Order Code RL32580
CRS Report for Congress
Received through the CRS Web
Bolivia: Political and Economic Developments
and Relations with the United States
Updated August 29, 2006
Clare M. Ribando
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 Relations with the United States
Summary
In the past few years, Bolivia has experienced extreme political unrest resulting
in the country having six presidents since 2001. Evo Morales, an indigenous leader
of the leftist Movement Toward Socialism (MAS) party, won a convincing victory
in the December 18, 2005, presidential election with 54% of the votes. He was
inaugurated to a five-year term on January 22, 2006. The MAS won control of the
lower chamber of the Bolivian Congress, 12 of 27 seats in the Senate, and three of
the country’s nine governorships.
President Morales has moved to fulfill his campaign promises to decriminalize
coca cultivation and to nationalize the country’s natural gas industry. These policies
have pleased his supporters within Bolivia, but have complicated Bolivia’s relations
with some of its neighboring countries, foreign investors, and the United States. He
also secured passage of legislation convoking a special election for delegates to a
constituent assembly to reform the country’s constitution. The MAS performed
relatively well in those elections, capturing 137 of 255 seats, but will have to form
alliances in order to reach the two-thirds majority needed to pass constitutional
reforms. The assembly convened on August 6 and will deliberate for one year. In
a concurrent referendum, the four wealthy eastern provinces of Bolivia voted in favor
of increasing regional autonomy, while the other five provinces opposed the measure.
The issue of regional autonomy will be taken up in the constituent assembly.
For some 20 years, U.S. interest in Bolivia has centered on its role as a coca
producer and its relationship to Colombia and Peru, the two other major coca- and
cocaine-producing countries in the Andes. U.S.-Bolivian relations have become
tense in 2006 in the wake of the Morales government’s questionable commitment to
combating illegal drugs, increasing ties with Venezuela and Cuba, and the
nationalization measure. In FY2006, Congress provided an estimated $116.6 million
in foreign assistance to Bolivia, including some $79.2 million in counternarcotics
funds. For FY2007, the Administration proposes spending $99.8 million on Bolivia,
including roughly $66 million in counternarcotics funds. Congress is soon likely to
consider whether to renew the Andean Trade Promotion and Drug Eradication Act
(ATPDEA), which provides duty free access to some imports from Bolivia and other
Andean countries in exchange for counternarcotics cooperation. The ATPDEA
expires in December 2006, although legislation has been proposed, H.R. 5070
(Rangel), that would renew its benefits for another year.
For additional information, see CRS Report RL33370, Andean Counterdrug
Initiative (ACI) and Related Funding Programs: FY2007 Assistance, by Connie
Veillette; CRS Report RL33163, Drug Crop Eradication and Alternative
Development in the Andes, by Connie Veillette and Carolina Navarrete-Frias; and
CRS Report RL32770, Andean-U.S. Free Trade Negotiations, by M. Angeles
Villarreal. This report will be updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Role of Indigenous Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Political Instability: 2002-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
December 2005 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Constituent Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Referendum on Regional Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Gas Exports and Nationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Coca Cultivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Morales’ “Coca Yes, Cocaine No” Policy . . . . . . . . . . . . . . . . . . . . . . 11
Land Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Relations with the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 98 and U.S. Assistance to Bolivia . . . . . . . . . . . . . . . . . . . . . . 17
Millennium Challenge Account (MCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Counter-Narcotics Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Andean Trade Promotion and Drug Eradication Act (ATPDEA) . . . . . . . . 20
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Figures
Figure 1. Map of Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Bolivia: Political and Economic Developments
and Relations with the United States
Introduction
In December 2005, Evo Morales, an indigenous leader and head of Bolivia’s
coca growers’ union, and his party, the leftist Movement Toward Socialism (MAS),
scored a convincing victory in Bolivia’s presidential and legislative elections. These
watershed elections have had a profound effect on Bolivia’s political system and
focused international attention on Bolivia, a land-locked country that is among the
poorest in Latin America. Morales captured the presidency with just under 54% of
the vote, marking the first time since Bolivia’s return to democracy in 1982 that a
candidate won an absolute majority in the first round of a presidential election. The
MAS won a majority in the lower chamber of the Bolivian Congress, 12 of 27 seats
in the Senate, and three of the country’s nine governorships, with stronger electoral
support than any of the country’s traditional political parties. With Evo Morales’
inauguration on January 22, 2006, he became Bolivia’s first indigenous president in
the country’s 180-year history.
Since January, President Morales has moved to fulfill some of his major
campaign promises. These promises include decriminalizing coca cultivation,
nationalizing the country’s natural gas industry, and convoking a constituent
assembly to reform the constitution. Although these policies have pleased MAS
supporters within Bolivia, they have also complicated Bolivia’s relations with
neighboring countries, foreign investors, and the United States.
After the December 2005 election, U.S. State Department officials congratulated
Evo Morales on his victory but noted that the nature of U.S.-Bolivian relations would
depend on what kind of policies the Morales government adopts. U.S. officials have
expressed concerns about the Morales government’s commitment to combating
illegal drugs, its increasing ties with Venezuela and Cuba, and its May 2006
nationalization of Bolivia’s natural gas industry. The Bolivian government has in turn
been frustrated by U.S. attempts to influence its policies, particularly in the area of
drug control. These and other issues currently at play — involving U.S. assistance,
counternarcotics cooperation, and trade benefits — could determine the future of
U.S.- Bolivian relations.
Background
Bolivia is a country rich in cultural diversity and natural resources, whose
political and economic development have been stymied by chronic instability,

