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P 191705Z MAY 08
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 7518
INFO RUEHAC/AMEMBASSY ASUNCION 7970
RUEHBO/AMEMBASSY BOGOTA 5301
RUEHBR/AMEMBASSY BRASILIA 9238
RUEHBU/AMEMBASSY BUENOS AIRES 6464
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RUEHQT/AMEMBASSY QUITO 6226
RUEHSG/AMEMBASSY SANTIAGO 0918
RUEHSO/AMCONSUL SAO PAULO 2250
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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RUEHLMC/MILLENNIUM CHALLENGE CORP

C O N F I D E N T I A L SECTION 01 OF 04 LA PAZ 001154 
 
SIPDIS 
 
E.O. 12958: DECL: 05/15/2018 
TAGS: ECON PGOV AGR FAO FAS PREL PINR EAGR EAID BO
SUBJECT: SANTA CRUZ BOLIVIA: SECOND CITY'S ECONOMY NOT 
QUITE SO DYNAMIC 
 
REF: A. SAO PAULO 199 
     ¶B. 07 LA PAZ 2104 
     ¶C. LA PAZ 638 
     ¶D. LA PAZ 670 
     ¶E. LA PAZ 1006 
 
Classified By: ADCM Mike Hammer for reasons 1.4 (b) and (d). 
 
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Comment 
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¶1.  (SBU)  Under the spotlight surrounding the autonomy 
votes, the Department of Santa Cruz is often portrayed as 
wealthy and white, and the movement for autonomy is 
simplistically characterized as a struggle over resources. 
While there is some truth in these generalizations, none of 
them adequately capture what is happening in the department: 
Santa Cruz is a poor state in a poorer nation.  Moreover, its 
economy is not as dynamic or as diverse as advertised; in 
fact, economic growth in La Paz has been greater since 2001. 
While control over resources is clearly an important part of 
greater departmental autonomy, it is not the driving force -- 
differences with Evo Morales over the overall philosophical 
approach to economic policy is much more important. 
Economically speaking, Crucenos (as the people from Santa 
Cruz are known) have a more market oriented vision for their 
economy.  They see the state-driven approach being pushed by 
the Morales administration as both a threat to their relative 
economic prosperity and their future prospects for growth. 
End Summary. 
 
-------------------------------- 
A Poor State in a Poorer Country 
-------------------------------- 
 
¶2.  (SBU)  Bolivia is the poorest country in South America 
and Santa Cruz is only slightly better off.  In 2006, 
Bolivians earned an average of US $1,152 per person. In 
"wealthy" Santa Cruz, this figure came in slightly higher at 
US $1,300 per person.  Moreover, according to poverty 
statistics from 2001, only 23 percent of Crucenos had their 
basic needs met (the figure falls to 16 percent nationwide). 
In Bolivia, 28 percent of the population is considered in 
dire poverty.  This figure falls to only 7 percent in Santa 
Cruz, but still a full 38 percent of the department's 
population lives in poverty (58 percent nationally).  Santa 
Cruz has provided better for its people, but only marginally. 
 
¶3.  (SBU)  From a regional perspective, the Santa Cruz 
economy looks less mighty than is often portrayed.  The 
neighboring Brazilian state of Matto Grosso do Sul provides 
an interesting comparison (Ref. A).  The two states share a 
railway and a gas pipeline; they are roughly equivalent in 
size (Santa Cruz is slightly larger); and they have similar 
population densities (6.66 people per square km in Santa Cruz 
against 6.4 in Matto Grosso do Sul).  Yet, in 2005 people in 
Matto Grosso do Sul earned US $3,675 per year (only 11th 
place in Brazilian state rankings), almost three times the 
figure in Santa Cruz.  Agriculture plays an important part of 
both states (21 percent in SC and 31 percent in MGS).  Yet 
Santa Cruz's 260,167 head of cattle is dwarfed by the 20 
million head found in Matto Grosso do Sul. (Note:  One point 
of pride for Bolivia is the state of the railway line. 
According to Jaime Valencia, General Manager of the Eastern 
Railroad Company a subsidiary of Genesee & Wyoming, extensive 
investment since privatization has left the Bolivian portion 
of the line in better conditions than any other regional 
railroad. It is the only portion of the envisioned 
cross-continental railroad link through Brazil, Bolivia, 
Argentina and Chile that would meet the proposed standards. 
President Morales announced his intention to nationalize the 
company in 2006, but has since backed off of the threat.  End 
 
LA PAZ 00001154  002 OF 004 
 
 
note.) 
 
