Multinational Monitor


Not Kosher: The Ralph Reed-Jack Abramoff Connection.
by Andrew Wheat

The United States, Bolivia, and the Political Economy of Coca
by Gretchen Gordon

The CAFTA Chronicles: Strong-Arming Central America, Mocking Democracy
by Tom Ricker and Burke Stansbury

Thais Take to the Streets to Stop U.S. Trade Agenda
by Martin Khor

Drilling East Timor: Australia's Oil Grab inthe Timor Sea
by Charles Scheiner


Saving $60 Billion: Lawrence Korb's Common Sense Budget Defense Plan
An Interview with Lawrence Korb

The Market for Virtue: The Impact of Corporate Social Responsibility
An Interview with David Vogel


Behind the Lines

The Lobby Reform Fiasco

The Front
Philippines Gets Stomped - EPA Program Off Track

The Lawrence Summers Memorial Award

Names In the News

Book Notes


The United States, Bolivia, and the Political Economy of Coca

by Gretchen Gordon

Cochabamba, Bolivia - Over the past two decades, Bolivian coca growers' leader Evo Morales has been beaten, tear gassed and shot with rubber bullets at the hand of security forces while fighting for changes in Bolivia's drug policy. In a stunning turnaround in January, now flanked by those same military forces, Morales was inaugurated as Bolivia's new president.

Morales has garnered world attention with his promises to forge a new development path independent of U.S.-prescribed economic and political norms. While his new government could face international pressure on several issues, one of the most contentious areas for U.S.-Bolivian relations will likely be coca.

In Bolivia, as in much of the Andes, the coca leaf has for thousands of years been valued for its nutritional, medicinal and spiritual uses. For the last 10 years, however, eradication of the coca leaf, also a primary component in cocaine, has been a central strategy in the U.S. war on drugs.

Morales, who rose to power as a leader of the coca growers (cocaleros) union and as a strident opponent of the imposition of U.S. drug policies in Bolivia, has promised a two-pronged strategy with regard to coca and drug control. Morales' "zero cocaine, but not zero coca" policy involves a hard line on cocaine production and drug trafficking alongside a policy of decriminalization and industrialization of the coca leaf itself. How that platform is implemented, however, remains a question without clear answers. Whatever Morales does, he will need to maneuver between the competing interests and influences of two powerful forces - Bolivian cocaleros and the U.S. war on drugs.

Bolivia and the U.S. War on Drugs

In the mid-1990s, the United States shifted the focus of its war on drugs from drug interdiction to prioritizing a supply-side crop eradication strategy in the Andean region. Over the last decade, the United States has invested heavily in anti-drug efforts in Bolivia, with this year's budget surpassing $80 million. In addition to providing this massive financial and military assistance, the United States maintains an international drug certification process that threatens countries judged not cooperative with U.S. policy with sanctions, aid cuts, vetoes on loans from international lending institutions, and exclusion from market access agreements. Through the war on drugs, the United States has maintained extensive influence in Bolivia's domestic policy, from drafting judicial and criminal law to directing Bolivian police and military forces.

For many Bolivians, U.S. intervention in Bolivia has left a distinctly bitter taste. Bolivia's draconian drug control law, Ley 1008, implemented in 1988 under heavy U.S. pressure, made illegal any coca cultivation beyond a 12,000-hectare limit specified as sufficient for meeting legal demand. The law also criminalized many campesino coca growers by not discriminating between cocaine and the unprocessed coca leaf. In 2004, 40 percent of people in Bolivia's jails were imprisoned under Lay 1008, and 77 percent of them remained uncharged with any crime, this even after a 1999 reform.

In 1998, the government of Bolivia's dictator-turned-president Hugo Banzer implemented the ironically named Plan Dignity. The plan, which was developed largely by Banzer's vice president and Morales' 2005 electoral opponent, Jorge Quiroga, energetically pursued Washington's idea of "zero coca" and the ambitious goal - later proved unrealistic - of eliminating all coca within five years. Plan Dignity's extensive eradication goals were accompanied by the militarization of Bolivia's coca growing Chapare region. The policy of voluntary compensated crop eradication was replaced by aggressive forced eradication at the hands of security forces. Military eradication operations led to rampant human rights abuses against campesinos, including excessive use of force, assault, torture and murder. In response, coca growers joined together to defend their communities and their crops.

