How a series of blunders ruined a Latin American socialist success story | International

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For years Bolivia was considered the Latin American socialist country that achieved an elusive combination of economic growth, low inflation and declining poverty.

The political capital of La Paz is a monument to those go-go days. A 19-mile cable car network — the world’s largest — connects the maze of cliffs and canyons that comprises the city at 12,000 feet above sea level. The gleaming presidential tower soars 25 stories over downtown. A giant legislative headquarters can be spotted from all over the city.

It was all paid for by a boom in natural gas exports. Then it all imploded, taking Bolivia’s socialist dream with it.

To blame is a series of miscalculations and unsustainable policies made since the turn of the century. A lack of investment and exploration of gas fields ultimately tanked production, resulting in today’s nationwide diesel shortage.

“We thought we had a Qatar of gas,” said Franklin Molina Ortiz, who was Bolivia’s energy and hydrocarbons minister for more than three years under President Luis Arce until earlier this year. “We weren’t looking at the correct numbers.”

What’s more, fuel subsidies — which make gasoline even cheaper than in Saudi Arabia — have drained foreign reserves and led to a black market for scarce dollars. The nation’s fiscal deficit is at an all-time high and economists are ringing alarm bells over the risk of an inflation spiral. And Bolivians are getting squeezed.

Any fallout from what happens would only build on the chaos in a region already going through unrest and add to the flood of migrants that has created social tension throughout the Americas. In neighboring Argentina, more than half of the nation now lives below the poverty line. In Venezuela, citizens are demoralized after a highly contested vote and intense wave of repression by President Nicolas Maduro. In Ecuador, transnational drug gangs have unleashed a wave of violence that is undermining the rule of law and the wider economy. More disruptions can reverberate throughout the region, and even reach the US border.

None of it bodes well for Arce, who has denied accusations that he staged an attempted coup in June to boost his popularity. There’s now speculation he won’t last the remainder of his term as his constituents grow more and more agitated. The country’s next election is in August 2025.

Just visit a gas station outside La Paz to see how tough things have gotten.

There, a line of flat-bed trucks and semis stretches for more than a mile because the government doesn’t have enough cash to keep subsidized diesel flowing.

“We’ve been here since five in the morning and we’re not even getting close to the front,” said Fortunado Paco, 74, who has never seen these kind of shortages in the 40 years that he’s been driving trucks. “We’ve protested because the current government needs to resolve this.”

In Bolivia, income has stagnated at 2,800 bolivianos ($405) per month, slightly lower than in 2015, according to the Millennium Foundation. Long lines snake around state-run grocery stores as families wait for the limited supply of subsidized food products. Strict limits on sending money overseas have left Bolivians with families abroad financially trapped.

Isolated protests have been going on for months and Bolivian transporters are threatening to go on strike and block roads to effectively shut down the mountainous nation.

“The administration of Luis Arce is taking us into an economic disaster,” said Hugo Domingo Ramos, the head of a heavy transport federation. “There's no gasoline, there’s no foreign currency, there are no jobs. We’re in a state of emergency.”

Arce’s Plan

From an elegant meeting room in the presidential tower with carved wooden doors and a huge painting of revolutionary heroes including Emiliano Zapata, Fidel Castro and Hugo Chavez, Arce projected calm. He faulted his former mentor and ex-President Evo Morales for the crisis.

When Morales overhauled the natural gas industry in 2006, he raised taxes so much that oil majors including TotalEnergies SE, Repsol SA, Shell Plc and Petroleo Brasileiro SA simply produced from the wells they had already drilled instead of spending to increase output at existing fields or trying to find others.

The government was also using overly optimistic calculations of how much gas it had already discovered and gave little thought to the necessary investments to keep output stable for the coming decades.

Production eventually started to tank and Bolivia became a net energy importer in 2022. That has collided with surging demand for subsidized energy that Bolivia can no longer afford.

“The biggest problem we have faced is that no exploration has been done,” said Arce. “There’s this decline in the oil and gas fields, and on the other side, an increase in domestic demand.”

Plus, the country passed on opportunities to diversify into other industries such as lithium, steel and agriculture.

