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Viewing cable 06LAPAZ1660, GOB UNVEILS ECONOMIC DEVELOPMENT PLAN

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Reference ID Created Released Classification Origin
06LAPAZ1660 2006-06-20 19:02 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy La Paz
VZCZCXYZ0001
PP RUEHWEB

DE RUEHLP #1660/01 1711902
ZNR UUUUU ZZH
P 201902Z JUN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9642
INFO RUEHAC/AMEMBASSY ASUNCION 5933
RUEHBO/AMEMBASSY BOGOTA 3250
RUEHBR/AMEMBASSY BRASILIA 7097
RUEHBU/AMEMBASSY BUENOS AIRES 4350
RUEHCV/AMEMBASSY CARACAS 1641
RUEHPE/AMEMBASSY LIMA 1635
RUEHMN/AMEMBASSY MONTEVIDEO 3856
RUEHQT/AMEMBASSY QUITO 4275
RUEHSG/AMEMBASSY SANTIAGO 8823
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS LA PAZ 001660 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
USAID FOR LAC/SA/JBAKKEN, MKARBELING 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EAGR EAID EFIN EINV ELAB PGOV BL
SUBJECT: GOB UNVEILS ECONOMIC DEVELOPMENT PLAN 
 
REF: A. LA PAZ 1248 
 
     B. LA PAZ 1596 
     C. LA PAZ 1517 
     D. LA PAZ 1614 
 
1. (SBU) Summary:  The GOB released its five-year national 
development plan on June 16.  The plan proposes a strong 
state presence in the economy and natural resource management 
and substantial public investment in order to create jobs, 
diminish poverty, improve health and education, and provide 
universal access to basic services.  The state will assist 
production by providing technical assistance and financing 
through a national development bank.  Bolivia will seek to 
regain sea access and promote the international acceptance of 
the coca leaf.  The plan also proposes the elimination of the 
independent regulatory system which oversees hydrocarbons, 
electricity, telecommunications, transportation, water, and 
forestry, while proposing state take-overs of 51 percent of 
six companies (in addition to the three hydrocarbons 
companies that were nationalized on May 1) that were 
partially privatized in the 1990s, including two with U.S. 
investment -- Ferroviaria Oriental/Genesee and Wyoming and 
Corani/Duke Electric.  End summary. 
 
Development Planning Minister Presents Five-Year Plan 
--------------------------------------------- -------- 
2. (SBU) Development Planning Minister Carlos Villegas made a 
powerpoint presentation on the GOB's five-year national 
development strategy to President Morales; Vice President 
Garcia Linera; the cabinet; representatives of diplomatic 
missions, aid agencies, and social organizations; and the 
press on June 16.  The plan, "A Democratic, Dignified, 
Sovereign, and Productive Bolivia," proposes strong state 
involvement in the economy and substantial public investment 
in order to create 90,000 jobs annually, diminish poverty 
from 59 to 50 percent, improve health and education, and 
provide universal access to basic services within a five-year 
timeframe.  Villegas referred to the GOB's "first term" 
several times, implying that the GOB would seek to alter the 
one-term presidential limit in the upcoming Constituent 
Assembly.  Based on Villegas' presentation, the 
highly-theoretical plan, which aims to "eliminate colonialism 
and neoliberalism and construct a multicultural society and a 
communitarian state in which the state, private, and 
community economies live harmoniously together", contains 
several laudable poverty-reduction goals but lacks a 
realistic explanation of how these goals can be achieved. 
 
