Latinnews Archive
Latin American Economy & Business - 15 December 1978
STATE INVESTMENT: Bolivia faces battles over public investment projects
Bolivia's new government is under political pressure to do as little as possible until a constitutionally elected government is put in its place. There are equally persuasive economic forces, among them the World Bank and the IMF, calling for immediate action. The main battlefield for this dispute is likely to be state investment.
The new government of General David Padilla Arancibia is under increasing pressure to push ahead with investigations of widespread corruption during the regime of former Presidont Hugo Banzer. Under the short-lived rule of President Juan Pereda Asbun some baby skeletons appeared from the cupboard last month, when it was announced that 3,000 public officials were being prosecuted as part of a clean-up of the public adminisration. This campaign has been directed mainly against the customs, which had become rife with corruption as smuggling soared under Banzer.
Misallocation
The opposition is now pressing for an investigation into the much more serious matter of Banzer's huge public investment programme, and the alleged rake-offs from it. But even if the governent decides not to pursue these enquiries it is saddled with a legacy of extensive misallocation of public investment. Because ef the deteriorating economic situation, Padilla may be unable to postpone important decisions affecting the public sector until after the elections to be held in July.
Booming oil and tin prices pushed Bolivian exports from US$200m to US$700m during Banzer's administration. Much of this windfall income was ploughed into large-scale development projects, which had little impact. The optimistic oil, gas and mineral projections in Banzer's five-year plan have fallen flat. Further Banzer administration projects, costing a total of US$2,300m, are awaiting approval and are now the focus of opposition criticism. In a 'white paper on the achievements of the armed forces', however, Banzer has maintained that these investments were guided by the criteria of economic efficiency. The paper points out that the share of investment going to the productive sectors rose frorn 38% in 1970 to 48% in 1977.
Increasing criticism
Criticasm of the decisions on investment taken under Banzer surfaced during the Pereda government and can be expected to increase under Padilla. Miners' leader Juan Lechin Oquende has been outspoken in his denunciation of Banzer's 'economic crimes', and on 28 November the national trade union organisation, the Central Ohrera Boliviana (COB), announced that it would formally request the presecution of Banzer. The left-wing Frente Revolucionario de Izquierda (FRI)has accused Banzer of misuse of public funds, illegal self-enrichment and involvement in dubious deals. Ex-President Pereda referred to the issue at the beginning of last month, when he said that the country's resources should not be managed according to family or group interests.
Revelations about the mechanics of investment decision-making under Banzer have come from his former sub-secretary of planning, Enrique Garcia. In an article in Presencia, Garcia has claimed that most public investment projects were not evaluated according to standard technical procedure. In some cases projects were even approved by decree without any studies. Garcia has pointed to a coalition of four pressure groups which effectively overrode any chance of independent decision-making. These were the transnational companies selling machinery and technology for projects; their local representatives in Bolivia; local promoters of projects in the public sector, who were often in the pay of the transnational companies; and regional pressure groups keen to attract projects to their area at whatever social cost.
According to Garcia, Banzer approved a series of projects which had minimal impact in terms of job creation, or improving the distribution of income. On the contrary, they produced serious economic problems which are only now coming to light, by widening the public deficit, worsening the balance of payments and increasing the foreign debt burden.
Smelter project
In particular, Garcia has criticised the US$162m Karachi-Pampa lead and silver smelter project at Potosi, which was negotiated during the Banzer government and passed by decree by Pereda on 10 November. The project will be implemented by Klockner of West Germany which did the feasibility study. Negotiations for this contract began in 1975 in Moscow under the ambassadorship of Raul Lema Patino, whose brother-in-law, Arturo Pabon, is Klockner's representative in Bolivia.
Criticism of the contract is directed at the escalator clause under which Klockner can raise the final price to the government because of inflation. This detail provoked the resignation of central bank president Jose Justiniano, who protested that it stripped the government of control over the final price. Critics have also attacked Klockner for not disclosing that their technology has been tested only on pilot copper-smelting plants in the USSR; it has never been proved for plants of the size of Karachi-Pampa (LACR II, 43).
Criticism has also come from Rolando Prada, former head of the troubled state petroleum company, YPFB. Prada was himself under attack for diverting YPFB's resources out of exporation and into refining. As a result, Bolivia now has more modern refineries than it can use. Production has grown so slowly that Bolivia has stopped exporting oil (LAER VI, 41). But Prada, apparently in an effort to save his own skin, now blames the critical state of YPFB on Banzer. He claims that Banzer starved YPFB of funds by refusing to raise domestic oil prices and by over-taxing the company.
The national confederation of private employers, CEPB, added fuel to the flames in late November by issuing a self-confident document critcising Banzer's economic record and putting its own recommendation to the government. Signatories included mine-owner Gonzalo Sanchez de Lozada and a former finance minister, Carlos Calvo. They rejected devaluation but, in line with IMF and World Bank thinking, supported the controvesial sale of gas to Brazil (LAER VI, 44)and called for a rise in the domestic petrol price and a new oil exploration programme in order to boost exports.
The CEPB recommended the immediate suspension of several public investment projects generated by Banzer, on the grounds that they would only worsen the balance of payments. Among these is Santa Cruz's proposed new international airport a Viru-Viru, which is backed by powerful regional interes& keen to expand the area's booming contraband trade. The document also called for the suspension of work on the KarachiPampa project, the Mutun steel project, the petrochemical programme, and a zinc refinery. According to the opposition, Banzer has a financial interest in the implementation of these projects.
Padilla's caretaker government now has the delicate task of handling the deteriorating balance of payments while postponing major economic decisions for the next six months. Exports have been hit by the suspension of oil exports and by the drop in tin prices; meanwhile imports continue to rise sharply through the implementation of Banzer's investment programme and the boom in smuggling. As a result, international reserves have fallen to US$145m, while the debt service commitment for 1979 is estimated at US$300m, equivalent to more than 30% of projected foreign exchange earnings.
Against devaluation
Like his immediate predecessor, Padilla is against devaluation. In addition to the usual political reasons, there is a technical argument, since the real value of 30%, of the money supply which is in the form of savings deposits is already protected against devaluation by indexation clauses. A partial refinancing of the foreign debt without too many strings would suit Padilla.
The head of the IMF western hemisphere department, Walter Robichek, was in La Paz last week and offered IMF assistance. The conditions exacted could include a doubling of the domestic gas price and a severe pruning of the public investment programme, both measures recommended by the World Bank (LAER VI, 44)and endorsed by the CEPB. However, they would also upset the fragile poltical equilibcium which Padilla is trying to preserve. A decision on the gas sales to Brazil has already been postponed until after the elections.
Padilla's reluctance to effect any major change in the state sector until elections are held will be strengthened by the structure of the Bolivian economy, The public sector already controls 70% of mining output, and has a monopoly of engineering, steel-making, petroleum and the railways. Following the establishment of the military development agency, Corporacion de las Fuerzas Armadas para el Desarrollo Nacional (Cofadena), in 1974, the state has expanded into other areas of production.
The Corporacion Boliviana de Fomento (CBF)was set up in 1955. ostensibly to start up industrial companies which would be sold to the private sector. Six such companies have been established, but none of them has yet been sold off. On the contrary, CBF has bought 24 bankrupt private companies in order to avoid unemployment.
| *2*Bolivian state entities' foreign debt | |
| *2*(Outstanding 30th June 1978) | |
| US$ m | |
| Yacimentos Petroliferos Fiscales Bolivanos | 341 |
| Development banks | 184 |
| Corporacion Minera de Bolivia | 114 |
| Corporacion Boliviana de Fomento | 109 |
| Empresa Nacional de Ferrocarriles | 104 |
| Local Government | 102 |
| Empresa Nacional de Electricidad | 86 |
| Empresa Nacional de Fundiciones | 81 |
| Lloyd Aereo Boliviano | 58 |
| Empresa Nacional de Telecomunicaciones | 39 |
| Other public sector | 127 |
| TOTAL | 1,345 |
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