Bolivia2005 INVESTMENT CLIMATE STATEMENT
Bolivia remains a difficult place to do
business. Despite having the right laws in place,
fluid currency exchange and liberal trade policies,
the country is plagued by social issues related to
centuries of social and racial inequality. In recent
years, indigenous, labor and anti-globalization
organizations have targeted private investment,
especially foreign investment, as the cause of many
of Bolivia's ills. There are bright spots in the
economy, however, such as mining and textiles, but
potential investors should investigate Bolivia
carefully before making any investment, giving
special attention to the specific region in which
they will be working and the related political and
social issues affecting the sector. Political
violence is also a concern and, though rare, can
escalate quickly. Investors should also understand
that there is little respect for intellectual
property rights (IPR). The occupation of private
land by squatters is also increasing in frequency.
In short, Bolivia may offer excellent investment
opportunities for the risk-tolerant investor in
certain sectors, but companies should expect to do
extensive due diligence before committing funds in
country.
Overview
After macroeconomic stability was achieved in
1986, five successive Bolivian governments avidly
sought to attract foreign investors to speed the
country's economic development. These governments
were aware that large infusions of Foreign Direct
Investment (FDI) were necessary - but not sufficient
- for Bolivia to achieve per capita income growth.
The capitalization program (Bolivia's version of
privatization) was previously the centerpiece of the
investment strategy. In the past few years,
however, certain social groups have convinced the
government to review contracts with foreign
investors. In response, the Mesa Administration has
promised to keep a close eye on foreign investors.
These civil society groups specifically want the
government to induce foreign and large domestic
investors to pay more to the state and to contribute
more to social development, as many in the Bolivian
population have not seen or felt the beneficial
effects of large investments in the country.
In the past year, however, the progress
previously made to attract FDI has been jeopardized.
After the October 2003 "Gas War" (see chapter 3),
political pressure led to President Carlos Mesa's
promise to change the 1996 hydrocarbons Law. On
July 18, 2004, in a national referendum, Bolivians
overwhelmingly voted to abolish the current
hydrocarbon law and establish a new law that elicits
greater revenues and take back State control of
hydrocarbons activities. As of January 2005,
negotiations in Congress continue to debate a new
draft law, with many investors worried about the
confiscatory direction in which the bill is heading.
Laws Governing Foreign Investment
Foreign ownership is allowed virtually throughout
the economy, with no requirement to register foreign
direct investment separately. The Bolivian
Constitution restricts investments by foreigners in
operations along the border areas, unless the
investment or project is declared of national
interest. Foreign investment is neither screened
nor officially treated in a discriminatory manner.
There are no registration requirements for foreign
direct investors in Bolivia or any special
incentives for domestic or foreign investment. That
said, investments often do not receive the full
protection offered by law due to sometimes
inconsistent and arbitrary decisions by regulators,
an easily corrupted and influenced justice system
that can deny legal due process, and arbitrarily
unfavorable interpretations of laws and regulations
by government officials.
The Investment Law (Law 1182, 1990) guarantees
that foreign investors will receive national
treatment, have access to free currency conversion,
enjoy unrestricted remittances, and the right to
international arbitration in most industries.
Laws governing activities in the mining (Law
1777, 1997) and hydrocarbons (Law 1689, 1996)
sectors authorized joint ventures with state-owned
corporations and modified the tax system to allow
foreign firms paying taxes in Bolivia to obtain
foreign tax credits in their home countries. The
Mining Law also allows foreign firms to operate
within 50 kilometers of international borders
through joint ventures or service contracts with the
Bolivian Mining Corporation (COMIBOL), with the
exception of firms that are residents of the country
adjacent to the affected border. The Hydrocarbons
Law allows settlement of disputes through
arbitration. The Arbitration and Conciliation Law
(Law 1770, 1997) provided procedures and enforcement
mechanisms for international arbitration.
The Banking Law (Law 1488, 1993) established
regulations for new activities such as leasing and
foreign currency hedging. It also authorized banks
to maintain accounts in foreign currencies, clearly
a response to popular activity, as over 90 percent
of all deposits in the Bolivian banking system are
denominated in U.S. dollars (as of end 2004) or held
in accounts linked to the exchange rate with the
dollar. The Banking Law also clarified the roles of
the Central Bank and the Superintendent of Banks and
redefined capital and reserve requirements.
