Bolivia is different: With some 30-plus indigenous groups accounting for two-thirds of its population, it has the highest percentage of native American peoples (almost all of whom are poor) of any South American country. Since 2006, the administration of Evo Morales has been intent on turning the established political and economic order upside down, displacing the non-indigenous ruling elite and challenging the influence of both the United States and the free market system. It's a high-risk experiment that's largely isolated Bolivia in an era of global integration.
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Morales, an indigenous leader and former coca grower, campaigned for office promising radical change. And his success (he won a fair election in 2005) was as much a testament to the desperation of Bolivia's poor as to Morale's charisma; Bolivia had the most unequal distribution of household income of any country in Latin America.
Shortly thereafter, he rammed through constitutional changes that reordered political power in favor of the indigenous majority and triggered the piecemeal nationalization of what Lenin called the "commanding heights" of industry. He has since governed with an eclectic strategy that blends a determination to address the wretched living standard of the indigenous majority with a surprising degree of pragmatism. (The photo above shows Morales handing out fake bills as part of the Alasitas festival.)
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Morales' first economic priority was to undo the 1990s reforms of President Gonzalo Sanchez de Lozada, arguably the most devoted believer in economist Jeffrey Sachs' prescription for rapid a transition to free markets. Sanchez de Lozada's brand of "shock therapy" included the partial privatization of key industries -- electric power, railways, telecoms -- along with an invitation to foreign investors to buy control of former state companies on the condition that they invested heavily in the economy.
Most of these industries have been re-nationalized, with foreign investors a key target. In December 2012, Morales decreed the nationalization of shares held by the Spanish firm Iberdrola in two electricity distribution companies. It was 15th takeover of foreign assets since Morales assumed power. More significant, this one may have ushered in a new chapter in the assertion of state control of the economy, since Iberdorla's holdings had never been state enterprises. And the beat goes on: In February, the government nationalized the Spanish company that operates Bolivia's three international airports, charging it was reaping "an exorbitant profit with a derisory capital input."
Not surprisingly, foreign investors are making themselves scarce. The lack of foreign investment has been partly offset by strong increases in public investment, with greatly increased involvement of key state corporations including Yacimientos Petrolíferos Fiscales Bolivianos in the oil and gas, and Comibol in mining. But Bolivia's state enterprises lack the technological proficiency and financial reach of multinationals, a reality that is slowing resource development. The situation is especially critical in the natural gas sector, where exportable surpluses (and foreign exchange earnings) will soon begin to decline unless new reserves are identified and accessed.
Another major economic stumbling block has been new barriers to trade with the United States. Morales has refused to cooperate in the suppression coca production, which remains a major cash crop for indigenous farmers in the Bolivian highlands. Playing tit-for-tat, the Obama Administration pulled the benefits Bolivia was due under the Andean Trade Preferences' Act, a law specifically designed as an incentive for South American countries to show more enthusiasm toward the war on drugs.
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