Cocalero Organizing

Egberto Chipana directs Radio Soberania, the coca growers' radio station in the tropical Chapare region. As Chipana explains, many of the campesinos who grow coca in the Chapare originally migrated from Bolivia's tin mining communities after the drop in global tin prices and a wave of privatizations of state industries in the 1980s and 1990s. They brought with them the miners' union organizing structure and culture and joined together with the agrarian union movement.

"In the mines, the unions were very strong," says Chipana. "They came to the tropics and formed their campesino unions as a way to organize themselves and fight for their interests. That has been the history of this area. ... They've fought to survive."

Over the last two decades, the cocaleros have become one of the strongest social forces in Bolivian politics. Relying on strict organizational discipline, coca growers orchestrated repeated mass protests and blockades in response to eradication policies and worsening economic conditions. These mobilizations often met harsh government repression.

It is out of this cocalero organizing that Morales developed the base from which, starting in 1995, he built the Movement Toward Socialism (MAS) party. U.S. officials took an early disliking to the outspoken Morales, calling him a "narco-trafficker," "narco-terrorist" and the leader of a "cocalero mafia." In Bolivia's 2002 elections, U.S. Ambassador Manuel Rocha publicly threatened the cut-off of U.S. aid if Bolivians elected Morales.

In October 2004, however, the coca conflict found an unexpected resolution. After tensions between growers and security forces in the Chapare once again reached a boiling point, then-President Carlos Mesa, Morales and other grower representatives struck a landmark agreement to diffuse the conflict. The agreement allowed 3,200 hectares of coca to remain in the region for one year, while growers agreed to voluntarily eradicate approximately 3,000 hectares.

Both eradication forces and coca growers creatively interpreted the agreement, according to Katherine Ledebur, director of the Cochabamba-based Andean Information Network. Under this shared interpretation, each family within the growers' union ranks was permitted to grow 1,600 square meters of coca. This allotment, known in indigenous Quechua as a cato, had long been upheld by cocaleros as enough to bring a minimum subsistence income while serving the domestic market for legal coca consumption.

"The calculation was based on a growers' union membership of 20,000, while in actuality, the number of coca grower families is closer to 40,000," Ledebur explains. "As a result, at least double the 3,200 hectares of coca temporarily allowed by the agreement has been planted."

In addition to the one cato per family allotment, the agreement replaced forced militarized eradication with an eradication carried out in cooperation between security forces, campesinos and the growers union. In this eradication model, campesinos indicate which plot they wish to maintain as their legal cato and security forces destroy whatever crops are in excess.

The agreement represented a new willingness by all parties to compromise and to seek creative solutions, and it rapidly succeeded in calming social conflict in coca zones. The policy was originally scheduled to sunset in October 2005, by which time a study was to be completed quantifying the extent of Bolivia's demand for coca for legal uses. Likely wishing to avoid unrest, interim president Eduardo Rodriguez extended the agreement, and it remains in effect today. The legal market study has still not been completed.

While U.S. officials criticized the agreement and held that the interpretation of the cato allowance was outside its intent, they did not actively try to overrule the accord, no doubt concerned about adding to Bolivia's social turmoil during the Mesa government. The United States maintains, however, that the 15,700 hectares of coca in cultivation above the 12,000 hectares originally designated as sufficient for legal use should be eradicated.


Morales and MAS built their popular support base through strong coca advocacy. The details of their policy proposals during the recent election campaign, and now as the government, however, remain limited. The delivery of a comprehensive government coca policy to Congress is being delayed until after the completion of the legal market study.

In a speech before a congress of the Six Coca Federations of the Chapare in February, Morales renewed his commitment to coca growers, while asking them for help in controlling cultivation. "Our greatest contribution to the fight against drug trafficking is to respect the cato per family," Diario CoLatino reported Morales as saying. "Now [there will be] no more military personnel in the Chapare, the individual unions should be those responsible for controlling and rationalizing the cultivation, and in this way we are going to give a slap in the face to the U.S. government."

Since Morales' election, coca federations and other grower groups have put forth several policy proposals. Their central premise, and that which has been explicitly outlined by Morales, is a rewriting of Bolivian drug policy to distinguish between the coca leaf and cocaine, so that coca production is at least partially decriminalized.

"You have to revise Ley 1008 and this is the objective of all the campesino cocaleros," says Radio Soberania's Chipana. "It's a law that has been applied with a sense of hatred toward the campesinos."

