ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, May 03, 2006

Back To The Future?

I believe OW & Company were cheering the election of Evo Morales in Bolivia... calling it the start of a "trend." I wonder if they'd like the trend of nationalizing oil producers to catch on here in the US.

From today's WSJ
- Free to view today as part of their Open House.

Latin Energy Fad
May 3, 2006; Page A14

Latin culture is all the rage these days, from Botero sculptures and Shakira's "Hips Don't Lie," to burritos and margaritas. So maybe we shouldn't be surprised that Bolivia is getting in on another Latin craze: the abrogation of contracts.

We refer to President Evo Morales's pronouncement on May 1 -- not a coincidental date -- to tear up Bolivia's agreements with foreign investors in the natural gas industry and take, in his words, "absolute control" of Bolivia's natural resources. Kicking out foreign investors by executive decree sounds a lot like the same authoritarian nationalist populismo that has earned Bolivia the only prominence it has ever enjoyed: South America's poorest nation.

The Morales move shocked markets but not for its originality. The newly inaugurated president is following the lead of Venezuelan President Hugo Chávez, who is a knock-off of Argentine strongman Juan Peron. Peron is long since dead but his spirit lives on in his party, which has been the 21st century's trend setter in the assault on property rights. In 2001 and 2002, Argentina's Peronistas reneged on their commitments not only with foreigners but with their own people, declaring a debt moratorium, tearing up utility contracts, confiscating dollar bank accounts and devaluing the peso.

Señor Chávez followed suit after a fashion. He canceled contracts with foreign oil companies last month, demanding that the government oil company be given majority ownership and operational charge of oil fields. New terms offered to investors are also far less profitable. Some have agreed to stick it out, but Exxon Mobil sold its operations and when France's Total and Italy's ENI SpA refused to give in, Mr. Chávez responded by seizing their operations.

Like all fads, this one has its surface appeal. Argentina cleared its balance sheets by sticking it to its creditors and tearing up contracts. Its economy is still growing four years after its theft of private-sector assets, and it may even believe it's gotten something for nothing.

Yet the real predictor of a country's economic future lies in its investment rate. Economists estimate that to achieve steady long-term growth of 3.5% to 4%, Argentina needs an investment-to-GDP rate of at least 23%. To reach 5%, a more reasonable target for a quasi-developed country, it needs 25% investment to GDP. Yet last year's investment rate was a measly 19.8% and today's rate is only 22%. In other words, there are lots of places to put capital these days and few are rushing into Buenos Aires.

It may be that Mr. Morales has been emboldened by the petro wealth of Venezuela. But that country, too, is having trouble sustaining investment in energy production. Thanks to rampant corruption and the government's use of energy profits for buying support for socialism at home and around the region, Venezuela's oil fields are suffering from under-investment. Given an annual depletion rate of 25%, the only thing not clear is how long it will take to run the sector completely dry.

Bolivia to date has had only about $3.5 billion in foreign investment in natural gas, not nearly enough to exploit its vast reserves in the future. Even if Brazil's Petrobras and Spain's Repsol YPF decide to stay and accept the operating terms laid down by President Morales -- including a tax of 82% on natural gas extracted from country's two biggest fields -- new investment is unlikely to be nearly so brave.

Which means Bolivia would become either less productive or highly dependent on state-owned foreign companies from Venezuela or perhaps Russia. Neither option bodes well for the country's sovereignty, much less its prosperity.

Chavez's Oil-For-Chickens program in Venezuela is not what I would consider to be a sustainable strategery. It seems that Latin America is choosing to return to the policies of 60 years ago... forgetting that socialism & communism (ie planned economies) only empoverish the citizenry and enrich party leaders.

Evo Morales & Hugo Chavez are heroes to the Leftists of today who conversely view Bush as the worst monster in history. Evo is pictured on the right. And that's not confetti... that's coca, baby.

***UPDATE***
And, yes.... the DUers are applauding, indeed:
LiberalPartisan (496 posts)
Wed May-03-06 04:31 PM

Original message

Bolivia nationalizes oil & gas sector

A great day for Bolivia!!!
RIO DE JANEIRO - President Evo Morales of Bolivia ordered the military to occupy energy fields around the country on Monday as he placed Bolivia's oil and gas reserves under state control.
Surrounded by soldiers at an oil field operated by the Brazilian energy giant Petróleo Brasileiro, or Petrobras, Mr. Morales ordered foreign producers to relinquish control of all fields and channel future sales of hydrocarbons through the state-owned energy company.

He gave foreign companies 180 days to renegotiate existing contracts with the government, or leave the country.

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Mr. Morales declared, according to The Associated Press. "The looting by the foreign companies has ended."

Continued...


90-percent Donating Member (625 posts) Wed May-03-06 05:14 PM
Response to Original message

1. NPR this morning

reported that it was a big error in judgement for Bolivia's prez and they need all these foreign natural gas companies to make any money at all.

What they're doing nationalizing is going to drive the country into deeperpoverty, according to NPR.

Please explain to me?

-85% Jimmy

Perhaps Jimmy needs a crash course in Econ 101?

And why is it that the Left always gets peeved when we call them communists? Nationalizing an industry (be it oil or healthcare) is a communist (and authoritarian) act, no?

Your Co-Conspirator,
ARC: St Wendeler