HOLY FRIJOLE: BOLIVIA'S ALBA TRADE PLAN

C O N F I D E N T I A L LA PAZ 001146


SIPDIS

USTR: BENNETT HARMAN; DOC: JULIE ANGLIN; CARACAS: MHAMILTON

E.O. 12958: DECL: 08/04/2019

TAGS: ECON ETRD PREL KTEX BL CU VZ IR EAGR

SUBJECT: HOLY FRIJOLE: BOLIVIA'S ALBA TRADE PLAN

REF: A. LA PAZ 934

B. LA PAZ 867

C. LA PAZ 806

D. CARACAS 748


Classified By: A/ECOPOL Chief Holly Monster for reasons 1.4(b, d.)


1. (C) SUMMARY. This is part two of a three-part series on
the trade and economic situation in Bolivia. While Bolivian
President Evo Morales continues to alienate his neighbors
(ref C) his government publicly continues to rely on
Bolivia's membership in the Bolivarian Alternative for the
Americas (ALBA) and its People's Trade Agreement. ALBA was a
creation of Venezuelan President Hugo Chavez to counter U.S.
Free Trade Agreements (FTAs) in the region. Despite Morales'
claims of socialist success, analysis of Bolivia's trade
balance and trading partners reveals that ALBA's economic
influence remains relatively insignificant, particularly in
light of Chavez' financial dire straits (ref D). Cuba remains
a crucial symbolic member of the group, but Bolivian exports
to the country (black beans and fuel oil) are heavily
subsidized, despite the fact that Bolivia's purchasing power
parity (PPP) of Gross Domestic Product (GDP) per capita was
less than half of Cuba's in 2008. Other ALBA countries have
little to no influence, while neighboring Peru, Brazil and
Argentina stay on top. Israel's quinoa demand tops Iran's
boron requirements, while China and South Korea quietly move
up the ranks importing Bolivian minerals. END SUMMARY.

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CUBA: A LITTLE LESS CONVERSATION, A LITTLE MORE ACTION
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2. (C) After several years of exporting minuscule amounts of
cooking oil and chocolate bon-bons, the first quarter of 2009
showed a change in exports to Cuba. The total was
approximately $30,000. There were no chocolate bon-bons, but
rather copious amounts of black beans being exported to Cuba.
Bolivia does not produce many black beans, but average price
per kilo to other countries, such as Spain and the U.S., show
a price double the price given to Cuba. Econoff followed up
with the export chamber, whose president told her that the
GOB is buying the beans from Bolivian producers and then
subsidizing the cost to Cuba. In 2008, Cuba's PPP of GDP per
capita was $9500 according to the CIA factbook, whereas
Bolivia's came in at $4500. Bolivia also did not export their
usual amounts of soy beans, which is good news for U.S.
producers who compete for the Cuban market.

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VENEZUELA: PROMISED LAND
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3. (U) Soy products, however, remains flowing in bulk to
Venezuela. Soy is the number one export to Venezuela,
accounting for 51 percent of exports to the country at a
value of $23 million dollars the first quarter of 2009 alone.
Sunflower products and textiles came in second, each with a
total of around $7 million dollars. Total exports to
Venezuela were $45 million dollars.


4. (C) Morales totes a "success story" in Venezuela, for
creating a market for textiles after the 2008 suspension of
the Andean Trade Promotion and Drug Eradication Act (ATPDEA)
caused Bolivian exporters to face a 19 percent tariff on
textile goods send to the United States. Textile companies,
however, complain the plan has been a complete failure.
Ametex, Bolivia's largest textile producer, laments that the
GOB did a poor job negotiating with Venezuela's Suministros
Venezolanos Industriales (SUVINCO) to purchase excess
product. The company says that "regardless of the many
negotiations...no sales have ever taken place."


5. (C) On August 3, the GOB publicly announced that it had
struck a new deal with the Venezuelans. The process will now
entail the GOB's monetization program, Insumos Bolivia,
working with SUVINCO to find markets for Bolivian goods. The
Venezuelan purchasing client will pay money to SUVINCO, who
will export Venezuelan products to Bolivia. Insumos Bolivia
will monetize the Venezuelan products, then pays the Bolivian
exporter, who is responsible for shipping their own goods.
Ametex contacts say the plan is as convoluted as it sounds
and they will not rely on it. Since Morales took office, the
company has faced a 60% drop in purchase orders. Its
employees were cut from 3,000 to 1,900, including 85
administrative positions. It still has 500,000 garments in
overstock, but does not anticipate it being sent to Venezuela.

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THE REST OF ALBA
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6. (C) While ALBA membership continues to grow, its economic
impact remains stagnant. Exports to Ecuador for the first
quarter of 2009 were $1.3 million dollars, mainly in soy
goods, meat and corn. Honduras was similar to Cuba, with only
$22,000 being exported, in voltage regulators and light
fixtures. Other ALBA countries, such as Nicaragua and
Dominica, saw no trade with Bolivia at all.

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CHILE, PERU, BRAZIL & ARGENTINA
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7. (C) Even taking out natural gas (septel),Brazil and
Argentina still remain key markets for Bolivian goods.
Combined with Peru and Chile, the first quarter of 2009 saw
exports of $72.6 million dollars to the four countries.
Despite Bolivia's constant diplomatic struggles with Peru, it
exported $31.3 million dollars in goods to Peru in the first
quarter alone. Bolivia's neighbors have legitimate, not
created, markets in diverse industries ranging from steel to
quinoa to bananas.

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IRAN, ISRAEL, CHINA & SOUTH KOREA
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8. (C) Despite high-level talks promoting a strong commercial
relationship between the two countries, Bolivia still has
only exported $26,000 dollars worth of goods to Iran for the
first quarter of this year. (ref B) Israel, however, imported
over $300,000 dollars worth of Bolivian goods during the same
period, mainly altiplano-produced quinoa. (NOTE: Morales
expelled the Israeli diplomatic mission after the January
2009 Gaza Strip conflicts and continues to strengthen its
ties to Iran. END NOTE.) China's economic influence has also
been in the spotlight, and Bolivia exported $9.8 million
dollars in goods to China in the first quarter. Nearly all
exports to China were for construction purposes, including
steel and wood planks. South Korea, however, has slowly been
becoming a major trading partner for Bolivia. Its demand for
Bolivian zinc was worth $84 million dollars for the first
quarter alone. Textile exports continue to shrink to South
Korea, with only $185,000 of goods being sent for the first
quarter.

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COMMENT
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9. (C) Morales continues to make political decisions instead
of economic ones when it comes to Bolivia's trading partners.
ALBA's forced economic relationship creates weak links to
non-growth markets, particularly in textiles to Venezuela.
Despite the best efforts of the Morales administration, there
has yet to be a solid replacement for the U.S. market in
textiles (ref A). Low-cost and low-quality textile production
should likely be abandoned and investment put into other
crucial Bolivian industries, particularly minerals, soy and
quinoa. Mending relationships with Peru and providing further
inputs for its growing economy could help reduce a dependency
on uncertain exports of natural gas to Brazil and Argentina,
who are actively trying to wean themselves into a more
efficient energy source for the future. Globally, even if
Bolivia can compete with labor costs, its moratorium on
foreign direct investment, treatment of private property, and
testy stances on free trade will likely cause many buyer
countries to realize that bargaining with Morales might not
be worth the trouble. END COMMENT.
CREAGAN