The economic impact of nationalization in Bolivia

It is not something new that countries may legitimately wish to control their natural resources, and those items that can generate revenue for state coffers, thus allowing to have sufficient funds to make roads, implement appropriate policies for health and education, assist the population generating sources of employment, and protecting their senior citizens with decent pensions that allow them a dignified old age, and ensuring access to affordable basic services, under appropriate conditions.

Some state dignitaries, presidents of Latin America in particular, have decided that no matter the means, they are required to "recover" to its member these sources of wealth, whether companies exploiting natural resources, companies involved in generation or distribution electricity, water, communications, and any others that are considered important in the economy of a country. This mechanism, keeping the forms required by international standards, has been the nationalization, sometimes screen for a true seizure.

The Bolivian case early in the century and with the government of Evo Morales seems to be the most obvious example of what may be good intentions but are completely decoupled from their actual effects.

Bolivia is among the Latin American countries with more poverty, low income, inequality, exclusion and low investment.

Other rulers before Evo Morales, were engaged in trying to maintain a favorable investment climate including legislation that provided not only consistent, but designed mechanisms, often poorly executed, which tended to bring foreign investment, the so-called capitalization. Although the cap did not have the mechanisms necessary to ensure that investments in companies capitalized like ENTEL -telecommunications company-,YPFB -hydrocarbon- and others, with varying degrees of success depending on the case, provided the signal to foreign investors needed to see this country as a potential destination for investment.

However, the government of Evo Morales, since he took office since 2006, and given his inclination to follow the model of his Venezuelan counterpart Hugo Chavez, Cuba's teachings and the political environment around them, promotes and executes a nationalization process that restores or transfer to government ownership several previously nationalized enterprises or private companies.

Beyond that the intentions may be justified in relation to nationalization being done, the truth and clear is that the Bolivian state begins to feel the effects of them. Almost all companies that have felt affected by the nationalization, have raised international arbitration proceedings in courts

Just read some news as reflected in the links that follow to get an idea of the magnitude of the economic disaster that can befall the Bolivian economy always weak.

Below are some of these links (in spanish, first one is original post):

So the outlook, companies like Pan American Energy, Euro Telecom International NV, Oil Tanking GMBH, Graña y Montero SA, Graña y Montero Petrolera SA, Rurelec PCL, GDF Suez and Quiborax are just some of the companies that have already taken steps to process arbitration in all of them asking that they consider fair compensation for the nationalization of the Morales government.

It is striking to know the government even had the need for a Secretary of State to defend itself from these processes, the Ministry of Legal Defense of the State also has been forced to call international legal consortium to defend Bolivia's demands that you are filing. Defenses as well as being expensive take a long time, resulting, in most cases, arbitration awards unfavorable, consequently it is expected that the future has to spend large amounts of money just to meet those obligations.

Another negative effect they are having with the nationalizations, is obviously the disincentive to foreign and domestic capital for current and future investments in almost any item that is potentially attractive for the government of Morales. In fact, as can be seen in various media, foreign investment in this South American country has already fallen precipitously in recent years.

In the end, the nationalizations will have a high cost to the Bolivians, either paying the arbitration proceedings and sued by the nationalized enterprises, associated this with the drop in foreign and domestic investments in the country. And these effects will be felt even years after Morales has left the political power in Bolivia.