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CRS-2
extreme poverty, pervasive corruption, and deep ethnic and regional cleavages.1 In
1825, Bolivia won its independence from Spain, but then experienced frequent
military coups and counter-coups until democratic civilian rule was established in
1982. As a result of the War of the Pacific (1879-1883) with Chile, Bolivia lost part
of its territory along the Pacific coast and has no sovereign access to the ocean, a
source of lingering resentment among Bolivians. Bolivia does have preferential
rights of access to the Chilean ports of Antofagasta and Arica and the Peruvian port
of Ilo. As a result of the Chaco War with Paraguay (1932-1935), Bolivia lost access
to the Atlantic Ocean by way of the Paraguay river and significant territory. Bolivia
is rich in natural resources, with the second-largest natural gas reserves in Latin
America after Venezuela and significant mineral deposits, yet 63% of Bolivians live
in poverty with 34.3% earning less than $2 a day, according to the World Bank.
Bolivia’s 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 30% of the Bolivian population are Quechuan, 25% are Aymaran,
30% are mestizo (mixed), while 15% are of European origin. A 2001 census recorded
that about 62% of Bolivians 15 years of age and older identified themselves as
indigenous. Indigenous Bolivians tend to reside in the poorer central and western
regions, while many mestizos and Bolivians of European extraction are concentrated
in the country’s wealthier eastern zones.
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 policies to eradicate illicit production, according
to the U.S. 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, the Movement Toward Socialism (MAS).
In the last few years, Bolivia has gained international attention for its citizens’
recurring protests against foreign companies and orthodox economic reforms. In
1985, Bolivia became the first country in Latin America to adopt austere economic
policies, so-called “neo-liberal” reforms, as part of a stabilization program aimed at
staving off hyperinflation. In the 1990s, related reforms opened up the country’s
natural gas industry and other state-run entities to foreign investment. By 2000, large
portions of the Bolivian public perceived that pro-market reforms had failed to
improve the country’s economic and social conditions.2 Just as most Bolivians do
not believe that they benefitted from earlier foreign ventures to extract wealth from
the country’s tin and silver industries, many believed that they were not benefitting
1 For background information on Bolivia, see Rex Hudson, ed., Bolivia: A Country Study,
Washington D.C.: Federal Research Division, Library of Congress, 1991; Herbert S. Klein,
A Concise History of Bolivia, New York: Cambridge University Press, 2003.
2 Edwin G. Corr, “Whither Bolivia?” World Literature Today, March/April 2006.

