5 September 2001 - Don’t Cry for Bolivia

Senora Lucha, a large, bustling woman in a nondescript, one-road village in an unassuming country, showed me a lot.

In route from Yacuiba to Santa Cruz in Bolivia, my wife Paige and I spent a night in Gutierrez in Senora Lucha’s shed, complete with chickens and ducks clucking around outside adjacent to the pig pen. We stuffed ourselves on all we could eat while Senora Lucha refreshed us with a continuous flow of cold beer from one of her three refrigerators.

And all for US$2 each.

The next morning on the village’s traditional town square, we were welcomed at a makeshift roadside truck stop with eight entrepreneurs cooking chicken, rice, potatoes and beef kabobs to sell to truckers passing through on the dusty path that is the village’s only thoroughfare.

By the time we left Gutierrez, I was convinced Bolivia was turning the corner and had new potential.

That’s right, I am high on Bolivia — it’s future, not the cocaine for which it is notorious.

Some may scoff, since Bolivia’s 8 million people are South America’s poorest, toiling under a 300-year legacy of economic hardships made worse by dictatorships, corrupt government leaders and a well-earned reputation of “a coup a minute.”

But consider the lessons learned from Senora Lucha and her few dozen neighbors, all hard-working people who had figured out a way to scratch out a subsistence living.

Even more telling was the cold beer. While few in this small town had refrigerators or other luxuries, the advent of electricity was a sign of the government’s broad efforts to open up the country’s vast countryside –Bolivia is about three times the size of Montana — to economic opportunity.

And finally, that road through Gutierrez, with its dust and potholes, still was better than some on which we have driven in countries given more attention by international investors.

Frankly, I came to Bolivia with no expectations. Paige and I had agreed to zip through on our way from Argentina and Brazil to Peru. I had been to Bolivia in 1991 on my last around-the-world journey and found little at the time to excite me. Nothing I had heard in the last decade about this landlocked, mountainous nation had altered my perspective.

My views began to change almost as soon we crossed the border from Argentina at Yacuiba, a town of about 13,000 at the base of the Andes Mountains. Instead of the stale, sometimes moribund streets of some Argentine communities, a lively, bustling border town that was wall-to-wall markets greeted us. It was clear Argentineans flocked here to buy everything conceivable at remarkable prices since Bolivia has an open economy with few controls and very low tariffs.

After the government closed many unprofitable tin and zinc mines in the 1980s, it threw open the retail market to provide employment. Boy did this release the Bolivians’ long-suppressed entrepreneurial spirit!

As we have discovered, Bolivia, like the town of Yacuiba, now is just one big market, adding to what I am convinced is a basic foundation for success.

In contrast to the protectionist economies of its bigger and better-known neighbors of Argentina and Brazil, Bolivia has virtually open borders, imposing few tariffs. We breezed across the border at little cost. And while goods and services are very expensive in Argentina because the Argentine peso is pegged to the value of the dollar, Bolivia lets its currency float at more reasonable levels.

In the nearby Tarija region, a wine-producing area where recent natural-gas discoveries are opening new economic doors, the same energy and vibrancy greeted us, erasing any lingering doubts about our changing views.

As we continued north to Santa Cruz, we saw signs of an ambitious five-year road-building program where private companies, many of them consortiums between local and international firms, bid on road projects and recoup their costs through tolls.

In the last six months, Bolivia has awarded two more major contracts, including one for 84 kilometers between Ventilla and Tarapaya that is part of the 1,215-kilometer highway running from Desaguadero on the Peruvian border through Oruro and Potosi to the Argentina border.

The program, part of the government’s broad privatization efforts begun in the mid-1990s, envisions four major highways linking virtually every corner of the country, creating export corridors to capitalize on Bolivia’s centralized location among the huge markets of Brazil, Argentina, Chile, Peru and Venezuela.

I was reminded of China, where privatization has resulted in some of the best roads we have driven on anywhere during our trip. China’s successful highway privatization efforts are critical to that nation’s climb to economic superpower status. While Bolivia is not and will not be China, the road plan, combined with privatization in other basic infrastructures such as pipelines, electricity generation and telecommunications, is one of the things Bolivia is doing right.