Another component of coca decriminalization is an international campaign to remove coca from a United Nations convention on drug trafficking. The World Health Organization has found that the coca leaf itself has no harmful effects on human health, and Bolivian heads of state before Morales have campaigned for its international declassification as a controlled substance.

While coca growers argue that legal demand within the country is much higher than that which can be met by the U.S. calculation of 12,000 hectares, the legal coca market remains limited. With decriminalization, however, Bolivia would be free to industrialize and export coca as an ingredient in beverages, soaps, foods and medicines, with the hope of increasing legal demand nationally and internationally. Most social sectors seem to agree that coca production should remain limited to some extent. But while some call for continuation of the cato allotment, others argue that one cato alone is insufficient for the economic subsistence of a family reliant on coca as its only available source of income.

"This land produces, but we don't have markets. If they don't have markets, the people return to coca," says Chipana. "The coca is the base of the economy in this region. Without coca there's poverty."

According to government and grower proposals, military forces will maintain or even increase their role in combating the cocaine end of the drug chain - importation of chemical precursors, cocaine processing and trafficking. Regulating the coca end - coca cultivation - will be handled by the coca growers union, however. While this proposal of social control goes against the U.S. emphasis on militarized drug control, it is not an untested or unsuccessful mechanism here in Bolivia.

"The fight against drug trafficking isn't just a fight of other countries, it's also ours," says Chipana. According to Chipana, the communities that produce coca are well aware of the negative repercussions within the community of production for the illegal drug market - be that violent conflict with armed forces, or economic loss from crop eradication - both of which are rarely confined only to illegal producers. For this reason, the coca union firmly regulates land use.

"There's an internal control ... within the union itself," Chipana explains. "If someone has a plot that [is going for] drug production, they expel them. And the land returns to the union."

Cooperative eradication, according to Chipana, has eliminated the violence and conflict that has plagued Bolivia's coca zones. "When they coordinate this fight with the grower organizations, it can function well," he says. "The problem is when someone makes a denunciation to the FELCN [anti-drug forces], they create a confrontation. You have to have coordination."

According to Ledebur, the replacement of forced eradication with cooperative eradication has not resulted in the major increase in coca or cocaine production U.S. officials predicted.

"The United States gives the impression that forced eradication is the only thing that works," says Ledebur. "But forced eradication hasn't worked in the Andean region, it hasn't worked in Bolivia, and it hasn't worked in decreasing the supply of cocaine in the United States - in fact, the price of cocaine in the U.S. has gone down."

A November 2005 release from the U.S. Office of National Drug Control Policy says Bolivia has seen a "slight increase in coca cultivation and a slight decrease in cocaine production potential over 2004."

"The difference is that with the cato agreement people can feed their families," says Ledebur. "So you have the choice - you can have coca cultivation with conflict and people getting killed, or coca cultivation with relative peace."

Switching Sides?

While U.S. officials sounded alarm bells about Morales' election and the potential of Bolivia becoming what White House Drug Czar John Walters called a "narco-state," Ledebur says Morales' coca position does not represent a radical change.

"The U.S. created the idea that the implementation of Morales' coca decriminalization would lead to uncontrolled chaos, with drug traffickers running all over Bolivia," says Ledebur. "But Morales' policy is just a continuation of what went on under the Mesa and Rodriguez governments. Bolivia's coca policy has been changed for over a year now and even the U.S. says the result is 'relative stability.'"

Possibly realizing its fears had been overblown, or perhaps not wanting to come down hard on Morales while his public approval rating sits above 70 percent, some U.S. officials have tempered their remarks about Morales' drug policy.

Ambassador David Greenlee, who last November warned that changes in Bolivia's drug policy would have repercussions for U.S.-Bolivia relations, seemed to be singing a different tune in February when he declared the existence of a "a significantly large area of understanding" between the Morales government and the United States. While reiterating concern about eradication efforts, he praised a mutual "willingness to find practical solutions that can satisfy [both] our interests."

Similarly, in a shocking rhetorical turnaround during the recent inauguration of the new commander of Bolivia's anti-narcotics special forces, William Francisco III of the U.S. Embassy's Narcotics Affairs Section spoke out in support of Morales' "zero cocaine, but not zero coca" platform. "The fight for us is not against coca, rather against cocaine," El Independiente reported him saying. "We know that you all have used coca for millennia for its medicinal qualities, we only [want to] help in the fight against drug trafficking."

