VZCZCXRO8449
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHTM
DE RUEHLP #1332/01 1371825
ZNR UUUUU ZZH
P 171825Z MAY 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9230
INFO RUEHZI/WHA POSTS COLLECTIVE
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 04 LA PAZ 001332 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON ELAB SMIG SOCI PGOV EINV EPET BL
SUBJECT: ECONOMIC ROOTS OF BOLIVIA'S SOCIAL REVOLUTION 
 
REF: 05 LA PAZ 3065 
 
¶1. (SBU) Summary: Economic factors, which have fed the 
growing political disaffection of Bolivia's majority poor, 
have helped fuel the country's rolling "social revolution." 
Take persistent poverty.  The percentage of Bolivia's 
population living below the poverty line has remained 
virtually unchanged (over 60%) through the past decades' 
"neo-liberal" reforms, and even increased during the economic 
crisis of 1999-2003.  Unemployment, too, spiked during the 
crisis and remains untenably high.  Marked social and 
economic inequality -- which has a rural-urban, a regional 
and also a distinctly racial dimension -- is another decisive 
factor, and has spurred significant migration to cities such 
as El Alto, Santa Cruz, and Tarija in the past decade.  This 
urban migration, in turn, has strained the underdeveloped 
infrastructures of these cities, and left new urban dwellers 
clamoring for access to basic services.  In combination, 
these factors have undermined the faith of many Bolivians in 
the old economic and political order and reinforced public 
support for the Morales administration and its "new" economic 
experiment.  They also explain why President Morales' 
populist promises to Bolivia's poor, especially 
nationalization of hydrocarbons and other natural resources, 
will probably continue to buy him popular support, at least 
in the short term.  End Summary. 
 
Bolivia's Social Revolution 
--------------------------- 
¶2. (U) Many observers mark the beginning of Bolivia's ongoing 
social revolution with the infamous Cochabamba "water wars" 
of May 2000 in which thousands of protesters forced the GOB 
to take over the Bechtel-operated Cochabamba water system. 
That event combined key economic factors with the growing 
political disaffection of Bolivia's majority and largely 
indigenous poor into an explosive and still largely 
unresolved mix.  In February 2002 and October 2003, massive 
protests against a proposed income tax, plans to sell natural 
gas to Chile, and unfulfilled campaign promises to provide 
jobs led to the ousting of President Gonzalo ("Goni") Sanchez 
de Lozada.  In June 2005, Goni's replacement, Carlos Mesa, 
resigned from the presidency in the face of widespread 
protests, partly over the government's management of 
Bolivia's vast natural gas resources.  In January 2006, after 
the transition administration of Eduardo Rodriguez, Evo 
Morales, Bolivia's first indigenous president, was elected on 
campaign promises to nationalize Bolivia's gas industry, 
"refound" the state in a Constituent Assembly, and transform 
the supposedly failed "neo-liberal" economic order for the 
benefit of Bolivia's forgotten majority. 
 
Neo-liberal Reforms Did Not Meet Expectations 
--------------------------------------------- 
¶3. (U) Persistent poverty has been one of Bolivia's most 
damning problems.  Approximately two-thirds of Bolivia's 
roughly nine million people live below the poverty line. 
Notwithstanding the promises of politicians, this poverty was 
largely impervious to the liberal reforms of the late 80s and 
90s.  According to a recent news article on Bolivia's 
relationship with the IMF, "Bolivia has the best rate of 
structural reforms in Latin America, but maintains a low 
growth rate per capita and has made almost no advance in the 
reduction of poverty."  Former Central Bank President Juan 
Antonio Morales also noted that Bolivia's neo-liberal reforms 
had facilitated four percent annual growth until the economic 
crisis of 1999, but that such growth was still insufficient 
to keep up with population growth.  The result: a per capita 
GDP that was lower in 2000 (USD 910) than it had been in 1980 
(USD 961).  Although liberal reforms pulled Bolivia out of 
its dire macro-economic straits in the mid 1980s (with 
inflation of close to 12,000 percent), they clearly failed to 
meet public expectations for increased incomes and jobs.  In 
fact, reforms had a palpably negative effect on jobs in the 
short term, immediately causing a 17 percent drop in public 
sector employment and triggering the dismissal of thousands 
of public sector miners when resource draining state-owned 
mining enterprises were shut down. 
 