In Santa Cruz, we found a boomtown situated on the plains that sweep eastward from the Andes to Brazil, covering two-thirds of the country. The soil is made fertile by mineral deposits from numerous tributaries that feed the Amazon River in Brazil. Santa Cruz is more cosmopolitan than we expected, with a European flavor that gets much of its cultural influence from Brazil.

Largely ignored for generations because of its inaccessibility and few inhabitants, the Santa Cruz region’s agriculture economy is changing, with soybean exports increasingly replacing coca leaves as the cash crop of choice, especially since the area yields twice as many bushels of soybeans per hectare as farmers in Brazil.

As we drove west across the Andes toward La Paz, we fell in love with Cochabamba, a city of which I had never heard even though it is the third largest in Bolivia and long the country’s breadbasket. Its hotels, vibrant trading, wide boulevards and huge plaza with motor scooters zipping everywhere enchanted us.

Known as the ‘City of Eternal Spring’ because the temperature rarely fluctuates in either direction from 70 degrees Fahrenheit, Cochabamba is a place I would like to come to learn Spanish or perhaps even start a business. If I am correct about Bolivia’s future, Cochabamba could attract retirees looking for a safe, cosmopolitan, inexpensive city with superb weather. Fittingly, a statue of Christ, said to be the largest in South America (although I had always thought the one in Rio held that distinction), blesses the locals from atop a hill overlooking the city.

In La Paz, the home of the central government, the president and the legislature even though Sucre is legally the nation’s capital and home to the judicial system; we found an extraordinary mix of the old and the new. Indigenous women, dressed in full skirts and shawls with their decorative headwear identifying the region of the country in which they lived, walked side-by-side in busy markets with fashionably dressed men and women.

Modern buildings, including a new stock exchange housing young men and women dressed as if they just strolled from Wall Street mix with cathedrals from colonial days. Catholicism and other forms of Christianity mix with older local religions.

The stock exchange is minuscule by almost any standard. During the first seven months of this year, the total volume of shares was $637,691. Trading currently is mainly bonds with a few shares as only 26 companies are listed and the exchange has only 12 members. The exchange, which opened 11 years ago and also has an outlet in Santa Cruz, is not yet a place for stock investments but if the country continues to grow, that will change.

We could walk from modern businesses to the Witches’ Street behind one of the old churches. There, those who practice witchcraft and old voodoo magic sell potions, elixirs, and hexes for virtually any condition, emotion or situation. Llama fetuses are necessary to bless a new home. Stuffed armadillos safeguard your business. Stuffed cats protect your house. Potions promise to improve love, intelligence, health, you name it. The senior witch was 65 years old, having been practicing on Witches’ Street since she was 10. She complained that her earnings had fallen recently to US$100 per month from US$150 a couple of years ago. Apparently even witches suffer during slow times.

We bought a potion that takes care of everything to cover all our bases.

Even Potosi, a portrait of rundown elegance with water problems, some of the poor country’s worst poverty and the harshest work environment on the continent, did not dampen my enthusiasm.

Potosi is a lesson in wealth gone bad.

In 1544, an Indian named Diego Haul discovered CERN Rico, which means rich hill in Spanish. This mountain overlooking Potosi was virtually solid silver and within 30 years, Potosi was the largest and richest city in the Western Hemisphere and even richer than London, Paris, Rome and Madrid. At 12,600 feet above sea level, Potosi still is the world’s highest city with more than 100,000 people.

Silver from the mountain — analysts now estimate as much as 2 billion ounces of silver have been mined over history — supported the Spanish Empire. By 1580, the Spaniards, relying on the cheap Indian labor, were mining 13 million ounces from the mountain 15,000 feet above sea level.

Because of its importance in history, I have always wanted to visit Potosi. Grand churches were built some with walls of gold gilt work overlooking silver altars and exquisite pulpits, which took years to carve. Residents dined on plates of solid silver and the Spanish controlled the flow by requiring all shipments go through government ports and mints both in South America and Spain.

