Transparency of the Regulatory System
Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis. However, Article 66 of the Commercial Code states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.
Regulatory authority regarding investment exists at the national level in Bolivia.
The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency. However, there is a large informal sector that does not follow these practices. Most accounting regulations follow international principles, but the regulations do not always conform to international standards. Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.
Formal bureaucratic procedures are lengthy, difficult to manage and navigate, and considered by some to be debilitating. Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia. Once a company submits all documents required to the Bolivian entity charged with registration of new enterprises (FUNDEMPRESA) the process takes between 2-4 working days.
There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees. However, the government generally — but not always — discusses proposed law with the relevant sector. The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced and an uncertain investment climate. Draft text or summaries are usually published on the National Assembly’s website.
Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local communities. This has affected projects related to the exploitation of natural recourses, both renewable and nonrenewable, as well as public works projects. Issuance of environmental licenses has been slow and subject to political influence corruption.
In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.
The judicial system faces a huge backlog of cases, is short staffed, lacks resources, and has problems with corruption. Swift resolution of cases, either initiated by investors or against them, is unlikely. The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively. Authorities can use this threat of criminal prosecution to force settlement of disputes. Commercial disputes can often lead to criminal charges. Cases are processed slowly, and suspects can be held legally for 18 months without formal charge as a case is investigated, and for 36 months before their case is resolved by a judge. Foreigners are more likely to be deemed a flight risk than Bolivian nationals and, as such, may not receive bail in lieu of pretrial incarceration. See the U.S. Human Rights Report as background on the judicial system, labor rights and other important issues.
International Regulatory Considerations
Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru. Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member. The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries. The government notifies the World Trade Organization (WTO) Committee on Technical Barriers to Trade regarding draft technical regulations.
Legal System and Judicial Independence
Property and contractual rights are enforced in Bolivian courts under a civil law system, but the legal process is time consuming and may be subject to political influence and corruption. Although many of its provisions were modified and supplanted by more specific legislation, Bolivia’s Commercial Code (Law 14379, 1977) continues to provide general guidance for commercial activities. Still, the Commercial Code is irregularly applied. The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50). There are allegations of corruption within the judiciary in high profile cases.
Laws and Regulations on Foreign Direct Investment
No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year. There is no primary one-stop-shop for investment that provides all the relevant information to investors.
Competition and Anti-Trust Laws
Bolivia does not have a competition law. However, Article 314 of the 2009 Constitution prohibits private monopolies. Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/). Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.
Expropriation and Compensation
The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57). In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.” In all other cases where this article is applied, the Bolivian Government has no official definition of collective interest and makes decisions on a case-by-case basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401). In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building road or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases. However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.
The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54). The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.
Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s. The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (some mines and a tin smelting plant), and a cement plant. To take control of these companies, the government forced private entities to sell shares to the government, and often at below market prices. Some of the affected companies have cases pending with international arbitration bodies. All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).
There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies. The first company not previously owned by the government was nationalized in December of 2012. Government nationalizations did not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile, amongst others. In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.
ICSID Convention and New York Convention
On May 1, 2007, Bolivia sent the World Bank a written notice of denunciation of the Convention on the Settlement of Investment Dispute between States and Nationals of Other States (the ICSID Convention). Bolivia acted pursuant to Article 71 of the ICSID Convention. The denunciation took effect six months after receipt of the notice.
In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept International Centre for Settlement of Investment Disputes (ICSID) rulings in the cases brought against Bolivia by the Chilean company Quiborax and Italian company Euro Telcom. However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010. Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million. In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project. The Bolivian Government has appealed that award.
In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company. The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights. The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made. They also retained responsibility for future liabilities.
Investor-State Dispute Settlement
Conflicting Bolivian law makes international arbitration challenging. Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored. However, these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government. The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution. The Investment Law of 2014 was enacted in late 2015. Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.
A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014. In 2014, President Morales announced there would be no more nationalization. The same year, one Brazilian company was nationalized but that had been previously agreed to with the owner under the previous nationalization policy.
International Commercial Arbitration and Foreign Courts
In Bolivia, two institutions have arbitration bodies: the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO). In order to utilize these domestic arbitration bodies, private parties must include arbitration within their contracts. Depending on the contract between the parties, The United Nations Commission on International Trade Law (UNCITRAL) model law or Bolivia’s Arbitration Law (No. 708) may be used. Local courts recognize and enforce foreign arbitral awards and judgments, however, the judgments can be appealed in Bolivian court. There are no statistics available regarding SOE involvement in investment disputes.
The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months. The Bolivian Commercial Code (Article 1654) includes three different categories of bankruptcy:
- No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
- At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
- Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.
In general, the application of laws related to commercial disputes and bankruptcy are inconsistently applied and allegations of corruption are common. Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones. If a company declares bankruptcy, the company must pay employee benefits before other obligations. Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.