Bolivia has no laws that directly regulate
competition, such as anti-trust laws in the United
States. Instead, articles regulating unfair
competition are scattered throughout the country's
laws governing activity in specific economic
sectors.
The Government of Bolivia created the Sectoral
Regulatory System (SIRESE) to balance the potential
market power of monopolies. SIRESE is an autonomous
regulatory body made up of a General Superintendent
and five Superintendents, who regulate many aspects
of business in the telecommunications, electricity,
transport, hydrocarbons and water sectors. Prices
of most public utilities are reviewed and approved
by the respective Superintendent. Market forces
largely set prices, though where necessary a
regulated price is established through relatively
transparent procedures and formulas. The exception
to this is potable water and garbage collection,
where municipalities set the local rates.
Most hydrocarbons exploration activity is
carried out via joint venture contracts administered
by Yacimientos Petroliferos Fiscales Bolivianos
(YPFB), formerly the Bolivian state hydrocarbons
company. This could change with passage of a new
hydrocarbons law. Although most of the mines
currently owned by the state-run Bolivian Mining
Corporation (COMIBOL) cannot be purchased outright,
as stipulated by the Bolivian Constitution, they can
be operated by private operators in a joint venture
or under a leasing contract with COMIBOL.
The Agrarian Law (Law 1715, 1996) set out the
rights and obligations associated with land
ownership; incorporated the concept of sustainable
development; established a new institutional
framework for the development of land use; and
created an independent Agrarian Superintendent to
administer the law's provisions. A definitive
registry of land titles - essential to the provision
of credit - continues to be compiled, albeit slowly.
Foreign firms are able to participate in
government research programs, although few if any
programs exist. Work permit, visa and residence
requirements are non-discriminatory.
The government sets a minimum monthly wage each
year, currently about USD 55 per month, although
nearly all workers in the formal private sector earn
more than the minimum wage. On average, urban
factory workers earn the equivalent of USD 100 per
month plus benefits.
Although some bureaucratic procedures have been
reduced, plenty of red tape and archaic procedures
remain at all levels of the Bolivian Government.
The last few administrations worked to "de-
bureaucratize" the government, with modest success
at best. Public sector corruption also remains a
major challenge, with firms sometimes asked for
bribes by public officials to speed up bureaucratic
procedures or to avoid unpleasant, adverse actions.
Conversion and Transfer Policies
There is free currency conversion at local banks
and exchange houses. The official exchange rate is
set by a daily auction of dollars managed by the
Central Bank. The Central Bank offers a given
amount of U.S. dollars each day but sets an
undisclosed minimum floor price. Since 1985, the
Central Bank has managed a steady depreciation of
the local currency, the Boliviano, in line with the
rate of inflation and competitive devaluations of
trade partners. The parallel rate has tracked the
official rate closely, suggesting that the market
finds the Central Bank's policy acceptable. Over
the last few years, the Central Bank has tried to
further encourage greater use of domestic currency
in the banking system, with only limited success.
Nevertheless, there are no restrictions on any kind
of remittances or currency transfers.
Expropriation and Compensation
Article 22 of the Bolivian Constitution provides
that property may be expropriated for the public
good or when the property does not fulfill a "social
purpose." It also stipulates that just compensation
must be provided. The Mining and Hydrocarbons Laws
provide the means to expropriate land needed to
develop the underlying concession.
A significant State expropriation in Bolivia
occurred in 1969, when the Government nationalized
petroleum concessions granted to the local branch of
Gulf Oil. Although the compensation agreement
allowed for a 30-year payment period, the entire
compensation due to Gulf Oil was paid off in seven
years.
An additional incident occurred in 2000 when the
Bolivian Government canceled a water concession in
the city of Cochabamba. In 1997, the Government
issued an international bidding process to call for
tenders to privatize Cochabamba's water company
(SEMAPA). Although the concession contract was
awarded in April 1999 to Aguas del Tunari (an
international consortium lead by International Water
Limited/Bechtel), the water regulator revoked the
contract after violent protests in Cochabamba in
March and April of 2000. In early 2002, Bechtel and
the Government of Bolivia submitted the case to the
International Center for Settlement of Investment
Disputes (ICSID) in New York, where arbitration
procedures were filed. As of December 2004, both
parties remain in talks aimed at reaching a
settlement.