Once miners began using mercury to improve the process, the Spanish created a government monopoly to control its sale. Governments always have found a way to tax innovation.

Spaniards still use the phrase “It’s a Potosi” to describe extravagant wealth, but little money is left from riches to maintain the fabulous old buildings, which have been left to crumble in disrepair.

Today, as many as 20,000 cooperative miners, many of them chewing coca leaves to keep up their endurance in the high altitude, rely on 400-year-old technology to chip away silver from the surface and the labyrinth of narrow, twisting tunnels that lace the mountain.

Watching the grim-faced men, most of whom can expect to live to be only 43, I thought of a lesson we have seen repeatedly on our adventure: no matter how fabulously wealthy a city or country, the riches will someday disappear. India is full of such cities.

We are seeing the beginning of that lesson on the Arabian Peninsula, where a generation ago stipends financed by oil money supported the populace but now young men are struggling with having to take menial jobs to support themselves. Archaeologists 1,000 years from now may well dig through the desert sand to discover the once-grand palaces of the Middle East.

But even in the gloom of the gray, desolate high plateau that surrounds Potosi, my optimism grew.

For one, the mine is one of many of on the government’s privatization list. Several international companies are vying for the chance to use modern technologies to reach deposits that experts still think are rich enough to build a bridge of silver from South America to Europe. The government estimates in the mountain alone, not to mention rich veins which crisscross the region, 266 million ounces of silver could be mined during the next 25 years.

The mountain falls under World Heritage Site rules designed to protect it for historical purposes, but the government is working to overcome those obstacles. More daunting challenges are posed by the miners who have lived in a legacy left by the Spaniards that mining only wants to take the wealth and leave behind poverty. They fear mining conglomerates will mean the loss of what meager livelihood they now have.

That grim, downtrodden view is part of the hope for Bolivia.

Unlike Argentina where the people remain arrogant in the face of a three-year economic crisis that will continue to drag them down and Brazil, which is full of its own bravado, albeit less boastful than that of the Argentines, people in Bolivia have few expectations. At best, they are ambivalent.

I have often found the greatest surprises in these moods.

We got to Bolivia just after the swearing in of a new president, but found only public indifference – not even a political honeymoon. Opinion polls taken shortly after Jorge Quirogo took office revealed 58 percent of the populace expected little from the government.

But Quirogo, a 41-year-old technocrat who will serve the last 10 months on the five-year term of Hugo Banzer who stepped down due to cancer, inherits a government that has done many things right since democracy was installed in 1982 after years of dictators. In fact, 19 years of developing democracy is one of the nation’s strongest points.

An engineer trained at Texas A&M University with a masters degree in business from St. Edward’s University in Austin, Texas, Quirogo has been involved in many of those changes since 1992, serving first as minister of finance and then vice president.

As I have mentioned, the government realized the folly of centralized government and since 1994, has privatized many industries. The results, like Senora Lucha’s refrigerators, quietly are showing up virtually everywhere. In Argentina, we bought cell phones to communicate within the country and with people in the United States only to find no one could call us from abroad.

We did not even have to buy new phones in Bolivia. A small phone shop at the border just switched the ones we bought in Argentina over to the Bolivian system and they have worked without a hitch.

Entel, the former state-owned company, has worked feverishly to spread its services, especially as other companies are entering the market. With privatization expected to be completed on Nov. 27 2001, telecommunications competition will grow fiercer, further improving service.

For instance, Nuevatel, the country’s third-largest mobile phone operator behind Entel and Telecel (a subsidiary of U.S.-based MIC), has attracted 50,000 customers in less than a year. The company, of which U.S.-based Western Wireless International owns 55 percent, expects to offer service to every city in the country of more than 10,000 people by the end of 2002.

Cellular service is popular in the country, where mountainous terrain and remote areas make landlines extremely expensive. Already the number of mobile users outnumbers the country’s 650,000 fixed-line customers and aggressive competition allows citizens to enjoy some of the lowest cell-phone rates in the hemisphere. It is a case of benefiting from being undeveloped. Now Bolivia will leapfrog directly to wireless, by passing the expense of obsolete landlines.