According to Ledebur, though, the recent amiability of U.S. officials' public comments is not necessarily indicative of a political shift. "The U.S.'s current position is a great improvement compared to before, but it's more a strategic position - a more diplomatic stance," says Ledebur. "Does that mean necessarily that their position will stay this way or that there isn't concern over the end of forced eradication? No."

The Bush Administration recently announced a long-planned $13.2 million cut in drug control funding for Bolivia. While the cut, mirrored in Peru, is likely representative of broader policy and funding factors, Morales, facing his own budget realities, in response took the ironic position of urging the United States not to decrease drug control assistance to Bolivia.

Wait and See

Right now, both Bolivia and the United States appear to be taking a "wait and see" approach with regard to what positions they will eventually adopt. The much awaited coca market study upon which the government's final policy will purportedly be based, meanwhile has no established timeline for completion.

"It's not going to change instantly," says Chipana. "There needs to be a constant struggle if you want to see a real change. We're waiting to see what will happen."

While Morales struggles to balance the disparate interests of Bolivian cocaleros and the Bush Administration, an easy solution is hard to predict. But then again, Bolivia seems to be becoming a place to expect the unexpected.

Bolivia and the Political Economy of Natural Gas

Cochabamba, Bolivia - As one of its first moves, the administration of newly elected President Evo Morales has announced preliminary plans for making good on its principal campaign pledge - recovering state control of the country's rich natural gas reserves. While the public cry for the nationalization of Bolivia's gas has become a dominating political and social force in recent years, it remains to be seen whether the new government will effectively wrest control from the foreign oil and gas companies that currently reign over Bolivia's most prized resource.

The Failed Promises of Capitalization

Between 1993 and 1997, the administration of President Gonzalo Sanchez de Lozada, under significant pressure from the International Monetary Fund and the World Bank, overhauled Bolivia's economy.

Lozada's new economic plan promised to jumpstart Bolivia's ailing economy through a process called "capitalization." Under capitalization, an intentional branding meant to avoid the negative connotations associated with privatization, Bolivia's strategic state industries - railway, telecommunications, electricity, airline, mining, and oil and gas - were converted into a species of joint ventures with foreign corporations.

In the case of oil and gas, the state company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) was dismantled and stripped of infrastructure and staff. YPFB's assets, valued at almost $1.6 billion, were handed over to two exploration and exploitation consortiums, Chaco (led by British Petroleum) and Andina (led by Spain's Repsol). These new companies were also given, free of charge, rights to oil and gas reserves that researcher Mirko Orgaz Garcia estimates was valued at that time between $10 billion and $12 billion. A separate consortium, Transredes (made up of Shell and Enron), was given control over transportation and distribution.

The plan was that Bolivians would maintain control of 51 percent of the shares of the three new capitalized companies while foreign corporations would be given 49 percent control, in exchange for the promise of that same value in investment.

By the time the capitalization process was finished, however, the 51:49 government-corporate split was turned on its head, putting majority control of Bolivia's resources in the hands of the foreign corporations. In the end, neither the government nor the Bolivian people ended up with any decision-making power in the capitalized companies. Bolivia's minority share, managed by two private pension fund administrators, has continued to dwindle as the government has repeatedly been forced to sell shares in order to meet pension payments.

Accompanying the capitalization of YPFB, the Lozada government also passed a new oil and gas law that Orgaz says transferred $108 billion of reserves already explored by YPFB to private corporations, free of charge. The law also slashed oil and gas royalties from 50 percent to 18 percent.

In the end, capitalization turned out to be a worse deal for Bolivia than outright privatization would have been. Under privatization, the state at least receives compensation for the transfer of its assets to a private party. Under capitalization, however, Bolivia handed over its most strategic industries and resources for nothing more than a promise of future investment. In the case of oil and gas, and in most other sectors, that investment never came.

The Demand to Regain Control

The demand by Bolivians to take back control of their gas and oil exploded in 2003 when massive popular protests brought down Lozada's second administration. In May 2005, the subsequent government of Carlos Mesa attempted to address the gas issue with a new oil and gas law. The new law added a 32 percent tax on oil and gas extraction and mandated a renegotiation of contracts. It reasserted the state's ownership of oil and gas resources, though to a limited extent, and the government's right to establish pricing and engage in the entire chain of production, from exploration to commercialization.

