Geopolitics

Why Energy-Rich Bolivia Is Mired In Economic Crisis

Like other Latin American countries, Bolivia has squandered commodity revenue and failed to make the hard reforms necessary to bolster the economy for the long haul.

Pipeline in Sencata central station, Bolivia
Pipeline in Sencata central station, Bolivia
Mauricio Ríos García

-Analysis-

LA PAZ â€" People in Bolivia appear to be waiting for everything to fall apart before they accept that their economy faces a crisis.

Bolivia wouldn’t be the first Latin American country to be in this situation. Other socialist countries like Venezuela, Argentina, Brazil and Ecuador have faced these exact same questions.

I was recently asked when an economy is deemed to be in crisis. I believe that it happens when resources are poorly allocated. Contrary to conventional thinking, economic crises are generated during the boom period that precedes stagnation, when people think that wealth abounds. It doesn’t start with the recession.

The problem with resource allocation in socialist countries is that the government appropriates the country's core businesses and allots resources to enhance their electoral prospects. The basis for assigning resources should instead be economic criteria like deciding what would be the most competitive. This would put an end to financing loss-making projects or enterprises. It would involve respecting the nation's own capacity for generating resources through the issue of debt, taxation and inflation. There are no precise figures on how much loss is generated by poor resource allocation but it will certainly be large numbers.

The problems that arise from misspent government funds engulf all sectors and businesses not just the private firms that are linked to state projects or big public works.

Over the years, as the Bolivian government nationalized its currency, decimated the central bank's independence and manipulated inflation figures, the public has taken greater risks than they should in investments.

At the early stages of public-private partnerships, officials made the grandest political promises and assured people there were guaranteed profits for any and all investments. But in time, as the market began to detect lower quality projects or those that could not be completed and would have to be liquidated, the economy began to slow.

Bad resource allocation include all state projects financed by revenues from oil and gas and initiatives in the private sector fed by overgenerous credit flows. These efforts began to disrupt financial markets in a manner that cannot be remedied with short-term or palliative measures but only with a painful, structural turnaround of the economy.

It’s true that falling oil prices have affected the economy. But they exacerbated, rather than caused, this situation. In countries with economic policies similar to Bolivia like socialist Venezuela, Argentina under the two Kirchner presidents, Brazil in recent years and Ecuador, the economy entered a slump long before commodities prices fell in 2014. Bolivia’s economy, for instance, first started to slow down in 2013.

To avoid the same mistakes other socialist countries have made, Bolivia must first recognize that its problems are due to the way it has designed its economy, namely, by giving priority to short-term payoffs and encouraging risks in investment. This was clearly a set-up that did not allow people to adapt to reality. Gas from Bolivia should have replaced energy from Russia for the European market by now. It should have also become the Bolivia’s buffer against the vicissitudes of the global economy.

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Geopolitics

Why This Sudan Coup Is Different

The military has seized control in one of Africa's largest countries, which until recently had made significant progress towards transitioning to democracy after years of strongman rule. But the people, and international community, may not be willing to turn back.

Smoke rises Monday over the Sudanese capital of Khartoum

Xinhua via ZUMA
David E. Kiwuwa

This week the head of Sudan's Sovereign Council, General Abdel Fattah El Burhan, declared the dissolution of the transitional council, which has been in place since the overthrow of former president Omar el-Bashir in 2019. He also disbanded all the structures that had been set up as part of the transitional roadmap, and decreed a state of emergency.

In essence, he staged a palace coup against the transitional authority he chaired.


The general's actions, which included the arrest of Prime Minister Abdalla Hamdok, are a culmination of a long period of tension between the civilian and military wings of the council.

A popular uprising may be inevitable

The tensions were punctuated by an alleged attempted coup only weeks earlier. The days leading to the palace coup were marked by street protests for and against the military. Does this mark the end of the transition as envisaged by the protest movement?

Their ability to confront counter revolutionary forces cannot be underestimated.