In early January 2005, the Bolivian Government
revoked another water concession. In response to
significant public pressure, President Carlos Mesa
enacted a Supreme Decree unilaterally cancelling a
contract to supply water to La Paz and El Alto.
The French investor, Suez Lyonnaise Des Eaux, enjoys
the protection of a Bilateral Investment Treaty
(BIT) between Bolivia and France.
Dispute Settlement
Property and contractual rights may be enforced
in Bolivian courts, but the legal process is time-
consuming at best and at worst subject to political
influences and pervasive corruption. For that
reason, the National Chamber of Commerce - with
assistance from USAID - has established a local
Arbitration Tribunal. The Investment Law provides
that investors may submit their differences to
arbitration in accordance with the constitution and
international norms. The U.S.-Bolivia Bilateral
Investment Treaty (BIT) entered into effect on June
7, 2001 and further extended protections for U.S.
investors. As of December 2004, the BIT remains
untested, though a number of companies are
investigating their options under the Treaty, should
a confiscatory hydrocarbons bill become law.
The Bolivian Government accepts binding
international arbitration in all sectors. The 1997
Arbitration and Conciliation Law created an
alternative means by which businesses can resolve
commercial legal disputes and provided a more
comprehensive framework for national and
international arbitration. This law stated that
international agreements, such as the New York
Convention of 1958 on the Recognition and
Enforcement of Foreign Arbitrage Awards, must be
honored. It also mandated the recognition of
foreign decisions and awards and established
procedures for the Supreme Court to execute any such
decision or award.
There are a number of efforts under way to
reform and improve Bolivia's justice system, which
are beginning to show results in some regional
courts. However, entrenched interests continue to
resist the implementation of many reforms. We note
that some decisions by the Supreme Court and
Constitutional Tribunal in the past have been
influenced by outside factors, throwing into doubt
any ability to enforce these decisions effectively.
Nevertheless, the Bolivian Supreme Court, for
the most part, has rendered decisions that have been
fair and have benefited U.S. companies. However,
neither Bolivian nor foreign companies can yet rely
on the judicial system to enforce contracts or
administer other forms of fair and impartial
justice. It is highly recommended that U.S.
companies include an international arbitration
clause in all contracts with Bolivian private and
public entities.
Bolivia has a Commercial Code (Decree Law 14379,
1977) whose roots date from 1939. Although many of
its provisions have been modified and supplanted by
other specific laws, the Commercial Code continues
to serve as general regulation for commercial
activities. Bolivia has no Bankruptcy Law although
the previous administration submitted corporate
restructuring and bankruptcy regulation bills to the
Bolivian Congress in 2003. The Government recently
passed legislation which created a "Hospital for
Businesses" to assist companies with credit
restructuring.
Performance Requirements/Incentives
The Bolivian Government does not impose any
performance requirements as conditions for
establishing, maintaining or expanding a business
establishment. Nor does it provide tax or
investment incentives that discriminate against
foreign investors. Some local governments
(municipalities) have established property tax
exemptions for businesses located in their areas.
Right to Private Ownership and Establishment
Foreign and domestic entities share the same
rights to establish, acquire and dispose of
interests in business enterprises, as well as to
engage in remunerative activity. All private
enterprises enjoy the same access to markets,
credit, licenses and supplies as public enterprises,
given the exceptions noted above regarding the legal
sanctioning of temporary monopolies.
Protection of Property Rights
In general, Bolivian law guarantees property
rights. Both chattel and real property rights are
recognized, though not consistently enforced. The
Office of Property Registry provides a means to
protect and facilitate acquisition and disposition
of property rights for land, real estate and
mortgages. Mortgages exist and can be obtained
through the local financial system.
Successive administrations have sought to
improve the enforcement of private property rights
with varying degrees of success. The first Sanchez
de Lozada Administration (1993-1997) enacted the
Agrarian Law to reform the National Service of
Agrarian Reform (INRA) and the Institute of
Colonization, both of which handled land registry.