For Bolivia's social movements, however, the new law, which mandated payments to the multinationals as compensation for revision of the contracts, was full of loopholes and wholly inadequate.

Shortly after the law's passage, blockades and protests once again rocked the country, and a call rose up for nationalization, a concept not unfamiliar to Bolivia, which has nationalized its petroleum industry on two previous occasions.

During elections in December 2005, brought on by Mesa's resignation, gas figured as the top campaign issue, with candidates from the left and right all calling for some form of nationalization. In an unprecedented electoral sweep, Evo Morales and his Movement Toward Socialism (MAS) party won the election, promising to recover state control of Bolivia's gas.

As was apparent during the campaign, "nationalization" means different things to different people. While candidates further to the left called for "nationalization without indemnization," the MAS government has chosen a path of "nationalization without expulsion or expropriation," and is now beginning to turn that concept into concrete policy. The government is implementing several new initiatives, including establishing a network of residential connections (currently most Bolivians must purchase gas in tanks for heating and cooking use) and building new pipelines.

Many efforts, however, including renegotiation of prices and contracts and revitalization of YPFB, are not new initiatives, but rather the implementation of the May oil and gas law which the Mesa government was never able to carry through.

The more profound and politically charged policy question remains the delineation of state versus private control of revenues and decision-making.

On the issue of revenue, the government stance thus far is to maintain the royalty and tax rates from the Mesa administration.

On the issue of decision-making control, the government recently announced plans to regain majority control of the capitalized companies either through the purchase of shares, or if that's not possible, according to Economy and Planning Minister Carlos Villegas, through unnamed measures of "another nature." The government will then have the capacity to make decisions regarding investment, taxes, salaries and the naming of directors, Villegas told local media.

While some critics point to the substantial financial and political obstacles to buying back a majority number of shares, others criticize the proposal as a far cry from popular demands for nationalization or government control of the industry.

Bolivia's Leverage

In May 2005, after the passage of the new oil and gas law, several companies threatened to sue Bolivia in international courts or to take their investment elsewhere.

Since MAS's election victory, however, those same companies have been singing a different tune. Repsol recently stated its willingness to "do everything humanly possible" to stay in Bolivia. Brazilian Petrobras has pledged $5 billion in new investment. Other companies, many of them state ventures, have eagerly come forth with offers of technical assistance and major development projects.

Acknowledging that strong opposing pressures remain, including from Bolivia's own elite, the U.S. government and international lending institutions, Bolivia's popular movement is calling on the new government not to limit its options unnecessarily.

Bolivia is geophysically positioned to be an energy powerhouse. As oil prices continue to rise, the importance of gas as a global energy source will only increase. Bolivia is surrounded by countries, notably Argentina and Chile, with growing gas needs, and its accessible reserves offer one of the lowest costs of production of natural gas anywhere.

At the same time, Bolivia's 50 percent combined tax and royalty rate is significantly lower than many countries. In Norway, for instance, even with much higher production costs, the average government take is around 75 percent.

While corporations may threaten to take their investment elsewhere if the Bolivian government moves to reduce the corporate share of the revenue pie, they're not likely to find a more lucrative investment environment anywhere else.

As Minister Villegas himself has pointed out, the profit margin of investors has more than enough room for adjustment - for every $1 the companies invest in Bolivia they walk away with $10.

When Venezuela doubled royalties on oil extraction in 2001, prophesies of mass capital flight never came true. Instead, according to the Washington, D.C.-based Center for Economic and Policy Research, the country has experienced record economic growth while devoting billions of dollars to new social programs.

Bolivia's negotiating hand is additionally boosted by the dubious legal standing of many foreign oil and gas companies currently operating in the country. As those calling for expropriation argue, the Congress never approved any of the oil and gas contracts, as the Bolivian constitution requires. The legality of bidding procedures is also widely disputed. Enron, for instance, participated in a single bidder process. Rampant cases of contraband and tax evasion give the government further grounds for terminating or renegotiating oil and gas contracts.

President Morales' soaring rhetoric suggests the country has a unique opportunity to break with history and to secure real sovereign economic development. But as the government cautiously develops a comprehensive plan for reorganizing Bolivia's oil and gas sector, a watchful popular movement fears the government may again be selling the country short.

- G.G.

Gretchen Gordon s a researcher with The Democracy Center in Cochabamba, Bolivia.


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