direct act to
both undermine the productive sector of Santa Cruz and,
perhaps, disrupt the department's plans to hold an autonomy
vote on May 4. Acts of defiance against the ban are nearly
certain if it remains in place. How the central government
then reacts will be critical to determining if the current
political crisis in Bolivia remains generally peaceful or
turns more violent.
GOLDBERG