Goals: Improved Income/Education/Health/Services 
--------------------------------------------- ---- 
3. (U) The plan aims to decrease poverty, reduce illiteracy 
by training 1.2 million people, improve access to health care 
through universal insurance, build 100,000 homes (in part to 
promote the construction business/generate jobs), and 
increase access to potable water, electricity, and natural 
gas.  The GOB intends to generate jobs and promote increased 
production through a mechanization program and 
industrialization of the coca leaf.  Following are overall 
plan projections: 
 
                       2005          2011 
Poverty rates          58.9 percent  49.7 percent 
Extreme poverty        35.3 percent  27.2 percent 
GDP per capita growth   1.8 percent   4.3 percent 
GINI coefficient        .59           .58 
Unemployment            8.4 percent   4.0 percent 
 
GOB Support for Production 
-------------------------- 
4. (U) The plan proposes a number of government programs to 
support production, job training, and job creation, including 
"My First Job" for urban youth and "My Business" for 
fledgling entrepreneurs.  The plan discusses a three-level 
"production matrix" in which the state is the principal actor 
 
made up of "the strategic sector" -- hydrocarbons, mining, 
electricity, water, forests, and biodiversity; "the 
employment generating sector" -- industry, manufacturing, 
tourism (GOB to promote training and community tourism), and 
agriculture (GOB to promote irrigation and food sovereignty); 
and "the infrastructure sector" -- transportation (GOB to 
promote construction of an integrated national road system), 
telecommunications, technology, and financial system. 
Although government support will focus on indigenous 
communities and small enterprises by providing technical 
assistance and financing, the plan foresees a role for all 
economic actors, even large agricultural producers and big 
business.  Villegas added that foreign companies must respect 
state sovereignty, employ Bolivians, and buy Bolivian 
products. 
 
Resources: Hydrocarbons, Mining, Electricity, Water, Land 
--------------------------------------------- ------------ 
5. (U) Villegas referred to the GOB's May 1 decree that 
nationalized hydrocarbons and gave the state control over 
prices, volumes, and new contract rules (ref A).  On mining, 
he said that the GOB would change the mining code and tax 
rates (ref B), define COMIBOL's (state mining company) 
participation in the sector, promote industrialization and 
mining exploration programs, and strengthen cooperative and 
small mines.  The plan aims to provide universal access to 
electricity and turn Bolivia into an "energy center" that 
generates sufficient electricity to meet domestic demand and 
export, while providing legal security to investors.  The GOB 
is currently promoting a bill in congress to revise the water 
law, granting water management to the state and proclaiming 
that access to water is a human right.  On land, the GOB will 
apply the 1996 land law and actively redistribute 
unproductive lands and well as available government lands 
(ref C). 
 
Health and Education Programs 
----------------------------- 
6. (U) The plan proposes a subsidized school breakfast and 
lunch program, "Bolivia without Hunger," as well as universal 
health coverage, a health program targeting municipalities, 
and a "Zero Malnutrition" program.  The plan also aims to 
reform higher education and focus the educational system more 
on technical areas and science through the "Education for 
Production" program. 
 
Justice, Security, and Democracy 
-------------------------------- 
7. (U) According to Villegas, the GOB aims to improve the 
justice system so that it is more transparent and respects 
women's and indigenous people's rights.  To reduce crime, the 
GOB plans to create "citizen security groups."  The state 
will tolerate "zero corruption" and will reform the national 
police.  The plan envisions a new role for the armed forces, 
which will promote development by participating in 
infrastructure projects.  To promote democracy, the plan aims 
to make the political system more inclusive, facilitate a 
national dialogue, and form a transparent National 
Development Council. 
 
State Financing and Macroeconomic Policy 
---------------------------------------- 
8. (SBU) Villegas said that the state would provide financing 
for artisans, small and medium enterprises, farmers, and 
indigenous people through a state development bank (ref D). 
He said that the GOB had USD 300 million for funding the 
bank, of which USD 140 million would be earmarked for 
production, USD 100 million for exports and imports, USD 30 
million for infrastructure, and USD 30 million for housing. 
Villegas said that although the GOB desires macroeconomic 
stability, stability would not be the GOB's primary goal in 
designing monetary and fiscal policy.  Instead, the 
government would implement policies that generated jobs, 
income, and exports.  The plan optimistically predicts GDP 
growth of 7.6 percent by 2011, almost double the 2005 figure. 
 This prediction assumes large growth in the metallurgy, 
electricity, refining, and construction industries.  The GOB 
expects public investment to increase significantly, totaling 
USD 6.8 billion between 2006 and 2010, and projects private 
investment at USD 5.8 billion for the same timeframe.  The 
GOB is counting on receiving foreign assistance to fund this 
public investment and a projected public deficit of 2.1 
percent (which seems unreasonably low given the significant 
spending plans) in 2011 and will organize a donor 
consultative group within the next few days to discuss, 
Villegas said. 
 