The popular uprising against Bashir's government was led by the Sudan Professional Association. It ushered in the political transitional union of civilians and the military establishment. The interim arrangement was to lead to a return to civilian rule.

But this cohabitation was tenuous from the start, given the oversized role of the military in the transition. Moreover, the military appeared to be reluctant to see the civilian leadership as an equal partner in shepherding through the transition.

Nevertheless, until recently there had been progress towards creating the institutional architecture for the transition. Despite the challenges and notable tension between the signatories to the accord, it was never evident that the dysfunction was so great as to herald the collapse of the transitional authority.

For now, the transition might be disrupted and in fact temporarily upended. But the lesson from Sudan is never to count the masses out of the equation. Their ability to mobilize and confront counter revolutionary forces cannot be underestimated.

Power sharing

The transitional pact itself had been anchored by eight arduously negotiated protocols. These included regional autonomy, integration of the national army, revenue sharing and repatriation of internal refugees. There was also an agreement to share out positions in national political institutions, such as the legislative and executive branch.

Progress towards these goals was at different stages of implementation. More substantive progress was expected to follow after the end of the transition. This was due in 2022 when the chair of the sovereignty council handed over to a civilian leader. This military intervention is clearly self-serving and an opportunistic power grab.

A promised to civilian rule in July 2023 through national elections.

In November, the rotational chairmanship of the transitional council was to be passed from the military to the civilian wing of the council. That meant the military would cede strong leverage to the civilians. Instead, with the coup afoot, Burhan has announced both a dissolution of the council as well as the dismissal of provincial governors. He has unilaterally promised return to civilian rule in July 2023 through national elections.

Prior to this, the military had been systematically challenging the pre-eminence of the civilian authority. It undermined them and publicly berated them for governmental failures and weaknesses. For the last few months there has been a deliberate attempt to sharply criticize the civilian council as riddled with divisions, incompetent and undermining state stability.

File photo shows Sudan's Prime Minister Abdalla Hamdok in August 2020

Mohamed Khidir/Xinhua via ZUMA

Generals in suits

Since the revolution against Bashir's government, the military have fancied themselves as generals in suits. They have continued to wield enough power to almost run a parallel government in tension with the prime minister. This was evident when the military continued to have the say on security and foreign affairs.

For their part, civilian officials concentrated on rejuvenating the economy and mobilizing international support for the transitional council.

This didn't stop the military from accusing the civilian leadership of failing to resuscitate the country's ailing economy. True, the economy has continued to struggle from high inflation, low industrial output and dwindling foreign direct investment. As in all economies, conditions have been exacerbated by the effects of COVID-19.

Sudan's weakened economy is, however, not sufficient reason for the military intervention. Clearly this is merely an excuse.

Demands of the revolution

The success or failure of this coup will rest on a number of factors.

First is the ability of the military to use force. This includes potential violent confrontation with the counter-coup forces. This will dictate the capacity of the military to change the terms of the transition.

Second is whether the military can harness popular public support in the same way that the Guinean or Egyptian militaries did. This appears to be a tall order, given that popular support appears to be far less forthcoming.

The international community's appetite for military coups is wearing thin.

Third, the ability of the Sudanese masses to mobilize against military authorities cannot be overlooked. Massive nationwide street protests and defiance campaigns underpinned by underground organizational capabilities brought down governments in 1964, 1985 and 2019. They could once again present a stern test to the military.

Finally, the international community's appetite for military coups is wearing thin. The ability of the military to overcome pressure from regional and international actors to return to the status quo could be decisive, given the international support needed to prop up the crippled economy.

The Sudanese population may have been growing frustrated with its civilian authority's ability to deliver on the demands of the revolution. But it is also true that another coup to reinstate military rule is not something the protesters believe would address the challenges they were facing.

Sudan has needed and will require compromise and principled political goodwill to realise a difficult transition. This will entail setbacks but undoubtedly military intervention in whatever guise is monumentally counterproductive to the aspirations of the protest movement.

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David E. Kiwuwa is Associate Professor of International Studies at University of Nottingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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