Foreign Direct Investment Policy and Development in Bolivia under Morales

• Published date: 01 September 2018
• Date: 01 September 2018
• DOI: 10.1177/0094582X16683373
• Author: Juan M. Ramírez-Cendrero,María J. Paz
• Subject Matter: Articles

LATIN AMERICAN PERSPECTIVES, Issue 222, Vol. 45 No. 5, September 2018, 18–34

DOI: 10.1177/0094582X16683373

© 2016 Latin American Perspectives

18

Foreign Direct Investment Policy and

Development in Bolivia under Morales

by

María J. Paz and Juan M. Ramírez-Cendrero

Since 2006, Bolivia has made major changes to its economic policy and development

strategy, especially with regard to the treatment of foreign capital. Analysis of the change

in foreign direct investment policy as applied to the oil and gas industry reveals that it has

produced greater state involvement in and control of oil revenues but no great strides in

gas investment, production, or industrialization. This result contributes to the current

debate on whether foreign direct investment policy is the best means of development for

resource-rich countries.

Desde 2006, Bolivia ha implementado grandes cambios en su política económica y sus

estrategias de desarrollo, especialmente con relación al trato del capital extranjero. El

análisis del cambio en la política sobre la inversión extranjera directa en la industria del

petróleo y el gas revela que esa nueva política ha producido una mayor participación del

estado en ese sector y un mayor control de los ingresos del petróleo pero no grandes avances

en la inversión, producción e industrialización de esos recursos. Este resultado contribuye

grandemente al debate actual sobre si la política sobre la inversión extranjera directa es el

mejor medio de desarrollo para los países ricos en recursos naturales.

Keywords: Foreign direct investment policy, Development, Natural resources, Bolivia,

Oil and gas industry

Foreign direct investment inflows are an indicator of transnational corpora-

tion investment in an economy, and given the absence of national investment

that is typical of developing economies these inflows are important. The 1980s

and 1990s were characterized by an increase in foreign direct investment

inflows into developing economies. In a context marked by neoliberalism,

these inflows were stimulated by, among other factors, very favorable policies,

since they were considered to contribute significantly to economic develop-

ment. However, since the beginning of the twenty-first century there has been

a proliferation of academic literature questioning the effects of foreign direct

investment inflows, and this has led to a rethinking of the role of the corre-

sponding policies (Gallagher and Chudnovsky, 2010; Lall and Narula, 2004;

UNCTAD, 2003). As a result of these assessments, several governments in Latin

America have substantially modified their foreign direct investment policies in

the natural resources sector, in some cases nationalizing companies privatized

over the previous two decades. Among these governments, that of Bolivia

María J. Paz and Juan M. Ramírez-Cendrero are lecturers and researchers at the Universidad

Complutense de Madrid.

683373LAPXXX10.1177/0094582X16683373LATIN AMERICAN PERSPECTIVESPaz and Ramírez-Cendrero / INVESTMENT POLICY AND DEVELOPMENT

research-article2016

Paz and Ramírez-Cendrero / INVESTMENT POLICY AND DEVELOPMENT 19

stands out both as a pioneer and for the apparent radicalism of the measures

taken.

The objective of this work is to answer two questions: What have been the

changes in foreign direct investment policy with regard to oil and gas since

the rise to power of Evo Morales, and have these changes contributed to the

advance of the Morales government’s development goals? With this analysis we

aim to contribute to the current debate on the role of foreign direct investment

policy in development. As suggested by Rugraff, Sánchez-Ancochea, and Sumner

(2009: 47–48), this requires the consideration of case studies such as we propose

here as a complement to econometric analyses, which have failed to provide a

universal answer. Although our results cannot be fully extrapolated to other

economies, they may help to identify the scope and limits of some of the current

changes in foreign direct investment policy in the extractive sectors.

Our choice of the oil and gas industry in Bolivia is justified by several factors.

First, there is the importance of the extractive sectors in the “new” develop-

ment strategies. The National Development Plan, formulated in 2006, is a good

example. According to the plan, the extractive sectors are central as the core of

structural change throughout the economy (the new productive matrix) and as

revenue generators; therefore, what happens in this sector largely determines

the outcome of the development strategy as a whole. As a result, the scope of

our conclusions transcends the purely sectorial, because their links to a possible

development strategy will be crucial. In addition, this broad scope will make it

easier to derive lessons for other countries with similar economic configura-

tions. Second, these sectors have clear limitations associated with the excessive

presence of such investment. Third, at least a priori, nationalization would

seem to be a radical shift toward the recovery of policy space for national gov-

ernments in developing economies. Fourth, in recent years some writers

(Webber, 2011) have called for closer analysis of the policies of the Movement

toward Socialism (MAS), and in fact many specialists have shown a gradual

distancing of the economic policy of the Bolivian government from the moti-

vating principles of the MAS (Estermann, 2012). Our paper seeks to provide a

specific analysis of changes in foreign direct investment policy in the hydrocar-

bons sector from the perspective of the government’s development goals.

To address our objective, it is necessary to begin by delimiting the influence of

foreign direct investment policy upon economic development. From here, and

taking as reference the general proposal of the United Nations Conference on

Trade and Development (UNCTAD, 2012), we identify the key aspects that

should inform foreign direct investment policy for the oil and gas industry. In the

third section we present the main features of the Bolivian National Development

Plan. Finally, after describing the Bolivian pattern of development, we evaluate

whether the changes in policy have allowed pursuit of the development goals

outlined in the National Development Plan and then synthesize our main conclu-

sions.

FOREIGN DIRECT INVESTMENT POLICY AND DEVELOPMENT

A review of the economic literature about the effects of foreign direct invest-

ment in the developing economies allows us to reject the automatism of this