Foreign Policy 
-------------- 
9. (U) Via foreign policy, Bolivia will seek to maintain its 
sovereignty, recoup its access to the sea, promote 
international acceptance of the coca leaf, promote the 
sustainable use of its natural resources, and protect 
Bolivian citizens abroad, ensuring their right to vote in 
Bolivian elections.  The state will review bilateral treaties 
and "guarantee legal security to foreign companies with clear 
rules of the game."  The state will negotiate trade 
agreements that support "solidarity amongst peoples," promote 
Bolivian export diversification, and protect the domestic 
market.  International cooperation will be aligned with state 
priorities. 
 
Elimination of Independent Regulatory System 
-------------------------------------------- 
10. (U) According to press reports following the plan's 
release, the GOB will eliminate the six independent 
regulators -- hydrocarbons, electricity, telecommunications, 
transportation, basic services (water and sanitation), and 
forestry -- created by law in 1995 during the process of 
privatization of state-owned enterprises.  Regulatory control 
would pass to the relevant ministries by January 2007, after 
the approval of a new law. 
 
GOB Take-Over of Partially Privatized Companies 
--------------------------------------------- -- 
11. (U) Press reports about details of the plan not discussed 
by Villegas indicate that the GOB intends to take control of 
nine companies that were partially privatized in the 1990s -- 
three hydrocarbons (of which two, Chaco/Pan-American and 
Transredes/Prisma, have U.S. investment), two railways (of 
which one, Ferroviaria Oriental/Genesee and Wyoming, has U.S. 
investment), three electricity companies (of which one, 
Corani/Duke, has U.S. investment), and one telecommunications 
firm (the GOB intends to increase telecoms coverage and 
assure that all schools have Internet and communications 
services).  The hydrocarbons take-overs were announced 
previously in the May 1 decree, after which the GOB named 
company board members (ref A).  The GOB intends to take the 
same tack with the other six capitalized companies -- take 
control of the collective capitalization fund which was held 
in trust to pay Bolivian citizens' pensions (which accounts 
for roughly 45 percent of company shares), purchase the 
balance of shares needed to control 50 percent plus one share 
from the private investors, name 4 out of 7 board members for 
each company, and delegate operating control to either a 
private or GOB-controlled entity.  (Comment: These measures 
will mean significantly more state control over the 
decision-making in these sectors.  The state is likely to 
manage these enterprises for political gain by providing 
subsidized services to the poor while neglecting profit and 
long-term sustainability.  End comment.) 
 
12. (SBU) Comment: The long-awaited GOB plan contains several 
lofty, laudable goals with respect to poverty elimination, 
job creation, and expanded services access.  However, the 
plan lacks a realistic explanation of how these goals can be 
achieved, or how the state would maintain a low deficit while 
substantially increasing spending, or how Bolivia would 
continue to attract foreign investment after partially 
nationalizing the hydrocarbons and other sectors.  The 
government has also paradoxically guaranteed Bolivians that 
it will continue to pay their pensions, even though it has 
taken over the fund dedicated to such use and will use the 
funds for other purposes.  Also, the elimination of the 
independent regulatory system and increased government 
control over electricity, telecommunications, and 
transportation seems to leave the door wide open for 
increased corruption and deterioration of the progress made 
in expanding services in these areas over the past decade. 
End comment. 
GREENLEE