A New Twist On Privatization

Nearly halfway through his four-year term, Bolivian President Gonzalo Sanchez de Lozada is racing against the clock. He has already reshaped the political landscape of South America's poorest country by shifting revenues and spending authority from the capital to long-neglected rural villages. But now he must attract foreigners to invest in a flock of run-down state-owned companies in businesses from telecommunications to oil and gas (table).

"It's much tougher than I had expected," says Sanchez de Lozada, speaking fluent English with the accent of Chicago, where he grew up. "If Mexico hadn't happened, we would have gotten this done more quickly." His timetable has been slowed by the chill that Mexico's financial crisis spread over investor enthusiasm for Latin America and by labor opposition to his reforms.

What Sanchez de Lozada is promoting as the linchpin of his agenda is privatization with a populist twist. On June 22, five U.S.-led energy consortiums and two from Chile will bid to take over three electric generating plants from state utility ENDE in the first round of "capitalization"--the name coined by the 64-year-old President, a self-made mining tycoon, for his brand of sell-offs. The winning bidders will agree to pump fresh money and management knowhow into the companies instead of buying them with cash payments to the government. For this, the investors will get 50% ownership plus management control. The other 50% of shares will be put into accounts for each adult Bolivian in privately managed pension funds. As the "capitalized" companies become more profitable, the value of the pension accounts should increase--and the growth of Bolivia's gross domestic product, around 4% annually in the past two years, should accelerate.

The ENDE sale "will be important to give the international financial sector confidence in the process," says Edward Derksen, vice-chairman of La Paz investment bank BHN Multibanco. On the block are three power companies worth an estimated total of $250 million. Bidders include consortiums led by subsidiaries of Enron Corp. and Baltimore Gas & Electric Co., as well as Chile's ENDESA and Chilgener.

To capitalize the remaining state-run companies, though, Sanchez de Lozada--known to Bolivians as "Goni"--must make haste. Bolivia's bar against consecutive presidential terms means that his reforms are likely to grind to a halt by late 1996 as politicking heats up for the following year's election. "If we're judged by what we've done, we're not doing badly," he says. "If we're judged by what we still have to get done, we're in a hurry."

MADE IN HEAVEN? Next in line for capitalization may be the long-distance service operated by telephone company ENTEL, which is valued at up to $400 million. But the biggest prize, oil company YPFB, is unlikely to be capitalized until next year. Much of its value, estimated at $500 million to $1 billion, will depend on negotiations with Brazil to build a 3,200-kilometer pipeline to carry Bolivian gas to So Paulo. "The main worth of YPFB, or at least the big part of the puzzle, depends on the gas pipeline," says Serge Matesco, general manager in Bolivia for French oil company Total. Although the pipeline should be a "marriage made in heaven" between gas-rich Bolivia and energy-starved Brazil, Sanchez de Lozada says, it has been held up by haggling over the price ef the gas.

Sanchez de Lozada is no newcomer to such economic reforms. As Bolivia's Planning Minister in the mid-1980s, he was one of Latin America's earliest free-marketers, abruptly halting 11,000% hyperinflation.

As President, though, Sanchez de Lozada's successes so far have been mostly his social initiatives. Under his "popular participation" plan, millions of dollars of revenues that formerly went to La Paz and other cities are being funneled to villages where local councils decide how the money is spent. Education reforms include classes in their native languages for the first time for the Aymara, Quechua, and Guaran Indians who make up the majority of Bolivia's 7.7 million people.

In such a linguistically fragmented country, Sanchez de Lozada himself is the ultimate outsider. As the son of a diplomat, he grew up in the U.S. and graduated from the University of Chicago with a degree in philosophy. After college and a brief career as a filmmaker, he returned to Bolivia, where his family's property had been confiscated during the 1950s land reform, and invested in small mining ventures. Now, his company, Comsur, is the country's biggest private mining concern. He still speaks Spanish like a yanqui. But despite the communications gap, Sanchez de Lozada insists that his capitalization rhetoric strikes a receptive chord among Bolivians.

DRUG DEADLINE. Paradoxically, a heavy blow to Sanchez de Lozada's plans could be dealt by Washington. The U.S. threatens to "decertify" Bolivia, the world's biggest coca-leaf grower after Peru, as uncooperative if the country fails to meet U.S. antidrug targets by June 30, including eradication of 1,750 hectares of coca plants. In that case, the U.S. would vote against badly needed loans to Bolivia by lenders such as the World Bank and would end much of the $87 million annual U.S. aid package. Although Sanchez de Lozada is trying to persuade Bolivian coca growers to clear their land and shift to planting other crops, he is reluctant to use armed force.

Despite such problems, one benefit of being President of Bolivia, says Sanchez de Lozada, is that "you can't do it worse than they have done before." Another is "the motorcades: You get around fast." To reshape Bolivia's economy, he will have to move like a motorcade and hope that foreign investors come along for the ride.

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