May 25, 2006

Left Face
New President Has
Bolivia Marching
To Chávez's Beat

LA PAZ, Bolivia -- Since Evo Morales took office as president here in January, the coca grower turned socialist politician has aligned his country so closely with Venezuela's Hugo Chávez that it is sometimes difficult to tell where one government begins and the other ends.

After the election of the populist, for instance, foreign steel companies were told they would have to renegotiate a proposed deal to develop a huge iron-ore deposit known as El Mutún. But they didn't count on facing Venezuelan government experts on the Bolivian side of the bargaining table.

During an April 25 session with India's Jindal Steel & Power Ltd., two Venezuelan experts whispered into the ears of their Bolivian counterparts and passed them notes, says Juan Mogrovejo, a representative of Jindal Steel who attended the meetings. Then the Bolivians hardened their terms, demanding that the length of the contract be cut to 20 years from 40. "The proposed contract changed radically," Mr. Mogrovejo says. Other companies have also expressed dismay at the new terms.

Celinda Sosa, Bolivia's minister of production and microenterprises, who is involved in the Mutún bid, says Venezuelan advisers are helping the Bolivians, but the Bolivian government is setting the policy.

Sometimes that's not so clear. The two countries recently teamed up with Cuba in a Free Trade Agreement of the People, a pact dreamed up by Mr. Chávez as a poor man's alternative to a U.S. plan for hemispheric integration. Venezuelan technocrats help set Bolivian policy on everything from health care to land reform to nationalizing the oil and natural-gas industry. When Mr. Morales travels outside Bolivia, he uses a jet provided by Caracas.

Bolivian opposition leader Jorge Quiroga, who lost to Mr. Morales in the presidential race, contends that "we have become a colony of Venezuela." Mr. Morales rejects that accusation, but refers to Mr. Chávez as Bolivia's "godfather."

Bolivia represents Mr. Chávez's greatest triumph in his drive to use Venezuela's oil wealth to create and lead a bloc of anti-American countries in the region and beyond. He has thrown a lifeline to Cuba, lent hundreds of millions of dollars to Argentina and Ecuador and has twice voted to support Iran's nuclear ambitions in the International Atomic Energy Agency.

For the U.S., Mr. Chávez's tightening alliance with Bolivia both threatens to undo years of political and economic liberalization in South America and is the latest in a series of energy-security threats. President Bush on Monday said he was "concerned about the erosion of democracy" in Bolivia and Venezuela. Venezuela boasts the biggest oil and natural-gas supplies outside the Middle East, and Bolivia has South America's second-biggest natural-gas reserves.

Hitting Limits

As his power and influence grow, Mr. Chávez and his tactics are running into limits in a region where most people resent outside interference -- be it Spanish rule centuries ago or U.S. intrusion in recent decades. Support for Mr. Chávez has become a political flashpoint in races in Mexico and Peru.

Mr. Chávez's support of Bolivia's decision to kick out foreign energy companies this month and nationalize its natural-gas reserves has also put him in direct confrontation with Brazil, South America's largest economy. Brazil depends on Bolivia for half its natural gas, and Petrobras, Brazil's state oil company, is the biggest foreign investor in Bolivia's energy industry.

Mr. Chávez also may face stiffened opposition at home. Although he is still highly popular, his overseas spending makes growing numbers of Venezuelans angry. Despite high oil prices, problems like street crime and poverty have continued to loom large under his rule.

Hardly a week goes by without an announcement by Mr. Chávez of a new South American integration initiative. His grand dream is a European Union-style confederation called the Union of South American Nations, or Unasur. In addition to his alternative free-trade pact, he has set up a regional cable and satellite TV network called Telesur, to act as a counterweight to Atlanta-based CNN. Tomorrow, Mr. Chávez will be in Bolivia to announce the creation of "Minersur," a joint Bolivian-Venezuelan mining venture. Mr. Chávez even has talked about a South Atlantic Treaty Organization to rival NATO, the North Atlantic Treaty Organization.

His inspiration is Simon Bolivar, the 19th-century scion of aristocrats who helped liberate from Spanish rule much of the Andean region, including what is now Venezuela and Bolivia. Mr. Bolivar dreamed of uniting the region into a political confederation, but was thwarted. Mr. Chávez claims he is finishing the work of "The Liberator," and even renamed Venezuela the "Bolivarian Republic of Venezuela."

As Mr. Chávez did in Venezuela, Mr. Morales has forced out independent voices at Bolivia's central bank, judiciary and military. He has reinserted the state into the oil and gas industry, giving him a new source of power and patronage. He is also bringing in hundreds of doctors and teachers from Cuba to provide free health care to the penniless and teach illiterates how to read, cementing his support among Bolivia's majority poor. Next he plans to hold a constitutional assembly to rewrite the country's basic principles.

Some within Mr. Morales's own government fear getting too close to the Venezuelan president. "We should adopt the good parts of Chávez, like his attention to the poor. But we need to avoid being polluted by his bad parts -- his need to concentrate power, his cozying up to regimes like Iran, his constant raving about the U.S.," says José Luis Roca, an academic recently named by Mr. Morales to the board of an oil company seized by the government.

Many Bolivians welcome Mr. Chávez's largess. On Jan. 23, the day after Mr. Morales's inauguration, Mr. Chávez signed half a dozen cooperation agreements with Bolivia. Venezuela pledged to provide 200,000 barrels per month of crude and refined products at cut-rate prices, as well as to buy some 200,000 tons of Bolivian soybeans a year. Mr. Chávez also pledged to buy chestnuts and almonds gathered by Amazon Indians and to provide some 5,000 scholarships and 100 advanced internships for Bolivians to study in Venezuela.

