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National Agenda : Bolivia Testing Out 'Investment Shock' : President wants to make foreign investors and the public joint owners of six huge government-owned companies.


LA PAZ, Bolivia — In Bolivia, where two-thirds of the population lives in poverty, economics is always a burning issue. Now it is crackling, popping and throwing off sparks as Gonzalo Sanchez de Lozada stakes his presidency on a bold and controversial project aimed at making foreign investors and the Bolivian public joint owners of six sacred cows, government-owned companies that account for more than half of the country's economic activity.

The goal is to generate an "investment shock" that will help pull Bolivians out of their poverty--and perhaps give coca farmers an alternative to growing coca leaves, the raw material for cocaine. Bolivia is the world's No. 2 producer of coca, after neighboring Peru.

Sanchez de Lozada accuses his opposition of trying to undermine the plan because, he said, they are afraid its success will strengthen him and his party.

"I keep telling them, 'Don't be scared,' " the president said in an interview. "If we're really successful, it will be everybody's success, because there is no way a party can do this alone. . . . These big changes have to be (by) consensus."

Sanchez de Lozada, who took office in August, 1993, is giving a new twist to the privatization trend that has swept Latin America. Instead of selling off the six enterprises, the government will give them away.

It's called "capitalization."

Foreign investors will receive half-ownership of each company in exchange for a commitment to invest fresh capital up to the level of the company's value. The other half-ownership will be transferred in trust to individual pension funds for all Bolivian workers, according to the plan. The foreign investors will manage the companies, and private companies will manage the pension funds.

The six enterprises to be capitalized are the government's petroleum, electricity and telecommunications companies, its biggest smelter, its railroad system and its national airline. Economists estimate their total value at $3 billion.

With privatization programs in other countries competing for foreign capital, Sanchez de Lozada hopes his capitalization scheme will be more attractive to investors.

"In the classical privatization, you buy the assets," he said, "and then you have to spend a lot of money modernizing these assets." Instead, Bolivia wants the investors to put all the money into modernizing.

"Over five years that will almost double private investment, and you'll still maintain state investment," he said. "I'm not saying this is the silver bullet, but for five years you're going to have very high rates of growth."

He said the new investment will have a "multiplier effect" that will generate 500,000 new jobs. Other officials say the planned pension funds, to be modeled on neighboring Chile's privately administered retirement system, will also become a major source of growth capital as they accumulate future contributions.

Union members and pensioners staunchly oppose both the capitalization and private pension funds. On a recent afternoon, thousands of retired workers marched up the Prado, La Paz's busiest avenue, to protest the plan.

"Down with privatization," shouted Vidal Torres, 62. "Down!" responded a group of marchers. Torres predicted that if the country relies on a private pension system, "the retirees will be left in the street."

But Sanchez de Lozada said that a private system is the only way to guarantee funding for retirement pensions.

Bolivia is the poorest country in South America, with a gross domestic product that comes out to less than $1,000 for each of the country's 6.5 million people. After years of unstable democracy alternating with military dictatorships, the country's battered and mismanaged economy went berserk in 1985, with hyper-inflation of about 24,000% a year.

That year, former President Victor Paz Estenssoro took office. With Sanchez de Lozada as his planning minister, in charge of economic policy, annual inflation dropped to less than 15% in 1987. It is now running at 7.5%, one of the lowest rates in Latin America. Economic growth, however, has been far less impressive--about 4% a year.

To rise from its poverty, Bolivia needs more rapid economic expansion, and economists say that requires greater savings and investment. Sanchez de Lozada's capitalization plan will be "absolutely vital" for that, the president said. "This is like a locomotive that will drag the economy into the levels of growth which some of our neighbors have achieved."

But it will cost money to start up. Not only will the government receive no cash from selling the six sacred cows, but it is committed to assuming and refinancing nearly $800 million in debts owed by the companies.

Bolivians who defend government ownership insist that capitalization is just a way to disguise the privatization of strategic state enterprises. Others say the capitalization plan will take too long to pull investment into the country.

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