¶4.  (SBU)  Santa Cruz takes great pride in the development of 
its soy industry.  Indeed, from the mid-1980s the sector has 
grown from producing around US $20 million to an estimated 
$388 million last year.  Soy represents over 50 percent of 
agricultural production in the department (followed by 
sunflowers (11%) and corn (9%)) and there are now seven 
crushing plants, with a crushing capacity of 5,250 tons per 
day (t/day).  Yet, in Santa Fe, Argentina the crushing 
capacity is 71,000 t/day (78 percent of the Argentine 
national capacity).  Moreover, in Brazil there are 91 plants 
which crush over 1000 t/day.  Clearly, Santa Cruz is a small 
time player, but with only one fourth of the soil apt for soy 
production in use, locals see room to grow -- if permitted by 
the national government. 
 
--------------------------------------------- ------- 
Not So Dynamic, Not So Diversified, and Not So White 
--------------------------------------------- ------- 
 
¶5.  (SBU)  The common perception in Bolivia (and in Santa 
Cruz in particular) is that Santa Cruz is the engine of 
growth for the whole economy, with growth rates that far 
outpace those of the highland states.  The fact is that in 
2006 (the most current census), Santa Cruz had 25 percent of 
the Bolivian population with only a modestly higher portion 
of GDP (30 percent).  From 2001 (the previous census) to 
2006, the economy in Santa Cruz grew by 14 percent, well 
below growth in La Paz, which grew by 22 percent.  The 
difference cannot be explained away by differences in 
population growth either:  the population in La Paz actually 
grew at a slower rate, 14 percent (2,350,466 in 2001 to 
2,672,800 in 2006) versus almost 22 percent in Santa Cruz 
(2,029,471 in 2001 to 2,467,400 in 2006).  These population 
changes made the differences in GDP per capita growth over 
the period even more stark, with growth up 4.9 percent in La 
Paz over the period and GDP per capita actually falling by 
5.2 percent in Santa Cruz. 
 
¶6.  (SBU)  Why then the perception that Santa Cruz leads the 
county in economic growth and prosperity?  The answer can be 
found when the time frame examined is expanded back to 1992 
(when the next most recent census was taken).  From 1992 to 
2001, the economy in Santa Cruz grew by a whopping 59 
percent, or 6.55 percent a year (La Paz meanwhile grew only 
15 percent, or 1.66 percent annually).  Moreover, internal 
immigrants flooded into the region and the population grew by 
almost 50 percent (La Paz grew by 24 percent).  Even with the 
dramatic rise in population (from 1,364,389 in 1992 to 
2,029,471 in 2001), the economy in Santa Cruz was able to 
increase per capita GDP by almost 7 percent (GDP per capita 
fell by 6.5 percent in La Paz over the period).  This was the 
era of gas expansion:  pipelines were built, wells were 
drilled, and foreign investment poured into the region. 
However, it is not the Santa Cruz of today, and much of the 
push toward greater autonomy is likely linked to memories of 
those halcyon days and the freedom to participate fully and 
openly in the world economy. 
 
¶7.  (SBU) Today, the Santa Cruz economy depends heavily on 
agriculture (21 percent) and services (53 percent).  While 
some see a modern economy with a diversified base, this is 
really not the case.  Manufacturing represents some 17 
percent of output, but it is heavily skewed toward the 
processing of agricultural products.  Sixty-three percent of 
manufacturing in Santa Cruz is dedicated towards food and 
drink processing and an additional 23 percent of the total 
comes from the refineries recently taken over by the state 
from Petrobras.  Only around nine percent of Santa Cruz 
manufacturing could be (generously) considered light 
manufacturing (apart from agricultural processing).  In other 
words, there isn't much of a manufacturing base which could 
 
LA PAZ 00001154  003 OF 004 
 
 
be built up to absorb more labor and/or serve as a foundation 
on which to build a more sophisticated manufacturing sector. 
 
¶8.  (SBU) Not only is the common perception of the Santa Cruz 
economy flawed, its racial mixture is also misconstrued. 
According to an analysis done on the 2001 census data, there 
are 447,955 indigenous residents in the department, or 22 
percent of the total population.  While this pales in 
comparison to the over 65 percent in the three altiplano 
departments (La Paz (60 percent), Oruro (61 percent), and 
Potosi (81 percent), it does mean that Santa Cruz department 
has the fourth largest indigenous population in Bolivia. 
Moreover, a full 35 percent of rural Santa Cruz is 
indigenous. (Note:  Estimates of the indigenous population of 
Bolivia range widely (up to 80 percent) depending on the 
methods and timing of the surveys (Ref. B). End note.) 
 