Increasing Poverty? Yes and No 
------------------------------ 
¶4. (U) The viability of the liberal economic reforms, which 
gave Bolivia macro-economic stability and a platform for 
increased private investment, suffered a direct hit during 
the 1999-2003 regional economic crisis.  The perception that 
 
LA PAZ 00001332  002 OF 004 
 
 
the large amounts of foreign direct investment Bolivia 
received between 1997 and 2003 as a result of privatization 
benefited the rich and not the poor was heightened by the 
economic crisis.  This perception was not altogether 
inaccurate.  First off, poverty rates, as measured by income, 
spiked.  The National Statistics Institute's (INE) 2004 
Annual Statistics journal indicates that the percentage of 
Bolivia's population below the poverty line (USD 1.20/day) 
increased from 63 percent to 67 percent in that period. 
According to INE, the rise in urban poverty during those 
years, from 51 percent to 60 percent, was even more striking. 
 That 63% of Bolivians live in cities aggravated the impact 
of this rise.  Moreover, those city dwellers living in 
extreme poverty (USD 0.77 or less per day) also increased, 
from 24 percent to 29 percent.  Per capita income also 
declined during that period and only began returning to 
pre-crisis levels in late 2004 and 2005, by which time the 
unleashed energies of social protesters had become virtually 
unstoppable. 
 
¶5. (U) Bolivian poverty specialist Luis Leonardo Tellez told 
us INE has two ways of measuring poverty, and that the 
results differ depending on which measuring tool is used.  He 
explained that poverty, measured by income (which includes 
non-monetary income), has increased during the past decade, 
but that poverty, measured by unfulfilled basic needs, i.e., 
housing, water, sanitation services, electricity, health, and 
education, has diminished.  Tellez attributed the improvement 
in meeting basic needs to housing subsidies, the national 
health program, NGO efforts to improve health, and the GOB's 
rural electrification program supported by multilateral 
funds.  He also noted it was thanks to massive rural to urban 
migration, which has given many poor Bolivians from 
undeveloped rural areas access to better (if still 
insufficient) education and health care once they reach the 
cities.  Tellez' assertion is supported by Bolivian census 
figures, which show that 85 percent of the population had 
unsatisfied basic needs in 1976, 71 percent in 1992, and 59 
percent in 2001.  A 2002 INE household survey indicated a 
small spike in the percentage of unmet basic needs, to 61 
percent. 
 
Unemployment 
------------ 
¶6. (U) The regional crisis also took a toll on unemployment. 
According to one official report, unemployment rose from 4.4 
percent in 1997 to 9 percent in 2002, where it remained in 
2003 and 2004.  However, this measure of urban unemployment 
vastly underestimates total unemployment, for which there are 
no good statistics.  A declaration of Bolivian factory 
workers stated that unemployment had reached 13 percent of 
the economically active population by the end of 2005.  Many 
analysts estimate it is higher still, and alarmingly high 
once underemployment is factored in.  According to one urban 
analyst, in the conflictive indigenous city of El Alto, only 
a small fraction of the ten thousand new high school and 
university graduates who flood into the city's employment 
market each year find full-time jobs.  This expanding pool of 
unemployed and under-employed young people with little to 
lose was a central, volatile element in the successive crises 
that forced the resignations of President Gonzalo Sanchez de 
Lozada in October 2003 and President Carlos Mesa in June 
¶2005. 
 
Regional and Racial Inequality 
------------------------------ 
¶7. (U) Marked inequalities have also played a decisive role 
in Bolivia's social and political crisis.  In addition to 
being reflected in a significant (and some statistics suggest 
growing) income gap between rich and poor, these inequalities 
have a clear rural-urban, a growing regional, and a 
distinctly racial dimension.  According to INE statistics, 
the wealthiest 10 percent of the Bolivian population have 37 
times more wealth than the poorest 10 percent (as compared 
with the United States, where the top 10 percent have 16 
times more wealth than the poorest 10 percent).  Rural-urban 
disparities are reflected in INE's 2002 household survey 
figures, which indicate that average annual per capita income 
in urban areas was USD 966 but only USD 292 in rural areas. 
According to INE, 90 percent of the population in urban areas 
have electricity, while only 29 percent do in rural areas. 
In rural areas, sixty percent of families do not have 
bathrooms.  In urban areas, 86 percent of families get their 
drinking water from a pipe (either in the home or outside), 
 
LA PAZ 00001332  003 OF 004 
 
 
while only 33 percent in rural areas do so -- with the rest 
taking water directly from rivers or wells.  Seventy-five 
percent of the rural population rely on firewood for cooking, 
compared to eight percent in urban areas. 
 
¶8. (U) Regional disparities, particularly between the 
wealthier eastern lowlands and the poorer western highlands, 
are particularly acute.  For example, in 2001 the percentage 
of the population with unmet basic needs in the eastern 
department of Santa Cruz (Bolivia's economic center) was 38 
percent, while in Potosi (Bolivia's poorest region) it was 79 
percent.  Additionally, average annual household income in 
the city of Santa Cruz was two and one half times higher than 
that of El Alto in 2004, according to INE. 
 