Despite these reform efforts, challenges to land
titles are common and an adequate system for title
verification is lacking. Competing claims to land
titles and the absence of a reliable legal process
to resolve land title disputes creates risk and
uncertainty in real property acquisition. There
have been several allegations of corruption against
INRA, the land-titling agency. Illegal squatting on
private, rural properties is an ongoing, serious
problem. The Embassy advises that investors not
leave land or other properties unattended, given
rampant squatting in both rural and urban areas.
Intellectual Property Rights
Bolivia's existing legislation governing
protection of intellectual property rights (IPR) is
insufficient, and enforcement efforts have been
sporadic and largely ineffective. Piracy rates of
videos, sound recordings, and software remain among
the highest in Latin America. The only way one can
currently attempt effective protection of trademarks
or other intellectual property is to hire a local
attorney to initiate a civil court action against
offenders. The 1992 Copyright Law recognizes
copyright infringement as a public offense, and the
new Bolivian Criminal Procedures Code (enacted May
2001) provides for criminal prosecution of IPR
violations. However, laws are largely not enforced
and U.S. firms have had little success in getting
justice in this area from Bolivian courts. The
Embassy is aware of only one criminal IPR
prosecution. Anti-IPR lobbies are strong in Bolivia.
The government is officially trying to modernize
both its legislation and its enforcement
capabilities regarding the protection of IPR, though
little action has been taken since President Carlos
Mesa took office. In 2000 and 2001, the Ministry of
Justice drafted a new IPR law that was submitted to
Congress for ratification. The bill has yet to be
addressed, and there are not plans to include it in
the 2005 legislative agenda. Bolivia is a member of
the Andean Community (CAN). Therefore, CAN decisions
- specifically CAN Decision 486 on IPR - should take
legal precedence over Bolivia's national IPR-related
laws, though few judges are even aware of the CAN
decision, much less its applicability in Bolivia.
The Bolivian Senate ratified the Patent Cooperation
Treaty (PCT) in July 2003, though no action has been
taken to enforce it.
In 1999, the Bolivian Government established an
independent National Intellectual Property Rights
Service (SENAPI), uniting under one authority the
previously disparate offices in charge of enforcing
industrial property rights and copyrights. This
effort has brought some coherency to government
efforts to protect IPR effectively. Bolivia has
joined the World Intellectual Property Organization,
and Congress approved accession to the Paris, Geneva
and Bern Conventions. Unfortunately, SENAPI's reach
is limited - it has no oversight of pirated
medicines, for example, which are regulated by the
Ministry of Health - and at least one political
party has demonstrated its interest in re-
politicizing the agency.
The Bolivian Copyright Law (Law 1322, 1992)
provides IPR protection for literary, artistic and
scientific works for the lifetime of the author plus
50 years. It protects the rights of Bolivian
authors, of foreign authors domiciled in Bolivia,
and of foreign authors published for the first time
in Bolivia. Foreigners not domiciled in Bolivia
enjoy protection under the Copyright Law to the
extent provided in international conventions and
treaties to which Bolivia is a party. Bolivian
copyright protection includes the exclusive right to
copy or reproduce work; to revise, adapt or prepare
derivative works; to distribute copies of the work;
and to communicate the work publicly.
Although the exclusive right to translate the
work is not explicitly granted in the law, it does
prevent unauthorized adaptation, transformation,
modification and editing. The law also provides
protection for software and databases.
The Bolivian Film and Video Law (Law 1302,1991)
also contains elements of IPR protection. The law
created the National Movie Council (CONACINE) in
order to coordinate, control and carry out various
activities related to the movie industry. The law
also requires that all films and videos shown or
distributed in Bolivia be registered with CONACINE.
Television stations have been among the worst
IPR violators in Bolivia, often not paying rights to
broadcast TV programs. The Superintendent of
Telecommunications has implemented some measures
designed to ensure that only licensed material is
televised, but these actions have been limited, and
TV piracy continues to thrive.
As of now, patent registrations are reviewed for
form rather than for substance. A notice of the
proposed patent registration is then published in
the Official Gazette. If there are no objections
within 50 days, a patent is granted for a period of
15 years. The patent must be used in Bolivia within
two years to preserve its validity.