My discussions with the president of the stock exchange and some government officials shed more light on other areas of the economy. Privatization already has reduced the role of government from 46 percent to 36 percent of GDP. If I am right about Bolivia’s future, that percentage will continue to fall.

The mining and hydrocarbon industries are seeing successes similar to those in the telecommunications industry. With major international players investing in exploration, consortiums are announcing new finds of minerals and natural gas almost daily. Proven and probable gas reserves jumped from 9.79 trillion cubic feet in 1998 to 70.01 trillion cubic feet at the beginning of 2001. Recent discoveries in the Tarija and Santa Cruz regions, among other places, have pushed that total even higher.

Hydrocarbon exports are expected to increase 250 percent by 2005 as demand grows in Brazil and other countries.

Tin, historically the country’s major mineral product until low prices forced the government to shut down many sites, remains depressed but silver, gold and copper operations are growing as international companies invest in modern technologies that make mining the country’s huge deposits more cost efficient and productive. Large gold and copper finds in the eastern lowlands are just a few of the latest signs of promise.

Under privatization, even little-known minerals are offering promise to investors. General Minerals, for instance, hopes to join the world’s top producers of tantalum, which is a critical element in diverse products ranging from cell phones to automotive electronics.

Deferred taxes and one of the best mining codes in Latin America have projected Bolivia into the forefront of mineral exploration. In 2000, the country exported $432 million worth of minerals; that figure could be significantly higher by the end of this year.

Coca has been a part of Bolivian life for centuries. The leaves are chewed by workers, brewed into tea in virtually every home and used for a variety of other traditional medicinal purposes. Just five years ago, Bolivia was second only to Colombia in illegal cocaine production.

But the government, rather than fighting the worldwide opposition to illegal cocaine, has taken a reasoned approach to coca eradication that is now a model for other South and Central American countries.

Under an aggressive plan undertaken in 1996, the country began wiping out coca fields while implementing intensive plans to give farmers other options. Some 12,000 hectares were set aside for the production of coca for traditional purposes and for export to Coca Cola, which uses the non-addictive portions of the leaves to flavor its popular soft drink.

Satellite photos indicate eradication is working and President Quirogo has promised to continue the program.

Vanishing coca fields — the country’s potential for producing cocaine dropped from 245 tons in 1995 to 40 tons in 2000 – are being replaced by a variety of traditional crops, most notably soybeans which have seen production more than double in the last five years. By 2006, production is expected to spread to more than a million hectares.

I know coca production will never disappear – after all it has been part of the culture for centuries and is not harmful in unprocessed forms – but profitable options can give it competition and continue to attract farmers.

To help, the government has aggressively pushed foreign markets. On Aug. 30, Colombia eliminated its 15 percent value-added on imports of Bolivian soy and flour. Through the first seven months of this year, soy exports generated $120 million.

Oil seeds, coffee, cotton and cereal grains also have seen significant production increases with oil seed harvests more than tripling in five years. As in mining, new investors, many of them Brazilian, are pumping money and new technology into the country, especially the Santa Cruz region. From 1996 through 2000, the agriculture sector enjoyed growth of more than 10 percent a year even during a period when prices were down.

Soybean prices are just one example of what improving commodity rates can mean for the country. Since I am bullish on commodities, the sky could be the limit for this natural resource-rich country.

Likewise, consider that Bolivia annually exports 12.5 tons of gold, the second most important mineral to zinc. If prices hold, exports could jump to 36 tons a year by 2003.

One of the government’s boldest moves was its 1997 decision to reform the country’s pension system, which was confusing and ripe with corruption. The government shut down the 36 opaque, sector-based contributory funds that were mired in heavy losses, consolidated the available funds, wiped the slates clean, set up transparent individual accounts for citizens and took bids worldwide for two private firms to manage a new privately funded system.

The upfront costs have been a burden on the government, contributing to an operating deficit that rose from $716 million in 1995 to $1.9 billion in 2000. But in the next five years, as the aging portion of the population for which the government bears much of the responsibility goes off the books, the government could actually run a surplus, an amazing feat for almost any country, much less one that struggles to get even Third-World recognition.