But he is confident Bolivia is on the cusp of a turnaround.

Thanks to exploration started during Arce’s term, the national oil and gas company could start producing from a mega-field as early as 2026. Investments in steel, agriculture and biofuels are starting to kick in and will carry the country through the current adversities, he said.

Arce is also busy building biodiesel plants that can even recycle home-cooking oil into motor fuel. According to him, three of these plants will replace 60% of diesel consumption in Bolivia by the end of 2026.

The lines that truckers like Paco have been stuck in are sporadic inconveniences that will be resolved with imports from politically aligned exporters including Russia.

“We’re good. We’re growing,” Arce said. “It’s a temporary crisis.”

Too Far Gone

Not everyone buys into the president’s promises.

The mega-field that Arce talks about still needs more exploration to determine if it is commercially viable, and Bolivia failed to develop its vast lithium reserves when prices were high, said Diego von Vacano, a Bolivian who teaches political science at Texas A&M University and served as an informal adviser to Arce at the start of his term.

Bolivia has signed lithium deals with Russian companies that lack proven track records in the industry, while shunning US and European companies with more experience, von Vacano said.

For a nation of just 11.3 million, Bolivia still has outsized natural resource potential that could resolve the current economic pain. There are some wildcatters and criminal groups who don’t pay taxes and produce billions of dollars worth of gold. Limited technology means the country isn’t able to extract lithium at industrial levels, nor can it process iron ore, meaning it’s leaving profit on the table. Vast wind and solar potential remains largely untouched. Bolivia’s mountains, jungles and archaeological sites offer potential to make it a much larger tourism destination than at present.

“We could have resolved this problem,” said Cecilia Isabel Requena Zarate, an opposition senator on the climate committee. “We could have diversified more.”

Analysts and opposition lawmakers say the fuel subsidies and artificially strong exchange rate are unsustainable. Bolivia fixed the exchange rate in 2011 to trade between 6.86 to 6.96 per dollar. But given the shortage of greenbacks, it now costs more than 10 Bolivianos to buy a dollar on the black market.

“At this moment, the Bolivian economy is entering a crisis or is already in a crisis,” said Mauricio Medinaceli, a researcher and former Bolivian hydrocarbons minister who recommends a gradual elimination of fuel subsidies. “What’s needed right now is damage control.”

Still, Arce is in no rush to lift subsidized fuel prices, which Bolivians see as a birthright. He’s not alone: Last year countries spent a staggering $616 billion on fossil fuel subsidies to stave off civil unrest and prop up their economies.

Former President Morales had attempted to roll back the handouts in 2010, but swiftly abandoned the idea after it ignited nationwide protests.

“The opposition is pushing me to take the same measure, so that I will have the same social problems that we had in 2010,” said Arce, who is organizing a national referendum so Bolivians can decide for themselves if the subsidies stay or go. “We want to take this issue to the people.”

Gasoline in Bolivia costs 54 cents a liter, less than 62 cents in Saudi Arabia and 94 cents in the US, according to Global Petrol Prices, a website that tracks energy costs.

On Oct. 7, Arce ordered a militarization of the border to halt the flow of subsidized fuel and food outside the country, where those goods can be sold for profit.

In the Sand

It isn’t just working-class truckers like Paco suffering from Bolivia’s economic spiral.

Upper-class families in posh southern La Paz are scrambling to get foreign currency to children studying abroad. As a result of the dollar shortage, banks and money transfer services have put strict limits on how much each person can send, and how much each Bolivian abroad can receive. It can be a logistical struggle just to get $500 a month to children overseas.

Some parents are petitioning the economy ministry to just let them pay for their kids to study in the US, Europe or Asia. None of them wanted their names published out of fear they would suffer blowback from the government.

One Bolivian national studying in South Korea went for two days without eating while the family dealt with foreign exchange bureaucracy, according to the parents.

The economy ministry declined to comment.

Arce’s advice is to buy cryptocurrencies instead of greenbacks as a way to sidestep the “temporary” currency crisis.

“He has his head in the sand,” said Texas A&M’s von Vacano. “His main objective is to remain in power.”

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How a series of blunders ruined a Latin American socialist success story | International

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