Bolivian officials deny that they are taking orders from Venezuela, pointing out that nationalization of the energy industry was a Morales campaign pledge. But in the weeks before the May 1 nationalization, Venezuelan government engineers accompanied Bolivian ones in touring installations that were going to be seized, according to officials from the private companies. Mr. Morales made the move less than 36 hours after returning from a summit with Messrs. Castro and Chávez -- and then flew with Mr. Chávez to a meeting with the governments of Brazil and Argentina, whose companies had been hurt by the move. Bolivia says there is no connection between the nationalization and the meeting with Mr. Chávez.

Venezuela's state-owned energy company, Petróleos de Venezuela SA, known as PdVSA, is a clear winner in Bolivia's nationalization. PdVSA, which had no role in Bolivia until a few months ago, has opened offices in La Paz. It is helping Bolivia's state energy company, Yacimientos Petroliferos Fiscales Bolivianos, or YPFB, get back on its feet after most of its assets were sold off in the 1990s.

Spate of Investments

At a time when other companies are freezing investment in Bolivia, PdVSA is investing in a spate of projects, including a new gas-separation plant and jointly owned filling stations with YPFB. In exchange for such help, PdVSA may get preferential tax treatment under terms of the recent free-trade deal.

Venezuela is also taking a leading position in Bolivia's development of the iron-ore deposits in El Mutún, a poor, sparsely populated area on the border with Brazil. Under terms set by Mr. Morales's predecessor, four of the world's biggest steel companies expressed interest in bidding. But that changed soon after Bolivia's new planning minister, Carlos Villegas, returned from a recent trip to Caracas with Venezuelan experts in tow.

For starters, Bolivia's government wanted the companies to use natural gas to power the project, rather than wood charcoal. The companies prefer charcoal because it leads to higher-quality iron known as pig iron. The government also halved the length of the proposed contract and said the new operator would have to invest in a steel mill in addition to simply exporting iron.

As a result of the changes, interest among foreign companies has waned. "We suspect the government wants to declare the bidding empty, and then give it to Venezuela under other conditions," says Jaime Santa Cruz, who monitors the project for the most powerful civic group in the state of Santa Cruz, the business capital of Bolivia, where Mr. Morales's support is weakest. A spokesman for the Bolivian Mining Ministry replies that the country is simply trying to get the best terms on the project. Bids are expected to be opened today and the contract awarded by May 30.

Mr. Morales has also adopted many of Mr. Chávez's social programs, including the use of Cuban doctors and teachers in poor neighborhoods. An estimated 708 Cuban doctors and volunteers have set up six clinics that offer, among other things, free eye consultations. At a Santa Cruz clinic, 200 Bolivians recently stood in a line that snaked around the block, waiting in the hot sun to get appointments for an eye examination. The clinic performs 100 free cataract operations daily. Some patients spent the night sleeping on the steps of the clinic. "It's a miracle," said Juan Alvarez, 56, an upholsterer awaiting surgery on an eye that clouded up three years ago after an injury.

Literacy classes are also a big hit. In a cramped classroom on the wind-swept plateau above La Paz, a few dozen Aymara Indian women and men gathered around a television set recently to learn the alphabet. At the end of the day's session, Hugo Chura, the Bolivian official in charge of the program, stood up to give a pitch. "Previous governments here never cared about you," he said in the Aymara language. "But the new president does. And he has friends like Fidel Castro and the Venezuelans who care about you, too." The class broke out in applause.

Thanks to such programs, Mr. Morales's approval ratings now hover above 80%. That will come in handy in early July, when the country votes to elect a new assembly to rewrite the constitution.

Earlier this week, members of Mr. Morales's party said they would seek a constitutional change to allow re-election. Mr. Chávez used a similar convention in 1999 to write a new document allowing re-election and enabling him in the process to gain control of all the branches of government. Many Latin American nations, fearing a return to authoritarian rule, limit presidents to a single term. Mr. Chávez openly talks about staying in power until 2031.

Venezuela has also said it will lend Mr. Morales's government $100 million to help it implement a potentially explosive promise to redistribute some 12.4 million acres of state-owned property to indigenous groups. It would be the first step in an ambitious program that also seeks to redistribute unproductive private land or lands that don't have clear title.

In Bolivia, land reform is a time bomb, analysts say. That's because each year, tens of thousands of peasants from the hardscrabble Andean region migrate to the eastern lowland plains, a region whose relative prosperity is based on large-scale agriculture. Many landowners here fear Mr. Morales will encourage politically motivated land invasions by poor Andean immigrant peasants, who overwhelmingly support him. "It could lead to a civil war," says Ruben Costas, the governor of Santa Cruz.

Like Mr. Chávez before him, Mr. Morales is also attacking independent power centers. In addition to purging the military of high-ranking officers, Mr. Morales decreed that every public official had to accept a pay cut of almost 50% and stipulated that no bureaucrat could earn more than his own wage of about $22,000 a year. Since then, five out of 12 Supreme Court justices, the country's top election judge and top bureaucrats in a clutch of key ministries have left their posts. They have been replaced by officials from the president's Movement Toward Socialism party with little or no experience.

At Bolivia's central bank, economist Juan Antonio Morales brought badly needed stability to Bolivia's notoriously shaky economy after taking office as chief in 1995. The banker's term expired on three occasions, but every time the sitting president urged him to remain. A few months ago, Mr. Morales's term was up again, and he sent the new president a resignation letter. He found out it was accepted when his wife phoned to say she had just heard about his replacement on the nightly news.

Mr. Morales says he had never heard of his successor before.