The registration of trademarks parallels that of
patents, except that the period for objections to a
trademark registration is 18 months after
publication. Once obtained, a trademark is valid for
a 10-year period and is renewable. It becomes null
if not used over an 18-month period.
While there had been a significant backlog in
patent and trademark registrations before 2002,
SENAPI made significant progress in 2003. SENAPI
lacks the institutional capacity and political
weight to effectively enforce IPR laws and
regulations. Since 2003, USAID has been supporting
the non-political institutionalization of SENAPI.
There are presently no laws protecting trade
secrets.
Transparency of the Regulatory System
The Sectoral Regulation System (SIRESE) was
established in October 1994 to control and supervise
the activities pertaining to electricity,
telecommunications, hydrocarbons, transportation and
water sectors. The Electricity Law (Law 1604,
1994), the Telecommunications Law (Law 1632, 1995)
and the Hydrocarbons Law (Law 1689, 1996) defined
the characteristics and functions of their
respective superintendents.
The five superintendencies, each headed by a
separate superintendent, are autonomous institutions
whose activities are financed through the assessment
of fees on firms operating in their respective
sectors. The General Superintendent, whose office
is empowered to hear appeals of any decision by a
superintendent, heads SIRESE. Concessions of public
services and licenses are granted by administrative
resolution issued by the respective superintendent.
The SIRESE Law (Law 1600, 1994) establishes
general principles governing anti-competitive
practices. Specifically, companies engaged in
regulated activities are forbidden from
participating in agreements, contracts, decisions
and/or practices whose purpose or effect is to
hinder, restrict or distort free competition.
A similar system has recently been created for
the financial sector. However, several laws have
changed its structure over the last five years.
Most recently, the "Bonosol Law" and Supreme Decree
27026, enacted on May 6, 2003, re-established the
duties for the General Superintendent of SIRESE and
its Superintendencies.
In April 2002, the Bolivian Congress approved a
new Administrative Procedures Law (Law 2341, 2002)
designed to enhance public participation in the
rulemaking process and strengthen the administration
of public agencies.
Efficient Capital Markets and Portfolio Investment
Historically, Bolivian commercial banks were
closely held operations that lent only to persons or
firms well known to the bank. Foreign institutions
and shareholders hold a large segment of the
Bolivian banking system today and have brought
international norms to Bolivia with them. As a
result, Bolivian bankers are developing in-house
capabilities to adjudicate credit risk and to
evaluate expected rates of return according to
international norms.
Foreign investors may find it difficult to
qualify for loans from local banks due to a previous
requirement that domestic loans be made only against
domestic collateral. In 1993, the Superintendency
of Banks issued new regulations designed to
facilitate bank lending to companies based on a cash
flow analysis. Since commercial credit is generally
extended on a short-term basis at high interest
rates, most foreign investors prefer to obtain
credit from foreign sources.
Another option available to established Bolivian
companies is the issuance of short- or medium-term
debt in the local stock market. Currently, the
principal activity of the exchange is to provide a
secondary market for Central Bank certificates of
deposit. The Bolivian stock market seeks, however,
to expand handling of local corporate bond issues,
and the passage of the Securities Law (Law 1834,
1998) provides the groundwork for creating a truly
modern exchange. Several Bolivian companies and
some foreign companies have been able to raise
funding from the Bolivian capital market over the
last years.
The Securities Law also established a securities
commission that has already approved the
establishment of several Bolivian mutual funds.
Unfortunately, few local companies issue stock,
making the choices for these funds quite limited.
Although most accounting regulations follow
international principles, Bolivian accounting
procedures and reports do not yet conform to world
standards. It is common for Bolivian firms to
maintain various sets of books: one set for the tax
authorities; another for its bankers; and another
for the management's own use.
The Banking Law (Law 1488,1993) was a first step
towards modernizing the Bolivian banking system, as
it addressed emerging areas such as establishing
rules governing leasing and setting parameters for
bank holding companies. The Central Bank Law (Law
1670, 1995) refined the Central Bank's authority
over the banking sector, setting higher reserve
requirements and eliminating insider lending that
had led to the collapse of many Bolivian banks.
