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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 — 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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Germany

Khodorkovsky: Don't Count On A Swift End To The War In Ukraine

The West is deceiving itself if it hopes for a quick end to the Ukraine war. Above all, it must consistently implement an energy transition — otherwise, it will remain at Putin's mercy, writes prominent Kremlin critic Mikhail Khodorkovsky, in German daily Die Welt.

Image of a worker repairing a gas pipeline damaged by a Ukrainian military strike on the centre of the town of Volnovakha, Russia

January 20, 2023: A worker repairs a gas pipeline damaged by a Ukrainian military strike on the centre of the town of Volnovakha, Russia.

Valentin Sprinchak/TASS/ZUMA
Mikhail Khodorkovsky

-OpEd-

LONDON — In the spring of 2014, I went to Kyiv with a large group of Russians representing the European part of the Russian cultural and social elite to express our solidarity with the Maidan protests in Ukraine, and our disapproval of the Russian annexation of Crimea.

Many of us then flew to Kharkiv and Donetsk to meet with Russian-speaking citizens of Ukraine who were concerned about what was happening.

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In Donetsk, among others, I had a conversation with the leaders of those who stormed the regional administration, including Denis Vladimirovich Pushilin, the current head of the "Donetsk People's Republic." Since then, it has been absurd for me to listen to those who still do not understand that the destabilization of eastern Ukraine and the annexation of Crimea were a "special operation" of the Kremlin from the very beginning.

It is amazing that there are still people who do not understand that Putin is not simply riding the wave of an imperial renaissance in Russia. He is consistently pushing this wave himself, helped by clever propaganda and the direct financing of imperialist-minded national patriots. At the same time, he is suppressing the voices of the sane part of society.

Putin has already used war to solve domestic problems four times (1999 in Chechnya, 2008 in Georgia, 2014 and 2022 in Ukraine) — if you don't count the war in Syria and the de facto annexation of Transnistria, a region in Moldova, which did not "catch on" with public opinion. Putin's main goal is to stay in power, although in recent years there has been a shift toward "legacy." This means a partial restoration of the empire and its influence.

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