Despite growth in exports, the country runs a trade deficit. But foreign direct investment offsets the gap. Already averaging $600 million annually during the last five years, international investments totaling more than $3 billion are planned between now and 2004, including $1.6 billion in natural gas drilling and exporting, $860 million in mining, $400 million in electric power generation and $369 million in transportation and communication.

Hydrocarbon hands with whom I spoke drool at the prospects here. A periodical devoted solely to Bolivian oil and gas was launched last year as there are hopes of more huge finds yet to come. The wildest of the bulls expect to build gas-powered electricity-generating plants to get higher returns on exports to their neighbors.

In addition to highway and electric generation improvements, government leaders are pressing for new pipelines to serve Brazil, the largest purchaser of Bolivian natural gas, and Chile and Peru to provide access to seaports and thus, markets in the U.S. and Mexico. Bolivia has been landlocked since losing its coastline to Chile in the 19th century War of the Pacific, just one of many wars and conflicts Bolivia has lost to its neighbors in the last 200 years.

In fact Bolivia has been so badly run in the past that it has lost 50 percent of its land in wars since independence.

In June, Bolivia’s state energy company signed a letter of intent with some of the world’s largest energy companies, including BP, Spain’s Repsol, and France’s TotalFina to develop a $5 billion pipeline to Chile’s Pacific coast. In late July, Bolivia and Peru signed a letter of intent to work on a pipeline to Peru’s southern port of Ilo.

Banzer and Quirogo have actively promoted the Mercusor and Andean Community trade pacts to develop trade among South and Central American nations. The presidents of Brazil, Peru and Colombia all have visited recently for extensive trade talks. In June, Brazilian President Fernando Cardosa agreed to raise imports of Bolivian natural gas to 40 million cubic meters a day with further increases anticipated. In 2002, Bolivia is expected to export $425 million in natural gas to Brazil alone. With a GDP of $8 billion, that is no small amount.

The Andean Trade Preferences Act, which President Bush has said he hopes to renew when it expires at the end of 2001, gives duty-free status to Andean exports to the U.S. such as flowers, oil, minerals, coffee and bananas. Leaders of the Andean nations want the act’s coverage expanded to other items including textiles, leather products and tuna.

The country also has met austerity guidelines that enabled it to get debt relief from the IMF, the United States and the Paris Group since May. The programs have cut the nation’s foreign debt to less than $4 billion, about 25 percent of exports.

I will be the first to admit everything is not peaches and cream.

The country’s drug-lord legacy will not soon go away. We met many people and heard horror stories of nicely dressed citizens and businessmen arriving at places like London and New York from Bolivia and being subjected to extensive searches and detainment because authorities assume they are drug kingpins and traffickers. I can’t imagine traveling on a Bolivian passport!

Last year, two government officials resigned for smuggling and immediately upon taking office, Quirogo took steps to further crackdown on corruption, still rampant enough to fuel the public’s distrust of government. We did have a couple of policemen ask us for money for processing our papers, but we refused and went on our way.

Crime rates also are up and unemployment has more than doubled to 11 percent. Quirogo has cut overhead spending in an already austere budget to fund a jobs program that would put as many as 70,000 people to work, many of them on infrastructure improvements.

GDP growth, as high as 5.52 percent in 1998 and solid if not spectacular in the years between 1985 and 1998, fell to 2.4 percent last year and is expected to be zero this year. The downturn is the result of many factors, including the economic crisis in Argentina, the Asian financial crisis in 1998 and coca eradication.

Last year, a number of people were killed in riots throughout the country as frustration with the economic decline, water issues and other problems spread. A journalist was killed during a skirmish between two groups fighting over a small mine, and several Bolivian air force members were eventually charged with providing the weapons used in the shooting.

Roadblocks by indigenous farmers led by Felipe Quispe halted transportation throughout much of the country last year. Those roadblocks, joined by miners and others, continued until July 2001 just before we arrived. We were terribly afraid we’d have to deal with them too, but they seem to have stopped as they were causing a backlash. Thank goodness!