After the Banzer/Quiroga Administration (1997-
2002) enacted additional changes to the regulatory
financial framework such as the Law of Property and
Popular Credit (Law 1834, 1998), the Sanchez de
Lozada Administration enacted the "Bonosol Law" (Law
2427, 2002) and the Supreme Decree 27026, which
partially modified the regulatory system governing
the banking and financial regulatory framework.
As a result of 1999 - 2003's economic
stagnation, most bank indicators headed south.
Banks' portfolios decreased from USD 4 billion in
1999 to USD 2.5 billion at the end of 2004.
Deposits fell by USD 200 million in the first nine
months of 2004 alone, from USD 2.7 billion at the
end of 2003 to USD 2.5 billion. Liabilities with
foreign creditors increased from USD 70 million in
December 2003 to USD 75 million as of September
2004.
The portfolio of loans in arrears has been the
most worrisome factor in Bolivia's recent banking
history, increasing from 11.6 percent at the end of
2000 to 25.5 percent in October 2004. Bank managers
reacted by conducting financial operations more
carefully and closely following prudential lending
norms. The private sector has complained and
lobbied the last two administrations to ease credit
eligibility and establish debt-restructuring
schemes. It is probable that non-performing figures
do not reflect all overdue payments. Due to a large
debt restructuring and rescheduling program, looking
at the non-restructured portfolio may prove to be a
more reliable indicator of a bank's health. The
overall non-restructured portfolio has dropped from
83 percent at the end of 2003 to 60 percent as of
September 2004.
Nevertheless, there is a body of financial
regulation that establishes some limits in order to
promote stability for shareholders and prevent
conflicts of interest. Regulations also restrict
financial transactions for managers and senior
managers.
The securities regulator is in the process of
drafting several regulations that will prevent
hostile takeovers and protect minority shareholders.
Also there is generally positive agreement about the
urgency of passing a law on corporate governance.
There are no regulations that limit foreign
investment or participation in or control of
domestic enterprises.
Political Violence
Bolivia is prone to periods of social unrest
that can quickly turn violent and disrupt the
transportation of people and goods on the country's
principal highways. In March/April 2000, violent
protests against foreign investment in the municipal
water system of Cochabamba ultimately spread
throughout the country in the form of roadblocks and
demonstrations. Roadblocks were even more serious
in September/October 2000, when rural indigenous
groups, illegal coca growers, and a variety of labor
and social movements coalesced in opposition to
various government policies. Concessions by the
Government ended those and subsequent protests, but
not before the roadblocks had caused serious
economic hardship and disrupted Bolivian exports.
Less serious but also disruptive and violent social
protests occur regularly in La Paz and El Alto, with
some U.S.-owned businesses reporting up to 30 days
of lost work per year.
In a serious threat to democracy, units of the
National Police mutinied against the Sanchez de
Lozada administration in February 2003. Spurred on
by a misunderstood government proposal to create an
income tax, mutinous police units fought loyal
military units, and, with the police absent, rioters
subsequently looted and burned various government
buildings and private businesses. Though order was
restored within 36-hours with minimal damage to U.S.-
linked companies, the death toll in La Paz was over
30. Violence was even worse during October 2003's
"Gas War," in which over 60 people died. The "Gas
War," which was spurred on by radical social
elements and opposition political parties, finally
ended with the resignation of Sanchez de Lozada.
President Carlos Mesa has been unwilling to
confront most protesting groups, even vowing that he
would not use force against protestors. Investors
should understand that protests, especially in La
Paz/El Alto and along gas transport pipelines, are
commonplace. These protests can sometimes turn
violent.
Corruption
Bolivia has a significant corruption problem in
both the public sector and in many other non-
governmental institutions. Corruption undermines
the benefits of resources allocated to fight poverty
and constrains economic development. Since
officials accused of acts of corruption are almost
never punished, the public's distrust of the
political system is high. In an attempt to control
the root causes of corruption, the Bolivian
Government in recent decades has implemented several
reforms and measures to modernize the State, improve
existing legislation, and increase citizen
participation within the framework of a new
state/society relationship of mutual responsibility.
Nevertheless, public perception of corruption
remains high.