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CRS-3
from private foreign companies developing Bolivia’s natural gas reserves, a
sentiment fueled by a growing anti-globalization attitude.3
Role of Indigenous Groups
Despite the National Revolution of 1952, in which the Bolivian indigenous
benefitted from land reform and expanded suffrage, indigenous groups have
historically been under-represented in the Bolivian political system and
disproportionately affected by poverty and inequality. In 2002, some 74% of
indigenous Bolivians lived in poverty as compared to 53% of the general population.4
In the 1980s, indigenous-based political parties and movements emerged in Bolivia,
and by 2005 some 17% of members of the Bolivian Congress were self-identified as
indigenous.5 In recent years, indigenous representatives have used the legislature 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. Although
indigenous representation has increased, some argue that the inefficacy of the
Bolivian Congress — an institution plagued by corruption and clientelism — has
impeded the success of such legislative initiatives. Others assert that indigenous
groups may gain more strength in the Bolivian political system if there continues to
be an alliance between leftist and indigenous struggles, as has occurred since 2000.6
The issue of land tenure has been a long-standing source of conflict. An
Agrarian Reform Law passed in 1996 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.7 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 Yungas region, 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 forcibly has met with violent protests in recent years.
The two most prominent indigenous leaders in Bolivia are President Evo
Morales of the MAS party, and Felipe Quispe, former Member of Congress from the
Indigenous Pachakuti Movement (MIP) party and union leader. An Aymaran Indian
and former coca grower, Morales has based his rise in politics on the support of coca
3 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,” New York Times, Oct. 20, 2003.
4 Gillette Hall and Harry Anthony Patrinos, “Indigenous Peoples, Poverty, and Human
Development in Latin America: 1994-2004,” World Bank, 2004.
5 Country Reports on Human Rights Practices 2005, U.S. Department of State, March 2006.
6 Barr, 2005; Jeffrey R. Webber, “Left-Indigenous Struggles in Bolivia, Monthly Review,
Sept. 2005.
7 Country Reports on Human Rights Practices 2004, U.S. Department of State, Feb. 28,
2005.

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CRS-4
growers. Quispe, an Aymaran Indian and rival of Morales, considers Morales to be
a mainstream politician who will continue free market policies at odds with
indigenous interests. Both leaders played a prominent role in protests that unseated
two of Bolivia’s last three presidents.
Political Situation
Political Instability: 2002-2005
A rise in popular discontent with the established political parties may have
contributed to the narrow victory of Gonzalez Sánchez de Lozada of the centrist
National Revolutionary Movement (MNR) in the 2002 presidential election with
22.5% of the vote. Evo Morales of the MAS, who ran on a platform critical of free-
market policies and advocating indigenous rights, came in second 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.8
Political protests during 2003 led to the resignation of President Gonzalo
Sánchez de Lozada on October 17, 2003, 15 months after he was elected. The 2003
change in leadership came about after months of 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. These events
occurred against a backdrop of growing opposition to U.S.-funded coca eradication
programs, affecting approximately 50,000 growers who make their livelihood from
both its licit and illicit cultivation. Other observers argued that Bolivian resentment
had grown in response to the role of the IMF’s requirements for additional loans.9
The final spark that immediately preceded Sánchez de Lozada’s resignation was his
plan to export natural gas via a port in Chile, a historic adversary of Bolivia. Human
rights organizations and the current Bolivian government believe Sánchez de Lozada
should be held legally responsible for the civilian deaths that occurred in Bolivia in
September and October 2003.
Succeeding Sánchez de Lozada as president was his former vice president,
Carlos Mesa, a popular former television journalist, historian, and political
independent. Mesa appointed a new cabinet, also largely of 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
8 The Bolivian electoral system stipulates that if no candidate receives a majority of the
popular vote, the Congress must decide between the top two candidates. See Robert R.
Barr, “Bolivia: Another Uncompleted Revolution,” Latin American Politics and Society,
Fall 2005.
9 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.

