‘Evonomics’ Gets a Second Term in Bolivia

January 5, 2010

If election results are a measure of public support for a president’s economic policies, then Bolivia’s Evo Morales got a massive sign of approval December 6. The nation’s first indigenous president was easily elected to a second term with 63% of the vote, almost three times as much as his nearest competitor.

This is a huge win in a country where, for decades, presidents were regularly elected to office with less than a quarter of the popular vote. Part of Morales’s success is connected to Bolivia’s stunning macroeconomic performance under his administration, thanks largely to new taxes on gas and oil revenues, together with a hydrocarbon price boom in 2005–07. GDP growth in 2008, in the face of a global recession, surpassed 6%, and the government boasts foreign currency reserves totaling more than $8 billion. In October, this success garnered the leftist Morales administration praise from an unlikely source: officials at the International Monetary Fund.

“Bolivia was prudent in saving part of the windfall during the expansion period,” Gilbert Terrier, a senior adviser in the IMF’s Western Hemisphere Department, said in a press release. “That has allowed the country to apply a counter-cyclical fiscal policy in 2009, including more public investment to support internal demand and the social protection network.”

Ironically, it was the IMF that for years pressured Bolivian politicians not to raise taxes on foreign oil companies, warning that they would chase away investors—even as it demanded dramatic reductions in the country’s budget deficit. But the tax hikes demanded by Bolivia’s social movements did not send investors packing. They instead generated enough new revenues to not only eliminate Bolivia’s budget deficit but also to run surpluses three years in a row—thanks in part to good timing, since the new taxes took effect just as global oil and gas prices soared.

Morales aimed the new funds directly at his political base among the rural and the poor, establishing three new cash-transfer programs. One gives payments to children in the country’s public schools, providing an incentive for poor families to keep them there instead of pulling them out to work. Another is a revamped version of a pension program for the nation’s elderly. A third gives cash to pregnant women.

The government also invested heavily in public works, with Morales attending ribbon-cutting ceremonies across the country. More than 1,000 tractors have been distributed to farmers, 840 miles of roads have been paved, 545 clinics and health facilities have been constructed, and water connections for 821,000 people have been financed, according to the government.

All this was a far cry from Bolivian policies of the 1980s and 1990s, when the country was a poster child for the market fundamentalism of the Washington Consensus. South America’s poorest country did it all: It sold off state-owned enterprises—the airline, the trains, the phone company, the electric company. It handed over the country’s lucrative petroleum industry to the likes of Enron and Shell. And it famously handed over the public water system of its third-largest city, Cochabamba, to the California engineering giant Bechtel.

These reforms were supposed to be the country’s meal ticket to greater prosperity, but the real effect was to transfer wealth to foreign corporations and to a rich Bolivian elite. Meanwhile, public oil and gas revenues plummeted, the trains stopped running, the airline went bankrupt, and the gap between rich and poor predictably widened.

In 2000 a public revolt in Cochabamba sent Bechtel back to San Francisco and lit the fuse of a national rebellion against Washington’s economic recipe. In the years that followed, protests filled Bolivia’s streets, blocking an IMF-mandated tax increase on the poor, stopping new plans to sell off the country’s oil and gas at bargain prices, kicking out another foreign water company, and finally ousting the president who had led Bolivia’s wave of privatization, Gonzalo Sánchez de Lozada.

Morales, a leader of the nation’s coca growers, participated in many of these battles but did not lead them. Then, in 2002, during his first campaign for president, Morales ran on a platform of economic change, transforming himself into a ballot-box expression of what had already been demonstrated so powerfully in the streets. His newfound platform helped propel him to a close second-place finish.

After Morales won the presidency in a second try in 2005, gas and oil formed the centerpiece of his economic agenda. Campaigning under the banner of “nationalization,” he moved quickly to assert a more central role for the state in exploiting the country’s formidable petroleum resources. On May 1, 2006, in a burst of nationalist symbolism, Morales sent soldiers to the country’s major oil and gas installations and declared them “nationalized.” From a distance it looked like a pretty radical act.

But after the troops and the TV cameras left, it turned out that the government’s policies weren’t all that radical. Morales’s reforms amounted to a renegotiation of the country’s multiple contracts with foreign oil companies, an increase in taxes on those firms, and a reestablishment of the public oil and gas company (YPFB), along with a declaration that the Bolivian government wanted “partners not masters.”

To be clear, Morales’s policies have drawn criticism from diverse corners. The conservative opposition has demanded that Morales pass an even greater share of national revenue down to the regional departments (the states), many of which are controlled by opposition governors. But the departments have already received a substantial boost in revenues and have had trouble spending what they have.

Many on the left have charged that Morales’s gas and oil program falls far short of the true nationalization envisioned for decades, and that it does not position Bolivia to industrialize its resources instead of selling them as raw product. A well-known economist I spoke with, who has long ties to Bolivian social movements—and who, like others on Bolivia’s left, prefers not to publicly criticize Morales for fear of retribution—also warns of deeper problems. He argues that while Bolivia is putting its cash reserves into U.S. Treasury bonds (an irony for a government critical of U.S. policies), it is borrowing other funds at high interest to finance public services.

“The government is getting itself back into debt with the World Bank, with foreign banks, and with the national pension fund,” he complains.

He and others also warn that the boom in gas and oil revenues is not permanent and that the Morales government has focused on quick public handouts instead of a more long-term strategy for investment, one that can genuinely tackle the country’s deep and lingering poverty.

The Morales government also suffers from ongoing accusations of corruption, including a series of major scandals in the reconstructed national petroleum company. In November, Transparency International concluded that the country’s chronic corruption problems (which precede Morales) are getting worse, rating Bolivia seventh from the bottom among 31 countries in the Americas, a deep drop from prior years.

While critics may debate the impact of Morales’s policies, for many Bolivians the question is a simpler one about identity. In a country where a wealthy elite has long ruled over a poor and indigenous majority, that majority sees in Morales a president who for the first time shares its experience and voices a clear commitment to addressing its needs.

Shortly before the December vote, I asked Adela Rojas, a small shopkeeper and old friend, if she still supported Morales.

“Absolutely, until the end.”


“Because Evo is us and we are Evo.”

“And can you think of any way that your life has improved since Evo has been president?”

“No, not really.”

That identification with Morales, and patience with his economic policies, may not last if she and others don’t feel concrete results soon. But for now, “Evonomics” has done enough to help the president win a new historic majority and second term—not to mention applause from the IMF.

Jim Shultz is the executive director of the Democracy Center in Cochabamba, Bolivia, and editor, with Melissa Draper, of Dignity and Defiance: Stories From Bolivia’s Challenge to Globalization (University of California Press, 2009).


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