Within this context, several laws were passed,
including the Financial Administration and Control
Law (SAFCO) law, the State Employees Statute Act,
and the Sworn Declaration of Property and Income Law
(Declaracion Jurada de Bienes y Rentas). In order
to stimulate the institutionalization of public
administration and to provide a structural answer to
the corruption problem, institutions such as the
Judiciary Council (Consejo de la Judicatura), Human
Rights Ombudsman (Defensor del Pueblo),
Constitutional Court, and the Civil Service
Superintendency were created. There is even a
Cabinet-level Presidential Delegate empowered to
investigate corruption at any level and in any
branch of the government. The National Integrity
Plan intends to widen the structural response to the
problem of corruption through judicial reform and
modernization of the state. Under the Plan's
Project of Institutional Reform (PRI), the Customs
Service, the National Revenue Service, the National
Road Service and the Ministries of Housing,
Education and Agriculture have been reformed and
professionalized.
With international assistance, the last several
governments have worked to overhaul the National
Customs Service. The new Customs Reform Law was
enacted in August of 1999 and implemented over a 36-
month period. The National Customs Service has
reportedly reduced corruption somewhat, but
contraband continues to flow into Bolivia. The
Minister of Finance heads a multi-agency council on
contraband issues.
Bilateral Investment Agreements
Bolivia has signed bilateral investment
agreements (BITs) with Argentina,
Belgium/Luxembourg, China, France, Germany, Italy,
Mexico, the Netherlands, Peru, Romania, Spain,
Switzerland, the United Kingdom and the United
States (1997). The U.S.-Bolivia BIT was fully
implemented on June 7, 2001.
There are six basic reciprocal provisions of the
U.S.-Bolivia BIT:
-- U.S. investors are entitled to the better of
national treatment or most favored nation (MFN)
treatment when they seek to initiate investment and
throughout the life of that investment, subject to
certain limited and specifically described
exceptions listed in annexes or protocols to the
treaties.
-- Expropriation can occur only in accordance with
standards put forth in international law, that is,
for a public purpose, in a nondiscriminatory manner,
under due process of law, and accompanied by prompt,
adequate, and effective compensation.
-- BITs provide U.S. investors the right to transfer
funds into and out of the host country without delay
using a market rate of exchange. This covers all
transfers related to an investment, including
interest, proceeds from liquidation, repatriated
profits and infusions of additional financial
resources after the initial investment has been
made.
-- The Treaty limits the ability of either
government to require investors to adopt inefficient
and trade distorting practices. For example,
performance requirements, such as local content or
export quotas, are prohibited.
-- It gives investors the right to submit an
investment dispute with the treaty partner's
government to international arbitration. There is
no requirement to use that country's domestic
courts.
-- It gives investors the right to employ the top
managerial personnel of their choice, regardless of
nationality.
OPIC and Other Investment Insurance Programs
An Investment Insurance Agreement signed in 1985
by Bolivia and the U.S. Overseas Private Investment
Corporation (OPIC) provides for a full range of OPIC
programs, including insurance, financing and use of
OPIC's Opportunity Bank. OPIC provides financing
assistance through direct loans and through
guarantees of loans by private U.S. financial
institutions for investments by U.S.-based firms in
Bolivia. OPIC has worked with a growing number of
new investors, particularly in providing project
loans, insurance against inconvertibility,
expropriation and political risk.
The International Bank for Reconstruction and
Development's (IBRD) Multilateral Investment
Guarantee Agency (MIGA) has offered a complete line
of investment guarantees to foreign investors in
Bolivia since October 1991.
The U.S. Export-Import Bank (EXIM) also has
operations in Bolivia. It has offered credit
guarantee facilities to local banks, with terms of
up to five years. EXIM is also willing to work
directly with qualified private companies in
providing loans and insurance. EXIM will also
consider individual transactions with Bolivian banks
that do not yet have sufficient net worth to qualify
for the establishment of a credit guaranty facility.
Labor
Approximately two-thirds of Bolivia's population
of 8.3 million is considered "economically active,"
a figure that includes early teenagers and as well
as children who are legally prohibited from working.
