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EDITORIALS: THE SATURDAY PAGE | ECON 101

Unnatural disaster

May 06, 2006

BOLIVIAN PRESIDENT EVO MORALES put his head in an oven this week and turned on the natural gas. There are only two likely outcomes: an explosion that ends his political career -- or a slow suffocation for his people.

Morales' decision to nationalize Bolivia's energy sector was hardly unexpected; he was elected in December after promising to do just that. But it was a disappointment nonetheless to those who had hoped he'd follow the path of wiser South American politicians such as Brazilian President Luiz Inacio Lula da Silva, whose leftist rhetoric keeps supporters happy while his more centrist policies keep the economy humming. Morales instead is running into the arms of Cuba's Fidel Castro and Venezuela's Hugo Chavez, a direction likely to impose a heavy cost on his impoverished nation of 9 million.

The problem with Bolivia is that it isn't Venezuela. The latter country has gotten away with energy nationalization because it wields a lot of power. As the world's fifth-biggest oil exporter, Venezuela is such a big supplier that companies have little choice but to accede to its demands. Bolivia has no such leverage. Its big resource is natural gas, which is harder to transport than oil, so typically it stays in local markets. Most of its gas exports go to Brazil, which recently discovered large domestic reserves.

Foreign companies have long been wary about investing in Bolivia, especially after the 2003 collapse of a project that should have assured a healthy future for the country. Spanish and British oil companies had proposed a $5-billion pipeline to carry natural gas from landlocked Bolivia to the coast of Chile, where it would be liquefied and shipped to Mexico and California. But the plan provoked furious protests in a Bolivian population still angry at Chile for seizing what used to be Bolivia's coastline in the 19th century. Morales helped lead the protest movement.

After investing $3.5 billion in Bolivia's natural gas industry, foreign companies are now likely to stop investing entirely unless Morales backs off from his plan to seize 82% of gas production from the largest fields. Their loss would be disastrous for Bolivia because its state-owned gas company is in no position to extract and export the gas itself. Petrobras, Brazil's state-owned energy company, has already suspended investment and said it will look for alternative supplies for Brazil.

Paying the price for Morales' rashness will be the people who elected him, and they can ill afford it; Bolivia is the poorest nation in South America. It's true that the country's resources have long been exploited by foreigners with little benefit to the indigenous population. But sending in the army to take over the gas fields isn't the answer to Bolivia's problems.

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