¶9.  (SBU) As to the assertion that the agricultural sector is 
dominated by a handful of white oligarchs, the reality is 
considerably more complex. During the initial stages of the 
ban on cooking oil exports (Ref. C,D,E), it was widely 
reported that around 200,000 jobs depended upon the soy 
industry.  According to the Association of Oil Seed Producers 
(ANAPO), there are 46,000 field workers employed in soy 
production and some 25,000 dependent on the product's 
transportation.  Moreover, ANAPO claims that 77 percent of 
soy producers farm on less than 50 hectares of land (or 
10,780 of a total 14,000 producers), while only 2 percent 
farm areas larger than 1,000 hectares.  Taking a rough 
estimate that the average small farm is 25 hectares, that 
would mean that some 270,000 hectares are being farmed by 
small landholders.  Considering that around one million 
hectares are dedicated to soy production, these rough 
calculations would indicate that around one quarter of all 
soy production comes from small farmers in Santa Cruz.  Not 
quite the image promulgated by the Morales administration. 
Additionally, ANAPO claims that 31 percent of the soy crop is 
produced by Brazilians, 22 percent by Mennonite communities, 
6 percent by Japanese, and 35 percent by "Bolivian 
nationals". 
 
--------------------------------------------- ------------- 
Not a Fight Over Resources, Rather Over Economic Direction 
--------------------------------------------- ------------- 
 
¶10.  (SBU)  Economically speaking, the struggle for greater 
regional autonomy is frequently characterized as a fight for 
control over natural resources.  While true that asserting 
local control over gas revenue is vitally important to the 
department, a regional pride and a desire to pursue a 
liberal, market oriented economic agenda outside of the 
control and interference of the central government is behind 
the push for autonomy. 
 
¶11.  (C)  As discussed, Santa Cruz went through tremendous 
growth in the 1990s and grew from a sleepy backwater to a 
national leader.  The economic policies that made this growth 
possible are threatened by the statist policies of the 
Morales administration.  Crucenos see, and even acutely feel, 
their opportunity to be a regional economic (and gas) hub 
slipping through their fingers; the results of political 
chaos and economic policies can be seen most tangibly in 
their backyard.  Only 20 percent of Bolivia's gas is produced 
in Santa Cruz, but all of the international companies are 
headquartered there.  Moreover, in 2005 a full 69% of foreign 
direct investment (FDI) for the department went into the 
hydrocarbon sector.  Therefore, perhaps no other region feels 
the contraction of the industry more acutely than Santa Cruz 
(in the department of Tarija, where the majority of gas is 
produced, the impact of diminishing investment will not be 
fully felt until actual production (and the taxes it 
generates) begins to drop in the future).  Indeed, FDI to the 
department decreased 42 percent from 2004 to 2005, and has 
 
LA PAZ 00001154  004 OF 004 
 
 
likely fallen even further in the last two years.  (Note: 
Overall investment in the hydrocarbon sector has steadily 
decreased this decade, from $442 million in 2000, to an 
estimated $150 million in 2007.  Investment in the sector 
peaked in 1998 at $604 million. End note.) 
 
¶12.  (SBU)  Santa Cruz also depends more heavily than the 
rest of the country on trade.  Around 25 percent of all 
exports originate in the department and from 2000 to 2006, 
exports doubled from less than $500 million to almost $1 
billion.  The recent ban on cooking oil exports only drove 
home the belief that Santa Cruz needs protection from the 
arbitrary actions of the central government, which threaten 
their very livelihood.  The ability to run your own business 
and prosper from it is much more central to autonomy than 
control over natural resources. 
 
¶13.  (SBU)  Despite the importance of exports to Santa Cruz 
(and the ability to export freely to the autonomy movement), 
a closer look at export statistics surprisingly further 
supports the argument that the department is not as dynamic 
or diversified (as compared to the rest of the country) as is 
commonly assumed.  Removing hydrocarbons, exports from Santa 
Cruz grew by only 43 percent from 2000 to 2006 ($423 million 
to $605 million); in La Paz non-hydrocarbon exports almost 
doubled over the same period (from $153 million to a not 
insignificant $305 million (15 percent of total 
non-hydrocarbon exports).  Moreover, the bulk of these 
exports came from light manufacturing, a sector nearly absent 
in Santa Cruz and important in building an economy more 
independent from natural resources.  (Note:  Many of these 
industries depend on ATPDEA preferences.  End note) 
 
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Comment 
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¶14.  (C)  Santa Cruz remains the single biggest departmental 
economy; yet, it is not as rich, dynamic, or white as is 
commonly assumed.  However, despite what the numbers show, 
there is a palpable feeling of prosperity and dynamism in the 
city of Santa Cruz.  Perhaps because of this, the numbers are 
surprising.  Drug proceeds may help explain some of the 
discrepancy.  Many in Santa Cruz like to compare the growth 
in population and the economy to the Bolivian version of the 
American dream.  The challenges of absorbing such rapid 
internal migration coupled with a national government in La 
Paz advocating state control of the economy threaten to turn 
the dream into a memory. 
URS