Gas-Driven Growth Powers Morales Re-Election Bid in Bolivia

Bolivian President Evo Morales is favored to win re-election this weekend after delivering eight years of uninterrupted growth following the nationalization of gas fields in 2006.

Morales was backed by 59 percent of those surveyed in an Ipsos poll between Sept. 8 and 23, more than double the combined tally of his four closest rivals, including Samuel Doria, who owns the country’s biggest cement producer. A candidate needs to win more than 40 percent and finish at least 10 percentage points ahead of the nearest rival to avoid a second-round vote.

Morales is already Bolivia’s longest serving head of state since 1839 and has more than doubled income per capita in South America’s poorest nation since he deployed troops with machine guns to seize foreign-owned gas fields. Production at those fields may begin to decline in 2017, threatening gas supply contracts with Brazil and Argentina that account for 57 percent of exports and 45 percent of fiscal revenue, said Alvaro Rios, a former Bolivian energy minister.

“When Evo Morales came to power, no one was expecting this bonanza,” Bernardo Fernandez, an economics professor at Universidad Catolica Boliviana, said by phone from La Paz. “These have been a very prosperous eight years, and there’ll be a couple more before the fiscal situation starts to deteriorate.”

About 6 million Bolivians will vote between 8 a.m. and 6 p.m. on Oct. 12 to elect the president, vice president and 166 members of Congress. Preliminary results based on 70 percent of votes counted will be announced by midnight, according to Bolivia Transparente, which will observe the elections.

Getting Better

Morales, Bolivia’s first leader of Aymara Indian origin, delivered growth averaging 5 percent over the past eight years, fueled by surging gas exports to energy-starved Argentina and Brazil. In the decade before he took power, Bolivia had six presidents and annual growth averaging 2.9 percent.

Fiscal revenue has jumped 160 percent since 2006, financing welfare programs and the construction of roads, schools and hospitals.

Per-capita GDP in the country of 10 million has surged 126 percent to $2,989, while remaining the lowest in South America, according to the International Monetary Fund. The poverty rate fell to 45 percent in 2011 from 60 percent in 2005, according to the country’s statistics office.

“Many families consider their situation is better than it was five years ago and that in the next few years it will be even better,” said Carla de la Torre, a senior analyst at Ipsos Bolivia. “The economic factor is what’s maintaining support for Evo Morales.”

Poor Support

In Ipsos’ September poll, its last before the vote, support for Morales was 68 percent among the poor and 30 percent among the highest income groups. Ipsos questioned 3,000 adults nationwide and the poll’s margin of error was plus or minus 1.79 percentage points.

Though Bolivia’s 2009 constitution bars presidents from seeking a third consecutive term, the Supreme Court ruled last year that it doesn’t apply to Morales as his first term came before the new constitution was signed.

Unlike political allies such as President Nicolas Maduro in Venezuela and Cristina Fernandez de Kirchner in Argentina, Morales has managed to sustain economic growth while posting eight consecutive fiscal surpluses.

Venezuela’s economy will contract 3 percent this year with a budget shortfall equivalent to 14 percent of gross domestic product, while Argentina shrinks 1.7 percent on a deficit of 4.5 percent, according to IMF forecasts.

Doing Battle

Bolivia issued $500 million of bonds overseas in October 2012, the country’s first sale since the 1920s. The bonds were sold to yield 4.875 percent, 3.075 percentage points lower than bonds sold by Ecuador when it returned to international debt markets in June this year after defaulting in 2008.

The yield on Bolivia’s 2022 notes was unchanged at 4.69 percent at 11.23 a.m. in La Paz after falling 86 basis points, or 0.86 percentage point, this year. The average drop in Latin America this year is 0.54 percentage point, according to JPMorgan Chase & Co. indices.

While Petroleo Brasileiro SA, Repsol SA and Total SA lost ownership of local gas fields under Morales’ 2006 nationalization law, they signed contracts to continue operating as service providers, delivering all their output to state-owned Yacimientos Petroliferos Fiscales Bolivianos. The government later offered the firms tax and compensation incentives to increase exploration and output.

“We’ve done battle against a model that was based on the looting of our natural resources,” Morales said at an Oct. 8 rally in El Alto, a city neighboring the capital, La Paz. “We’re better off politically, democratically and, most of all, economically.”

Production Horizon

The next four years may not be so good to Morales as Bolivia faces a decline in gas output by 2017 if no new deposits are discovered, said Cesar Arias, an analyst at Fitch Ratings in New York.

While companies are increasing output at existing gas fields, exploration in new deposits is not enough to keep up with demand from Argentina and Brazil, Rios said.

Congress passed a bill this year to stimulate private investment with measures including increased legal security, though Morales still has to sign it into law. The law is broad and more detailed, business-friendly legislation is needed to boost investment, said the economics professor Fernandez.

“We are bit more hopeful that the Morales administration is showing greater openness and pragmatism towards attracting investment but these are very early signs,” said Arias. Fitch upgraded the outlook on Bolivian sovereign debt to “positive” in an Aug. 12 note.

An e-mail to the president’s office seeking comment on the outlook for gas output didn’t get a reply.

Lost Allure

Foreign companies are more interested in developing shale gas reserves in countries such as the U.S. and Mexico with more open economies, said Eric Farnsworth, vice president of the Council of Americas, a group representing U.S. businesses.

“There’s a huge competitiveness issue that’s going to take years for the Bolivians to get their arms around,” Farnsworth said by phone from Washington. “They should have been doing that for the last 10 years, instead of squandering the advantages and early movement that they had.”

Morales met with Russian President Vladimir Putin in Brasilia on July 16 and announced that Moscow-based Rosneft OAO would follow Gazprom OAO to explore for gas in the South American country.

Morales also announced Oct. 5 that state-owned YPFB will spend $300 million on exploration in new areas of the country, according to state news agency ABI.

Spending Growth

Fiscal accounts in Bolivia may start to deteriorate even before gas production peaks. This year’s pre-election spending increase will probably lead the government to post its first budget deficit since Morales took office, according to the IMF.

The election pledges included a once-a-year cash payment for those aged 60 and older and a 10 percent pay rise for workers at some state companies, including YPFB.

Now, Morales must ensure he can finance those promises in the long term. While Arias is optimistic Morales will do enough to attract investment in new gas fields and increase fiscal revenue, Farnsworth is more skeptical.

“Bolivia’s a high-risk, low-return economy that has no hope of competing for gas investment given where the government has taken the country,” Farnsworth said. “It’s not facing total collapse, but a slow burn.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE