Order Code RL32580
CRS Report for Congress
Received through the CRS Web
Bolivia: Political and Economic Developments
and Implications for U.S. Policy
Updated June 22, 2005
Connie Veillette
Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Bolivia: Political and Economic Developments
and Implications for U.S. Policy
Summary
Bolivia is one of the poorest countries in Latin America with an ethnically
diverse population. It has a long history of political instability that persists to this
day. Its weak political institutions, geographic and ethnic cleavages, and an active
indigenous population have interacted to produce political polarization over such
important issues as the future of oil and gas exploration and production, coca
eradication programs, and calls for regional autonomy and constitutional reform from
some parts of the country. Political protests in 2003 led to the resignation of
President Gonzalo Sánchez de Lozada, fifteen months after he was elected.
Succeeding him was his former vice president, Carlos Mesa, a popular former
television journalist. The focus of the 2003 protests was the continued economic
marginalization of the poorer segments of society, especially in response to
government budget cutbacks and proposals to raise taxes. The final spark, which
immediately preceded Sánchez de Lozada’s resignation, was his plan to export
natural gas to Mexico and the United States via a port in Chile, a historic adversary
of Bolivia.
President Mesa, after an initial reprieve, was unable to unite the disparate
political forces. In response to continuing street protests that at times paralyzed the
country, he resigned in June 2005. Eduardo Rodriguez, head of the Supreme Court,
has assumed the presidency on an interim basis, promising to call for early elections
by the end of the year, ahead of the scheduled date of August 2007. Despite these
challenges, the country has made some social and economic progress over the last
several decades. Coca cultivation has decreased from its peak production years in the
1990s, but is still a source of conflict between the government and coca growers.
While political institutions are considered weak, changes in government that took
place in 2003 and 2005 occurred according to constitutional provisions.
U.S. interest in Bolivia centers on its role as a coca producer, and its relationship
to Colombia and Peru, the two other major coca- and cocaine-producing countries.
Some observers have criticized this focus for neglecting economic and social
development issues, but the State Department defends it as necessary to promote licit
economic development and democracy. Bolivia has the second-largest natural gas
reserves in Latin America after Venezuela. The Bolivian government has plans,
which have generated considerable controversy, to export gas to the United States
and Mexico, necessitating the construction of a pipeline to a coastal port of a
neighboring country.
For additional information, see CRS Report RL32337, Andean Counterdrug
Initiative (ACI) and Related Funding Programs: FY2005 Assistance, by Connie
Veillette. This report will be updated as events warrant.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Political Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mesa Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Role of Indigenous Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Constituent Assembly and Regional Devolution . . . . . . . . . . . . . . . . . . . . . 5
Referendum and Energy Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Local Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Coca Cultivation and Alternative Development . . . . . . . . . . . . . . . . . . . . . . 8
Gas Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Implications for U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Figures
Figure 1. Map of Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Bolivia: Political and Economic Developments
and Implications for U.S. Policy
Background
Bolivia is a land-locked country approximately three times the size of Montana.
As a result of the War of the Pacific (1879-1883) with Chile, Bolivia lost part of its
territory along the Pacific Ocean. Bolivia has preferential rights of access to the
Chilean ports of Antofagasta and Arica, but it has no sovereign access, a source of
lingering resentment among Bolivians. The population of 8.4 million people is the
most ethnically diverse on the continent of South America. Quechua and Aymara are
the two predominant indigenous groups who live largely in the altiplano and highland
regions. Approximately 25% of the Bolivian population are Quechuan, 17% are
Aymaran, 30% are mestizo (mixed), while 12% are of European origin. A 2001
census recorded that about 62% of Bolivians 15 years of age and older identified
themselves as indigenous. Seventy percent of Bolivians live below the poverty level
with 34.3% earning less than $2 a day, and the average per capita annual income was
$900 in 2002, according to the World Bank.
Bolivia has been a major producer of coca leaf, the main ingredient in the
production of cocaine. Although coca leaf is legal in the country for traditional uses
and is grown legally in some parts of the country, its cultivation for illegal purposes
increased in the 1970s and 1980s. Cultivation levels have decreased to half of the
levels of the 1990s in response to government policies to eradicate illicit production,
according to the State Department. These policies, and the way in which they have
been implemented, have caused social unrest and economic hardship in the two main
coca-growing regions. One consequence has been the rise of coca growers trade
unions and an associated political party that now holds the political leadership of
many municipalities as well as seats in the national legislature. Its leader, Evo
Morales, finished a close second in presidential elections in 2002 and is considered
a viable candidate for the 2007 elections.
Political Conditions
Bolivia has had five presidents since 2001 when Hugo Banzer handed the reins
to Jorge Quiroga due to health reasons. Political protests during 2003 led to the
resignation of President Gonzalo Sánchez de Lozada on October 17, 2003, fifteen
months after he was elected. Succeeding him as president was his former vice
president, Carlos Mesa, a popular former television journalist, historian, and political
independent. President Mesa resigned in favor of Eduardo Rodriguez, head of the
Supreme Court, in June 2005 in response to continuing street protests that at times
paralyzed the country. The 2003 change in leadership came about after months of

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CRS-2
protests led by indigenous groups and workers who carried out strikes and road
blockages that resulted in up to 80 deaths in confrontations with government troops.
The focus of the protests was the continued economic marginalization of the poorer
segments of society, especially in response to government budget cutbacks and
proposals to raise taxes. The final spark that immediately preceded Sánchez de
Lozada’s resignation was his plan to export natural gas via a port in Chile, an historic
adversary of Bolivia.
Gonzalez Sánchez de Lozada of the centrist National Revolutionary Movement
(MNR) won the presidential election in 2002 with 22.5% of the vote. Evo Morales
of the leftist Movement to Socialism (MAS) who ran on a platform critical of free-
market policies and advocating indigenous rights, came in second in the 2002
presidential elections with 20.9% of the vote. As neither achieved a majority, the
Congress, in accord with provisions of the Bolivian constitution, chose Sánchez de
Lozada as President. He assembled a fragile coalition of the center-left Movement
of the Revolutionary Left (MIR) and, for a time, the populist center-right New
Republican Force (NFR), the latter having initially served as an opposition party
along with the MAS. A traditionally strong party, the center-right Nationalist
Democratic Action (ADN) showed poorly in the elections.
Sánchez de Lozada faced many political and economic challenges upon taking
office. His small margin of victory, by only 43,000 votes over Morales, and his
unstable governing coalition did not provide him with a governing mandate. In order
to secure an International Monetary Fund (IMF) agreement, with its strict budget
deficit targets, he proposed unpopular measures, such as tax increases, that led to
popular discontent. In February of 2003, violent worker demonstrations erupted at
the same time as a police strike, the latter protesting reduced resources under the
President’s budget proposal. Worker protests, combined with the police strike, and
student demonstrations, led to violent clashes with the military that left 31 people
dead. Protests continued at varying levels during the summer of 2003, growing in
strength throughout the country as two Indian leaders became involved: Evo Morales
of the MAS and Felipe Quispe of the Bolivian Coordinator of Syndical Unions and
Campesino Workers (CSUTCB) and an opposition legislator.
The trigger for the most violent protests in October 2003 was a presidential
proposal to export natural gas via pipeline to Mexico and California by way of Chile.
This sparked nationalist sentiment that recalled not just Bolivia’s loss in the War of
the Pacific, but past exploitation of the country’s natural resources of silver and tin
by foreign business interests. Just as most Bolivians do not believe that they
benefitted from these earlier ventures, many present-day protesters believe that they
will not benefit from the expected natural gas revenues, a sentiment fueled by a
growing anti-globalization attitude.1 These events occurred against a backdrop of
growing resentment against U.S. policy that stressed coca eradication, affecting
approximately 50,000 growers who make their livelihood from both its licit and illicit
1 Larry Rohter, “Bolivia’s New Leader Takes Over a Chaotic and Angry Nation,” The New
York Times, Oct. 19, 2003; and Larry Rohter “Bolivian Peasants’ ‘Ideology of Fury’ Still
Smolders,” The New York Times, Oct. 20, 2003.

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cultivation. Some observers have also argued that resentment has grown in response
to the role of the IMF’s requirements for additional loans.2
Mesa Administration
The violent demonstrations and street blockages that paralyzed most of the
country in September and October of 2003 resulted in up to 57 deaths and President
Sánchez de Lozada’s resignation on October 17. He was succeeded by Vice
President Mesa, a newcomer to politics and an independent with no formal political
party as a base of support. The parties comprising the former government pledged
their support for the new administration. Opposition party leaders, such as Evo
Morales and Felipe Quispe, initially promised to give the new government some
breathing room, although they both became vocal critics since then.
Mesa appointed a new cabinet, also largely of political independents, and
demonstrated a sensitivity to indigenous issues. He created the cabinet post of
Minister for Indigenous Affairs and carried out his promise for a referendum on the
export of natural gas. Acceding to demands of indigenous and opposition groups, he
also overturned a 1997 decree that had given oil companies ownership of the natural
gas they extracted. He unveiled an economic plan that puts most of the tax burden
on energy companies and wealthy citizens. He has also shepherded reform
legislation through Congress that allows more popular participation in elections.
Further, he announced plans for a constituent assembly to consider a new
constitution. With his lack of political experience, a highly mobilized opposition,
and his independent status with regard to political party, many observers predicted
that the challenges to his success might be insurmountable.3 Since taking office, his
popularity fell in many parts of the country as he was unable to unite disparate
political forces.4
During his tenure, he faced a number of challenges, the same challenges that
now confront current President Rogriguez. First, civil society, in the form of trade
unions, peasant organizations, and student groups, remains highly mobilized. They
often resort to public demonstrations and road blockages to present their demands to
the government. Second, Rodriguez has no political party as a base of support, and
the Congress is dominated by parties that are generally opposed to many of his
policies. However, Rodriguez was the compromise candidate, by his promise to hold
early presidential elections by the end of the year. Third, he must deal with
implementing or revising a new and controversial hydrocarbon law that is opposed
by foreign oil and gas companies and the Bolivian business community. The new
legislation came about as a result of a July 2004 referendum in which Bolivians voted
2 Jeffrey Sachs, “Call It Our Bolivian Policy of Not-So-Benign Neglect,” The Washington
Post, Oct. 26, 2003; Emad Mekay, “Politics: Activists Trace Roots of Bolivian Turmoil to
IMF,” Inter Press Service, Oct. 20, 2003.
3 “Political Risk Analysis — One Andean President Down...,” Emerging Markets Daily
News, Oct. 24, 2003. “Bolivia’s Week-Old President Takes Flak Over Nominations,”
Agence France Presse, Oct. 24, 2003.
4 Kate Joynes, “President’s Popular Approval Ratings Fall as Bolivian Crisis Continues,”
WMRC Daily Analysis, Mar. 21, 2005.

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CRS-4
to support a more engaged role for the state in the oil and gas sector. Fourth, in order
to secure continued assistance from international financial institutions, Bolivia would
like to be able to rely on exports of its abundant natural gas reserves, but tensions
with Chile over sovereign access to a Pacific port put these plans in jeopardy. Fifth,
U.S. pressure to maintain coca eradication and interdiction programs continues to
meet strong resistance from coca growers and others. Sixth, municipal elections in
December 2004 further weakened the country’s traditional political parties in favor
of MAS candidates and independent groups that, under a new law, have easier access
to putting candidates on the ballot. And seventh, the resource-rich eastern section of
the country, centered around Santa Cruz, is pushing for more regional autonomy and
the devolution of power to elected governors and regional assemblies. This
secessionist movement is opposed by most of the rest of the country.
Role of Indigenous Groups
Despite the National Revolution of 1952, in which the indigenous population
held sway and benefitted from land reform and expanded suffrage, indigenous groups
have not been politically active, with few of their members having served in elective
office. In the 1980s, indigenous-based political parties and movements emerged, and
there are now 41 members of the national legislature representing indigenous parties
(Movement Toward Socialism, or MAS, and the smaller Indigenous Pachakuti
Movement, or MIP). They have used Congress as a forum to advocate indigenous
rights and have become increasingly vocal in making demands for equitable
economic development, including the demand to be able to cultivate coca, and the
preservation of indigenous land and culture.
The issue of land tenure has been a long-standing source of conflict. An
Agrarian Reform Law allows indigenous communities to have legal title to their
communal lands. However, these communities argue that their lands have not been
legally defined or protected, and that outsiders have been allowed to exploit their
resources.5 There have been numerous land occupations by landless farmers, some
resulting in confrontations with police forces. The cultivation of coca, which is legal
in the province of Yungas, is another source of conflict. Coca leaf is used legally by
indigenous communities for spiritual and medical purposes, and its use is considered
an important indigenous cultural right. U.S. and Bolivian policy to eradicate illegal
cultivation aggressively has met with violent protests in recent years.
The two most prominent indigenous leaders are Evo Morales, former
presidential candidate and current Member of Congress, who leads the opposition
MAS party, and Felipe Quispe, current Member of Congress from the MIP party and
campesino union leader. A Quechuan Indian and former coca grower, Morales has
based his rise in politics on the support of coca growers and has since attracted other
followers who are admittedly anti-American in outlook. Quispe, an Aymaran Indian
and rival of Morales, considers Morales to be a mainstream politician who will
continue free market policies. Both have been very critical of the Mesa
Administration. It is believed Mesa will again run for president in the next elections.
5 Country Reports on Human Rights Practices 2004, U.S. Department of State, February 28,
2005.

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Constituent Assembly and Regional Devolution
Current debate in Bolivia is focusing on when four events — presidential
elections, gubernatorial elections, the constituent assembly, and regional devolution
legislation — might take place, and the order in which they should happen. President
Rodriguez’s priority is to schedule presidential elections before the end of the year.
Although the terms of members of Congress do not expire until August 2007, there
is considerable popular pressure to schedule congressional elections at the same time
as presidential balloting. However, this would require Congress amending the
constitution, or stepping down en masse, something that many members have
renounced.
One of the pledges Mesa made upon becoming president was for a constituent
assembly to reform the constitution. It was planned to occur in 2004, but
disagreements with the Congress on the subjects to be considered and other logistical
considerations have postponed it. At the same time, there is now considerable
attention being given to a still undefined devolution of authority to Bolivia’s nine
departments, including the direct election of governors. Department governors are
now appointed by the executive. The constituent assembly and regional devolution
have been further complicated by calls from the resource-rich areas around Santa
Cruz for some semblance of regional autonomy, with implications for how central
government resources are distributed. This secessionist movement is supported by
four regions, and opposed by the less wealthy regions, causing a further fracturing of
Bolivian politics. Gubernatorial elections are scheduled for August 12, 2005, but
without a plan for devolving power to the regions, critics argue that newly elected
governors will have little authority. In addition, Santa Cruz has scheduled a
referendum on devolution for the same date, with government officials in La Paz
arguing that the vote has no legal validity.6
Referendum and Energy Legislation
Former President Mesa promised to hold a national referendum on the role of
the state in the energy sector in response to the popular demonstrations that felled the
previous government. In the July 18, 2004 vote, Mesa received overwhelming
support for what many observers characterized as ambiguously worded questions that
support an increased state role in gas exploration and production, while stopping
short of nationalization. The referendum also endorsed using “gas as a strategic
resource for the achievement of a useful and sovereign outlet to the Pacific Ocean,”
and the export of gas with profits to benefit Bolivian industrialization, education,
health, roads, and job creation.
As a result of the referendum, Mesa sent legislation to the Congress that would
replace the 1996 Hydrocarbons Law, which had opened Bolivia’s hydrocarbons
sector to private investment. The state-owned energy company Yacimientos
6 “Bolivia’s Santa Cruz Province Gives New Ultimatum in Autonomy bid,” EFE News
Service, May 10, 2005; “Bolivia: Lazarte Unhappy But Realistic About Santa Cruz,”
Latinnews Daily, June 21, 2005; and “Bolivia: Two Regions Lobby Against Autonomy,”
Latinnews Daily, February 9, 2005.

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Petroliferos Bolivianos (YPB) would resume a more active role in oil and gas
operations. Under the 1996 law, YPB became an overseer of contracts with the
private sector, rather than engaging directly in exploration and production. The
proposed legislation would also raise taxes on oil and gas production, and re-
establish state ownership of oil and gas “at the wellhead.” Existing contracts with
oil companies, most foreign-owned, would need to be renegotiated. The legislation
ran into opposition by those in the Bolivian Congress who want full nationalization,
and the hydrocarbon sector, which believes the new law would reduce its
competitiveness. The largest single party in the legislature is Evo Morales’s MAS
party, which has advocated nationalization.
In May 2005, the Congress approved legislation that created a non-deductible
32% Direct Tax on Hydrocarbons (IDH) that would apply to production and
maintained the current 18% royalty rate. Foreign firms have six months to bring their
current contracts into line with the new legislation. The legislation represents the
middle ground between Morales’ call for a 50% tax and business interests who
argued that gas reserves would go undeveloped. President Mesa opposed the bill, as
amended by the Congress, because he argued it would put too heavy of a burden on
foreign investors and would require, rather than make it voluntary for, foreign
companies to renegotiate their prior contracts. However, instead of vetoing the
measure, he returned it to the legislature for promulgation. Foreign oil companies
have criticized the new law, threatened to take legal action over having their existing
contracts rewritten, and predicted that new investments would not be feasible.
Between 1997 and 2003, energy firms spent about $3 billion on exploration of
Bolivia’s natural gas reserves.7 It is unclear at this point whether the current interim
president will accede to the demands of groups wanting complete nationalization of
the energy sector.
Local Elections
An initial test of party popularity and strength was the municipal elections in
December 2004, the first elections since the resignation of Sánchez de Lozada. The
elections were the first to benefit from passage of a new law that was designed to
increase the participation of representatives of civil society and indigenous groups.
The new law ended the requirement that only officially registered political parties
could field electoral candidates. Bolivia’s traditional political parties (MNR, MIR,
ADN) largely have been discredited in the eyes of the public. This left the MAS, the
party identified with representing indigenous and coca growing groups, as the
potential beneficiary in municipal elections. The MAS already controlled more than
300 municipalities prior to the election, and its leaders predicted that it would pick
up another 250 in December.8 In fact, the MAS did well, but did not pick up nearly
as many seats as they predicted. However, what became apparent from the results
is that the traditional parties have lost popular support in favor of independent
candidates. The MAS, the most-voted-for party, won 15.8% of the vote, and its
7 “Firms Condemn Bolivia’s New Energy Law,” The Oil Daily, May 19, 2005, and “New
Energy Law Does Little to Calm Bolivian Tempests,” EFE News Service, May 18, 2005.
8 Interview, MAS Mayor of Villa Tunari, Felipe Cáceres, May 26, 2004.

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candidates were elected town councillors in most municipalities.9 Municipal
elections could indicate popular preference with regard to the next elections for
President and Congress, in which it is generally believed Evo Morales will be a
presidential candidate. Observers believe the leading presidential candidates also
include former President Jorge Quiroga (2001-2002) of the Nationalist Democratic
Action Party and businessman Samuel Doria Medina of the National Unity Party.10
Human Rights
With increased rates of coca eradication begun in 1998 with then President
Pastrana’s Plan Dignidad, charges of human rights abuses committed by security
forces have increased. The State Department’s annual Country Reports on Human
Rights Practices for 2004 recognized improvements from the previous year when it
reported that serious problems existed with regard to deaths of protestors at the hand
of security forces, the excessive use of force, extortion, torture, and improper arrests.
Congress has also expressed concern with human rights abuses. Report
language accompanying the FY2004 Foreign Operations Appropriations Act (P.L.
108-199) recognized the lack of progress in investigating and prosecuting human
rights cases by Bolivian authorities, and urged the Secretary of State to give higher
priority to these issues. The Appropriations Committee required the Secretary of
State to make a determination with regard to whether Bolivian security forces are
respecting human rights and cooperating with investigations and prosecutions of
alleged violations, and to submit a report to the committee substantiating the
determination. Funding for FY2004 was not made contingent on the determination.
The State Department submitted its congressionally mandated report on April
22, 2004. In a seeming contradiction of its annual human rights report, the
department’s April report to the committee stated that “the Bolivian military and
police respect human rights and cooperate with civilian authorities in the
investigation, prosecution and punishment of personnel credibly alleged to have
committed violations.” It also states with regard to February and October 2003
protests that “despite unrest created by two episodes of major social upheaval, the
military and police acted with restraint and with force commiserate [sic] to the threat
posed by protestors.” The April report has been criticized by human rights
organizations for being factually incorrect and poorly written.11 Those organizations
argue that 31 civilians died in February and 57 in October, with most deaths resulting
from gunshot wounds of high-caliber munitions used by security forces. The annual
State Department Country Reports on Human Rights Practices for 2003 also states
that the military and police were responsible for civilian deaths during protests in
9 “Bolivia: As Big Parties Shrivel, New Actors Enter the Stage,” Latin American Weekly
Report, December 7, 2004, and “Bolivia: Traditional Parties Do Badly in Municipal
Elections,” BBC Monitoring Americas, December 9, 2004.
10 Franz Chávez, “Bolivia: New Leader Walks a Tightrope Amid Threats of New Protests,”
Inter Press Service, June 20, 2005.
11 Kathryn Ledebur and John Walsh, “Memorandum: Flawed State Department Report on
Human Rights in Bolivia,” Andean Information Network and Washington Office on Latin
America, July 9, 2004.

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2003. It made no qualifying statement that the use of lethal force was commensurate
with the threat posed by protestors, as did the April report. The groups also refute the
State Department’s assertion in the April report that the Bolivian military and police
cooperate in investigations of human rights abuses, citing numerous instances where
the Bolivian Human Rights Ombudsman or prosecutors have stated that cooperation
has not been forthcoming.12
Economic Conditions
Like much of Latin America, Bolivia pursued state-led economic policies during
the 1970s and early 1980s. In the mid-1980s, however, external shocks, the collapse
of tin prices, a major foreign revenue earner, and higher interest rates combined with
hyperinflation forced Bolivian governments to adopt free market economic policies.
Bolivia was one of the first countries in Latin America to implement economic shock
therapy under an International Monetary Fund (IMF) structural adjustment program.
In the 1990s, many state-owned corporations were privatized. Gross domestic
product growth from 1990 to 2000 averaged 3.5%. Sluggish economic growth in
2001 and 2002 (1.2% and 2.5%, respectively)13 fueled resentment that the benefits
of globalization and free market economic policies were not reaching most of the
impoverished population.
The IMF approved the fifth review of a one-year standby agreement on April 8,
2005, and extended the agreement for one year. This action authorizes the release of
$14.5 million in loan funds. The previously negotiated standby agreement provided
about $110 million to assist economic reforms and the continuation of support under
the IMF/World Bank Heavily Indebted Poor Countries (HIPIC) initiative. A recent
decision by the Group of 8 to forgive the multilateral debt of 18 countries will also
benefit Bolivia. Under the plan, beneficiary countries will have to implement anti-
corruption practices and commit to spending debt-servicing savings on health,
education, and poverty reduction programs.
Coca Cultivation and Alternative Development
Landlocked Bolivia shares no border with Colombia, but it has been a major
coca producer in the past. Some argue that Bolivia’s earlier significant gains in
reducing illegal coca production could be threatened by any successes in controlling
production in Colombia through a “balloon effect” whereby coca production shifts
to other areas with less law enforcement presence. Once the world’s foremost
producer of coca leaf, Bolivia made great strides in reducing coca cultivation under
the Banzer-Quiroga administration (1997-2002).14 However, forcible eradication of
12 Ibid.
13 Statistics are drawn from the World Bank World Development Indicators 2003, Human
Development Report 2003, United Nations Development Program, and “Bolivia - Country
Profile 2003, The Economist Intelligence Unit.
14 President Jorge Quiroga assumed the presidency on August 7, 2001, when President Hugo
(continued...)

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coca has become a source of social discontent, exacerbating tensions over class and
ethnicity that may foment political instability. Moreover, according to the State
Department, coca cultivation increased 23% in 2002 and 17% in 2003. The United
Nations Office on Drugs and Crime recently reported that cultivation increased 17%
in 2004. The State Department had reported a 6% increase in 2004.15 Nevertheless,
Bolivia’s coca cultivation is still about half of its 1995 levels. It should be noted that
Bolivian law allows nearly 30,000 acres (12,000 hectares) of coca cultivation for
traditional use in the Yungas region, and allows legal coca markets in both the
Yungas and Chapare regions.
For some 20 years, U.S. relations with Bolivia have centered largely on
controlling the production of coca leaf and coca paste, which was usually shipped to
Colombia to be processed into cocaine. In support of Bolivia’s counternarcotics
efforts, the United States has provided significant interdiction and alternative
development assistance, and it has forgiven all of Bolivia’s debt for development
assistance projects, and most of the debt for food assistance. Bolivia, like Peru, has
been viewed by many as a counternarcotics success story, with joint air and riverine
interdiction operations, successful eradication efforts, and effective alternative
development programs. Others, however, view the forced eradication as a social and
political disaster that has fueled popular discontent and increased the political support
for opposition candidates.
U.S programs supporting alternative development in Bolivia are explicitly
linked to coca eradication. Coca farmers wanting to participate in alternative
development programs must agree to manually eradicate all of their coca crops. This
policy has been controversial. Critics argue that alternative crops take time to
produce a profit, and until then, families are without income. In some areas,
recipients claim that depressed prices for some alternative crops, like bananas and
hearts of palm, as well as delays in extension services and marketing assistance, are
making a livelihood from licit crops unobtainable. Supporters argue that the
objective is to realize a decrease in coca cultivation; linking eradication with
alternative development is, therefore, a reasonable strategy.16
Gas Exports
According to the Energy Information Administration of the U.S. Department of
Energy, Bolivia has the potential to become a natural gas hub for the Southern Cone
of South America, and a major exporter of liquified natural gas to Mexico and the
United States. Bolivia’s proven natural gas reserves are estimated to be as high as
14 (...continued)
Banzer, whom he had served as vice president, resigned because of illness. Quiroga could
not, by law, subsequently run for election.
15 U.S. Department of State, International Narcotics Control Strategy Report, volumes
covering the years 2002, 2003 and 2004.
16 Transnational Institute, Cocalero Movements in Peru and Bolivia, April 2004; Alternative
Development and Eradication, March 2002; and Linda Farthing, Rethinking Alternative
Development in Bolivia, Andean Information Network, February 2004.

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55 trillion cubic feet (tcf). This would potentially make Bolivia a major world
natural gas exporter with the second-largest gas reserves in South America, after
Venezuela. A decision in 2001 by Repsol-YPF of Spain, British Gas, and British
Petroleum to create a liquified natural gas (LNG) export consortium had raised hopes
to export gas via pipeline and tankers to Mexican and U.S. markets by 2005. As
Bolivia is landlocked, the country, and the companies involved, had been planning
the construction of an estimated 430-mile pipeline to a port in either Chile or Peru
at a cost of an estimated $5 billion.17 A proposal to export gas through ports in Chile,
a traditional adversary of Bolivia, sparked the protests in 2003 that led to the
resignation of President Sánchez de Lozada. Since then, the issue of gas exports has
come to dominate relations with its neighbors. While building a pipeline through
Peru would be more expensive, it is the public’s preferred option.18 However, the
development of Bolivia’s oil and gas sector, as well as related exports, are
jeopardized by the new hydrocarbons law recently passed by the Bolivian Congress,
judging by the reaction of foreign owned oil and gas companies.
Trade Issues
Bolivia is a member of the Andean Community, with Peru, Ecuador, Colombia,
and Venezuela, and an associate member of Mercosur, the trading block composed
of Brazil, Argentina, Uruguay, and Paraguay. The main destinations for Bolivian
exports are Brazil, Colombia, Switzerland, and the United States. The United States
is its third most important source of imports, following Argentina and Brazil. Its
principal exports are natural gas, soya, zinc and gold. Bolivia currently benefits from
the Andean Trade Promotion and Drug Eradication Act19 (ATPDEA), which offers
access to the U.S. market for products from the Andean countries of Peru, Colombia,
Ecuador and Bolivia. ATPDEA, an extension of the Andean Trade Preference Act
(ATPA) that began in 1991, will expire in 2006. During 2004, the United States and
the Andean Community nations of Colombia, Peru and Ecuador began negotiating
an Andean Free Trade Agreement.20 Bolivia is not directly participating; instead it
has observer status.
U.S. Assistance
Bolivia is the third largest recipient of U.S. foreign assistance in Latin America,
behind Colombia and Peru. In FY2005, it will receive an estimated $132 million in
17 “Bolivia: Country Analysis Brief,” Energy Information Administration, U.S. Department
of Energy, October 2003.
18 “Cerca del 70% de los Bolivianos Quiere Exportar Gas por Perú,” Europa Press - Servicio
Internactional, May 20, 2004; “Peru/Chile: Energy Exacerbates Strained Relations,” Oxford
Analytica, August 24, 2004; “Bolivia Signs Agreement to Export Gas Through Peru,” IPR
Strategic Information Database, August 9, 2004.
19 For more information, see CRS Report RL30790, The Andean Trade Promotion Act:
Background and Issues for Reauthorization, by J.F. Hornbeck.
20 For more information, see CRS Issue Brief IB95017, Trade and the Americas, by
Raymond J. Ahearn, and CRS Report RL32770 Andean-U.S. Free Trade Agreement
Negotiations, by Lenore Sek.

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CRS-11
U.S. assistance, and a proposed $123 million in FY2006. The largest portion of
assistance consists of Andean Counterdrug Initiative (ACI) funds, the U.S. program
to curtail drug production and trafficking in the Andean region. ACI funds programs
to eradicate drug crops, interdict trafficking operations, as well as to support
alternative economic development and democracy promotion. In FY2005, the State
Department estimates spending $90 million in ACI funds in Bolivia, of which $41
million is for alternative development and institution building programs, and $49
million for interdiction efforts. The FY2006 request is for $80 million. Alternative
development includes economic development in coca-growing areas, demand-
reduction education programs, and the expansion of physical infrastructure. Funds
are also planned to support the enhancement of judicial capability to prosecute
narcotics-related crimes, and to improve the quality of investigations into allegations
of human rights violations. Interdiction funding provides operational support for
specialized counterdrug police and military units, and is intended to improve data
collection for law enforcement activities. ACI funds will also be used to support
increased interdiction of precursor chemicals and cocaine products. The United
States would also continue to provide support for a U.S.-owned helicopter fleet, and
to maintain and purchase vehicles, riverine patrol boats, training and field equipment,
and construct and refurbish antiquated counternarcotics bases.
Bolivia also receives Foreign Military Financing funds that in FY2005 total
nearly $2 million, with a request of $1.8 million for FY2006. FMF funds in FY2005
are for equipment and training assistance to the Bolivian Armed Forces, military
police units, and the Army’s new Counter-Terrorism Unit to support their efforts to
provide security for drug eradication and interdiction operations, to maintain control
of remote areas, and to support their role as international peacekeepers. Bolivia has
peacekeeping forces deployed in the Congo, and observers in Kosovo, Sierra Leone,
Liberia, and East Timor. Bolivia receives small amounts of International Military
Education and Training (IMET) funds, totaling $800,000 in each of FY2005 and
FY2006. IMET funds are used for provide professional military education to
Bolivian military personnel at U.S. military command and staff colleges. Bolivia has
signed an agreement exempting U.S. citizens from the jurisdiction of the
International Criminal Court, as required by the American Service Members
Protection Act of 2002 (incorporated as Title II of H.R. 4775, the FY2002
Supplemental Appropriations Act, P.L. 107-206). In July 2003, and previous to an
agreement being signed, the Bush Administration had waived the withholding of U.S.
military aid from the country.
In addition to ACI funding, Bolivia also benefits from other U.S. economic
assistance programs. Bolivia will receive an estimated $12 million in Development
Assistance (DA) for FY2005, and a requested $14.5 million in FY2006. This
assistance will provide technical assistance to micro-finance institutions, micro-
entrepreneurs, and technological services to farmers. Support will also be provided
for strengthening democracy and anti-corruption programs. Bolivia will receive an
estimated $16 million in Child Survival and Health (CSH) funds in FY2005, and a
requested $15 million in FY2006. CSH funds are used for supporting health
programs, HIV/AIDS programs, nutrition and vaccination programs for children, and
the Amazon Malaria Initiative. Economic Support Funds, estimated at $8 million for
both FY2005 and FY2006, will be used to strengthen municipal governments,
improve congressional capacities, consolidate democratic values and practices by

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CRS-12
supporting civil service activities, and promote economic growth. The Peace Corps
maintains a presence in Bolivia with a program that totals $3 million in each of
FY2005 and FY2006.
Bolivia could also benefit from the new Millennium Challenge Account (MCA),
a presidential initiative announced in 2002 that is intended to increase foreign
assistance to countries below a certain income threshold that are pursuing policies to
promote democracy, social development, and sustainable economic growth. The
program is administered by the newly established Millennium Challenge Corporation
(MCC) in cooperation with USAID. Bolivia was named an eligible recipient in the
first round of the program, meaning that Bolivia may submit a proposal to the MCC
for consideration. Eligible countries are responsible for designing national
development strategies and individual projects, with the MCC acting in an advisory
role.
Implications for U.S. Policy
Recent developments in Bolivia offer challenges to U.S. policy with regard to
coca cultivation, the policy of opening economies to free trade and free market
principles, and regional stability. Until setbacks starting in 2001, Bolivia was
considered a success story in the eradication of coca cultivation. It is legal to grow
limited amounts of coca leaf in the Yungas province for traditional uses, but is illegal
in all other parts of the country. A lessening in resolve on the part of the Bolivian
government with regard to coca eradication has resulted in production increases, and
could embolden coca growers in other nations to organize, especially in areas such
as Peru where indigenous communities also use coca leaf for medicinal and cultural
purposes. Leakages of coca from traditional uses to narcotics would be seen as a
setback for U.S. policy. Some observers contend that U.S. drug policies may cause
wider instability in the region and fuel anti-American sentiment. The re-emergence
of the leftist Sendero Luminoso (Shining Path) guerrilla group in Peru’s coca-
growing areas is pointed to as a potential source of trouble, where growing
opposition to U.S. policy makes inhabitants more amenable to violent protest, or to
join the ranks of Sendero.21 Opponents of U.S. antinarcotics policy argue that it is
heavy handed and stresses eradication to the neglect of sustainable economic
development. Proponents of U.S. policy argue that the drug trade promotes violence
and corruption in source countries that destabilize democratic governments.
As the United States promotes free trade and continues negotiations of free trade
agreements in the region, protests against globalization and the degree of foreign
investment complicate these negotiations. Protests in Argentina during 2001 and
2002 were fueled by anti-IMF sentiment, and Brazil’s President Lula da Silva ran on
a platform of resisting globalization. The United States has not engaged opposition
leader Evo Morales to date. If he gains more popular support, or becomes a viable
21 Larry Rohter, “Bolivian Leader’s Ouster Seen as Warning on U.S. Drug Policy,” The New
York Times, Oct. 23, 2003, and Mary Anastasia O’Grady, “Blame U.S. Drug Policy for the
Bolivian Uprising,” Wall Street Journal, June 17, 2005.

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CRS-13
presidential candidate, the United States could be faced with a Bolivian government
that is less willing to work with Washington on both drug and trade issues.
Recent developments in Bolivia have regional implications with regard to the
role of indigenous movements and public attitudes toward free market policies and
international financial institutions, such as the IMF and World Bank. The
resignations of Sánchez de Lozada and Carlos Mesa have emboldened the loose
coalition of workers, Indians, and students in Bolivia to make demands for concrete
changes in government policy. As such movements exist at varying levels of strength
throughout the Andean region, some observers have noted that they, too, could
become more active, adopting the same tactics of demonstrations, strikes, and road
blockages that have become the norm in Bolivia. Brazil has its own landless
movement where groups have illegally occupied land. Peru and Mexico have also
experienced dissatisfied indigenous groups, some of whom have resorted to armed
confrontations with government authorities. Other governments in the region have
experienced vocal opposition to Washington-backed economic policies of
privatization and foreign investment, similar to the sentiment expressed by Bolivian
demonstrators.
The re-emergence of tensions with Chile is another ramification of political
discord in Bolivia. The proposal to export natural gas via a pipeline to Chilean ports
has re-ignited nationalist sentiment and created calls by some Bolivians, including
Evo Morales and Venezuela’s President Hugo Chavez, to demand that Chile grant
Bolivia sovereign access to the Pacific Ocean, something that the Chilean
government rejects. A free trade agreement between Chile and Bolivia that was to
be signed in November 2003 has been postponed, citing a number of outstanding
issues that needed to be resolved. Bolivia and Chile do not have formal diplomatic
relations, but high-level discussions on trade and border issues have been held. The
situation has also created tensions between Chile and Peru; the latter must agree to
any ceding of territory to Bolivia, according to the treaty that ended the War of the
Pacific, while Chile insists that the dispute is a bilateral issue only. Instead, Peru and
Bolivia are pursuing agreements that could lead to natural gas exports via Peruvian
ports.22

22 Antonio Raluy, “Bolivian Revolt Reignites Demand for Return of Lost Land From Chile,”
Agence France Presse, Oct. 22, 2003; “Chile Will Not Grant Bolivia Sovereign Access to
Pacific,” EFE News Service, Oct. 20, 2003; “Peru/Chile: Energy Exacerbates Strained
Relations,” Oxford Analytica, August 24, 2004.

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CRS-14
Figure 1. Map of Bolivia

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