The government, while instituting austerity programs, still has work to do. In the 200-kilometer drive from Yacuiba to Gutierrez, we were stopped five times at police checkpoints. Such nonsense provides jobs and helps keep a handle on the drug trade but still is a waste of valuable resources.

We’ve driven on some very good roads in Bolivia but its highway system still is woefully inadequate in many places. From Yacuiba, we traveled about 200 kilometers over paved two-lane roads for which we paid about $20 in tolls for our two vehicles. Then, we reached the unpaved 150-kilometer stretch about which several Bolivians had warned us. The rocky, bumpy, narrow dirt road, with not one sign at any crossroads or v-junction, was worse than Paige expected, but just what I thought we’d find. Over the course of four hours, we averaged no faster than 30 kilometers per hour before finally reaching Gutierrez.

The road program must continue if the country is to become a transportation hub for the region and get its own products to new markets. Without reasonable access to those markets, farmers likely will return to producing coca, which actually is easier to grow than many traditional crops and already has its own transportation network to the drug cultures of the U.S., Asia and Europe. As Quirogo admitted on Aug. 7, ” Cocaine, as bad as it is, has access to markets.”

The nation’s banks also have problems. At the end of the first quarter of 2001, bad debts accounted for as much as 22 percent of banks’ loan portfolios. In early July, about 50 protesters who wanted their loans forgiven took 100 employees of the Banking Administration Office in La Paz hostage and threatened to blow up the building. In May, June and July, some 10,000 people joined protests demanding Bolivian banks cancel their debts.

This kind of unrest often would fuel talk of civil war. And some farm leaders have openly discussed a separatist movement but I do not think that is practical.

Such action usually comes when people have expectations of something better. No such mood exists in Bolivia. Hundreds of years of a few moneyed Europeans squabbling among themselves, replacing each other in one coup after another with a new dictator greedier than the previous one, has left the native citizenry jaded to such things.

But the people’s unassuming, almost fatalistic nature is endearing. They are hardworking, charming, pure and nice.

While the stock market may be a few years from flourishing, the country’s manufacturing economy, long behind the agricultural and mining sectors, not to mention the fast-growing service sector that now makes up 40 percent of the economy, is primed for growth. In the dust, the potholes and the misery along some of the roads, I look to the promise of things to come. Bolivia must crawl before it can walk.

As markets and infrastructure develop, companies may find the available, cheap workforce, open economy, central location and positive investment climate a perfect home for new plants and factories. An abundance of raw materials makes that even more logical.

And even if the manufacturing plants move to other South American countries, Bolivia’s abundant resources, particularly natural gas and minerals, always will be in demand.

My optimism might be more tempered if not for one other new market — tourism. When I was here in 1991, I ran into no tourists. This time, Paige and I have seen and met tourists in a few places, usually spillovers from the developing circuit of Peru-Brazil-Chile-Argentina. Most are backpackers, looking for adventure. Many are taking advantage of Bolivia’s diverse landscape — the gorgeous Andes, he savannas and plains, huge salt flats, rain forests, beautiful rivers, rafting, kayaking and hot springs.

The service level in the tourist industry goes from bad to non-existent. Although it is the country’s most important archaeological site, it took us 15 minutes to find the entrance to Tiahuanaco because no signs are posted. Leaving Bolivia was even worse; it took us 30 minutes to find the proper authorities to stamp us out of the country. No signs offer directions and Immigration and Customs are separated by hundreds of meters of mud and tangled streets. At least they are building a new border crossing.

Even so, tourism revenue has grown from $10 million in 1990 to more than $100 million last year. The number of people classified as tourists has increased more than 50 percent in the last 10 years with the number of people from the well-heeled areas of the United States, Asia and Europe more than tripling.

The country has been a closed and “dangerous” destination, but it is now being discovered. Backpackers and nuts like us often lead the way to vibrant tourism industries. Those industries often are precursors of economic growth in other sectors.

While Bolivia remains largely a secret with some problems, a small but growing number of people also may be high on Bolivia and what it has to offer. So don’t cry for Bolivia.