Unemployment in 2004 is projected to be 9.5 percent,
but of those employed only one-third were working 40
hours a week. The ILO definition of an
"economically active" or employed person masks
substantial underemployment and subsistence-level
"informal" economic work.
As of December 2004, the official minimum wage
remains approximately USD 55 per month. General
economic stagnation from 1999 through 2003 resulted
in slipping nominal wages, with the average wage for
formal urban employment at USD 70 per month.
Bolivia's still substantial rural population, often
self-employed in subsistence agriculture, earns far
less. Overall, between 60 and 65 percent of working
Bolivians are considered to be participants in the
"informal economy," where no contractual employee-
employer relationship exists.
Foreign investors have found the labor force to
be stable, with low rates of turnover and high
levels of manual dexterity. The country's generally
low levels of education and literacy tend to limit
the productivity of Bolivia's labor, in line with
its low cost. There is abundant manpower readily
available for foreign as well as domestic investors,
although skilled manpower is harder to find.
The average wage for a factory worker is about
USD 120 per month. Benefits - including a Christmas
bonus equal to one month's salary, as well as
retirement payments - can add another 30 percent to
the wage bill.
Bolivian Labor Law guarantees workers the right
to organize and bargain collectively. Most
companies are unionized. Nearly all unions belong
to the Confederation of Bolivian Workers (COB).
Despite international perceptions, extensive labor
unrest in the private sector is uncommon in Bolivia,
and most foreign firms enjoy positive labor-
management relations.
Bolivian Labor Law guarantees workers the right
of association, restricts child labor and provides
for worker safety. Effective enforcement, however,
often proves to be lacking.
Foreign Trade Zones/Free Ports
The Bolivian government created free trade zones
(FTZs) by way of two Supreme Decrees (D.S. 22410 and
D.S. 22526). The establishment of any FTZ operation
must be authorized by the National Council on Free
Trade Zones (CONZOF), which coordinates, sets and
controls all industrial and commercial free zones.
Currently FTZs exist in the cities of:
-- El Alto (the Department of La Paz);
-- Santa Cruz;
-- Cochabamba;
-- Puerto Aguirre (on Bolivia's eastern border with
Brazil);
-- Oruro; and
-- Desaguadero (on the Peruvian border).
One other FTZ in Guayaramerin in the Department
of Beni is not yet fully operational. The FTZ in
Cobija, in northern Bolivia, has not proven to be
attractive to investors because of the lack of roads
and other basic infrastructure. All Bolivian labor
laws apply in FTZs.
Foreign Direct Investment (FDI)
As of December 2004, the National Statistic
Institute (INE) had not completed FDI statistics for
2003 or 2004. The following FDI figures are
estimated using balance of payments figures, which
are monitored by the Bolivian Central Bank.
According to this analysis, net FDI has been
falling, from USD 674.1 million in 2002 to USD 160.2
million in 2003. Gross FDI, illustrated below, has
also declined in recent years.
We note that net investment is equivalent to
total investment less deductions or outflows,
including portfolio investment in other economies
and profit remittances to shareholders. For Balance
of Payments issues, net FDI values are important,
while gross FDI factors into economic growth
projections.
Private gross FDI flows (in USD millions)
-----------------------------------------
2002 2003 2004
----- ----- -----
Hydrocarbons 462.8 247.7 NA
Mining 11.5 20.4 NA
Industry 91.1 62.1 NA
Construction 282.9 88.5 NA
Financial
Services 54.9 9.3 NA
Other 31.1 139.0 NA
------------ ----- ----- -----
Total 979.3 567.0 NA
* NA = Not available as of January 2005
Source: National Institute of Statistics (INE)
Bolivian gross FDI by country (in USD millions)
-----------------------------------------------
2002 2003 2004
----- ----- -----
United States 288.7 189.3 NA
Spain 267.6 62.7 NA
Brazil 181.9 61.1 NA
France 60.2 32.9 NA
United Kingdom 50.3 62.5 NA
Argentina 31.1 20.3 NA
Italy 26.9 26.5 NA
Peru 5.9 2.0 NA
Chile 5.0 4.7 NA
Canada 0.6 1.8 NA
* NA = Not available as of January 2005
Source: National Institute of Statistics (INE)
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