¶9. (U) There is also a strong -- but not automatic -- 
correlation of wealth and poverty with race, which is partly 
linked to the urban-rural and regional divisions.  Most of 
Bolivia's majority poor, for example, are of mixed or 
indigenous origin.  Many of the country's wealthiest 
families, by contrast, are of conspicuously European descent. 
 These apparently race-based social and economic differences 
have exacerbated the sense of racial separation, and amount, 
in the view of some critics, to a kind of de facto economic 
apartheid.  (Comment: In Bolivia's 1952 revolution, Bolivia's 
"indigenous" peoples acquired full legal, political and civil 
rights.  Equal economic and social opportunities, however, 
have been more elusive.  End Comment.)  Although "indigenous" 
and "white" are malleable, subjective terms and most 
Bolivians are of mixed European-indigenous blood, the 
correlation between language, skin-color, ethnic identity, 
and socio-economic status remains difficult to deny. 
Moreover, growing ethnic consciousness has fed increasing 
"indigenous" resentment of the dominant "white" minority and 
the political system that allegedly sustained it. 
 
Migration/Lack of Services 
-------------------------- 
¶10. (U) These inequalities have fueled the massive migration 
from rural areas to cities such as El Alto, Santa Cruz, and 
Tarija.  According to INE statistics, between 1999 and 2003 
over half a million people -- or 10 percent of the current 
urban population -- migrated to cities.  El Alto, Santa Cruz, 
and Tarija experienced particularly high annual growth rates, 
according to INE data available for the decade 1992-2001, of 
5.1 percent, 5.1 percent, and 3.7 percent respectively.  In 
1992, El Alto's population numbered around 395,000.  By 2001 
(the year of the most recent census), that number had reached 
650,000.  Informal estimates put the sprawling altiplano 
city's population at close to 1 million today.  During the 
same period, Santa's Cruz' population mushroomed from 692,000 
to 1,136,000.  According to Santa Cruz civic leaders, 100,000 
Bolivians, most of them from the western highlands, continue 
to arrive to seek a better life in the lowlands capital each 
year.  Meanwhile, Tarija's population trend is moving in the 
same direction.  According to UNDP Project Manager Gonzalo 
Calderon, 300 people are moving there each day. 
 
¶11. (U) This massive rural to urban migration, in turn, has 
strained the underdeveloped infrastructures of these cities, 
and often left new urban dwellers without access to basic 
services.  Even as anecdotal evidence indicates that overall 
services access has improved during the past decade, keeping 
up with the explosive urban growth is all but impossible and 
reaching recent urban migrants is a particular challenge. 
Part of the problem is rooted in basic economic laws. 
Because prices remain low and service providers are reluctant 
to raise them for fear of protests (see Cochabamba water 
war), insufficient earnings make investing in the expansion 
of those services difficult, which creates a vicious cycle. 
According to INE, only 50 percent of households in urban 
areas have sewage hookups.  Fourteen percent of city dwellers 
have no access (neither in home nor outside) to drinking 
water from city water networks, while 47 percent get drinking 
water from city water pipes outside of their homes.  Only two 
percent of urban households have natural gas or electricity 
hookups for cooking, while 86 percent rely on liquid 
petroleum gas (LPG) and 8 percent use firewood.  An LPG 
shortage in September and October of 2005 led to daily street 
protests and blockades (reftel).  Potential LPG shortages 
(although the result of perverse government economic 
incentives) and the lack of in-home gas hookups have created 
popular support for the Morales administration's plans to 
gain control of the hydrocarbons industry to "ensure that 
 
LA PAZ 00001332  004 OF 004 
 
 
domestic needs are met." 
 
¶12. (SBU) The heightened expectations of newly arrived urban 
dwellers also feed the dynamic of frustration.  Although new 
city dwellers generally have better service access than they 
did in the countryside, they also feel an increased sense of 
relative deprivation due to the wealth they see around them. 
So while "better off" in an absolute sense than they were 
before, they increasingly view access to such services as 
water, gas, and electricity as a right that the political and 
social system owes them -- a right they are willing to take 
to the streets to demand. 
 
Comment 
------- 
¶13. (SBU) In combination, these essentially economic factors 
have undermined the faith of many Bolivians in the old social 
and political order.  They have also fueled public support 
for the Morales administration and its "new" economic 
experiment.  If the old order worked for so few, the popular 
logic goes, what is there to lose in seeking to create a 
different one?  While President Morales' populist promises 
may represent more a retread of a failed "old" approach than 
a genuinely "new" one, they will probably continue to buy him 
popular support in the short term, in part because the 
traditional political order is seen as having failed so 
absolutely.  That said, it is hard to see how the current 
government will avoid a collision with the same stubborn 
economic obstacles that proved so difficult for its 
predecessors.  When that happens, more popular disappointment 
and frustration, and also renewed social and political 
turmoil, will certainly follow.  End comment. 
ROBINSON