A more acceptable renationalization in Bolivia

An open letter to Evo Morales, President of the Republic of Bolivia.

Dear Mr. President,

Congratulations on your historic victory and we wish you well with the hard tasks that await you.

One of the policies which you have announced clearly during your election campaign, and after your victory, is that Bolivia’s natural resources should be in the hands of the Bolivian State. Implementation of this policy will require a reversal of the policy of capitalization implemented by previous governments.

Renationalization is a complicated issue as companies participating in the previous capitalization invested significant amounts of capital and managed companies, with the view to obtaining a return on their investments of time and capital.

Mr. President, if you are considering expropriation without compensation, you will put your country in a difficult situation, as the world financial community, public and private, will sanction your country for acting against property rights without adequate compensation. This could result in the withdrawal of financial support and capital which is much needed in assisting your efforts to modernize your country and to achieve the much-needed increase in the income of your citizens. On the other hand, if you were to pay the compensation that would be considered just by these players, you could endanger your country’s financial position and handicap your flexibility to implement your policies.

There is a third way. In order to comply with your campaign pledge to return ownership of the country’s natural resources to the State, you could enter into discussions with those companies currently owning your country’s resources to reach an agreement to nationalize these. In exchange for their agreement, these companies would receive the right to operate these same assets for a period of, say, 20 to 25 years, including with the required investment pledges going forward. Operation by these foreign companies experienced in their fields would have the additional advantage of securing technology and best practice transfers, not available if these assets were run by the Bolivian State.

This approach would both achieve your campaign pledge and provide existing companies with the opportunity to implement the business plans which justified their initial investments. On expiry of the operating license, Bolivia would have the right to keep the management of these resources, re-offer the management contracts by tender.

Good luck with your new mandate and remember that good governance should take precedence over political polemics. Your people are counting on you.

Yours sincerely,

Unquote.

This approach would extend a practice that is seen in areas such as public services, road construction and operation and build-operate-transfer (BOT), airports, ports and even the management of a national lottery, where companies manage businesses for the cash flow and return on investment, without the need for ownership of the underlying assets.

Onésimo Alvarez-Moro