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CRS-5
also overturned a 1997 decree that had given oil companies ownership of the natural
gas they extracted. He also shepherded reform legislation through Congress that
allowed more popular participation in elections. Further, he announced plans for a
constituent assembly to consider a new constitution.
Despite taking several proactive measures, President Mesa, like his predecessor,
proved unable to resolve continuing discord over several key issues facing the
country. Those issues related to the exploitation of Bolivia’s natural resources, coca
eradication programs, indigenous rights, and the extent of power sharing between the
central government and the country’s nine departments.10 In June 2005, Mesa
resigned in favor of Eduardo Rodriguez, head of the Supreme Court, in response to
continuing street protests and road blockages that at times paralyzed the country.
Some analysts argue that this chronic instability was caused not by the failure of one
leader or political party, but by the inability of Bolivia’s weak institutions to respond
to the demands of the country’s increasingly mobilized population.11 Upon taking
office in June 2005, President Rodriguez promised to convoke early presidential and
legislative elections, which were then not scheduled to occur until June 2007.
December 2005 Elections
The three main candidates in the December 18, 2005, presidential elections were
former president Jorge Quiroga, representing the Social and Democratic Power Party
(PODEMOS), a new center-right political party; Evo Morales of the MAS; and
Samuel Doria Medina, a cement magnate standing for the center-right National Unity
Front (UN) party. On
December 18, 2005, a
record 85% of the Bolivian
Morales Biography

electorate turned out to vote
Evo Morales was born on October 26, 1959, in Oruro,
in elections that were
Bolivia. Morales, like most coca growers, is
deemed to be free and fair.
descended from the Quechua and Aymara Indians
Evo Morales won a
drafted by the Spanish to work in Bolivia’s silver and
convincing victory in the
tin mines and then driven to the Chapare jungle when
presidential election with
the prices of those commodities collapsed in the
54% of the votes cast as
1970s. After high school, Morales served briefly in
compared to 29% for
the Bolivian military and then became a coca farmer.
Quiroga and 8% for Doria
He rose to prominence as a leader of the powerful
Medina.
Bolivian coca grower’s union. In 1997, Morales was
first elected to the Bolivian Congress as a
representative of the MAS. In 2002, Morales and the
In the legislative
MAS finished a close second in the presidential
elections, the MAS became
balloting, having broadened their support base from
the first party since
coca growers and the indigenous.
B o l i v i a ’ s r e t u r n t o

democracy in 1982 to win
Source: “Evo Morales,” Latin News, September 2005.
both the presidency and a
majority in the lower
10 Kate Joynes, “President’s Popular Approval Ratings Fall as Bolivian Crisis Continues,”
WMRC Daily Analysis, Mar. 21, 2005.
11 Michael Shifter, “Breakdown in the Andes,” Foreign Affairs, Sept/Oct 2004.

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CRS-6
chamber of the Congress. The MAS has 72 seats in the 130-seat chamber. In the
Senate, MAS now has 12 of the 27 seats, while Quiroga’s PODEMOS has 13 and the
UN and the MNR have one each. On January 18, 2005, an MAS senator became
president of the Bolivian Senate.
Although some analysts were forecasting a Morales victory, few predicted that
he would win by such a decisive margin. The large margin proved that Morales had
broadened his support beyond rural, indigenous, union, and lower-middle class
voters. He achieved significant support in urban areas and higher than expected
support in the conservative eastern provinces. Some factors that may have led to his
victory include the perception that pro-market economic reforms had not benefitted
the majority of the Bolivian population; the corruption of the traditional parties that
had ruled since 1982; and the tough, nationalistic positions he has taken against
foreign investors and U.S. counter-narcotics programs.12
The December elections were also significant because they included the first
direct election of governors (prefects) in Bolivia. Department governors have
traditionally been appointed by the executive and have not been held directly
accountable to citizen’s demands. Although MAS dominated the presidential and
legislative elections, candidates from traditional or the new center-right parties won
most of the gubernatorial races. Conflicts have already arisen between the Morales
government in La Paz and departmental governments regarding the distribution of
resources and political power. Future conflicts may be particularly pronounced in the
resource-rich areas around Santa Cruz as leaders in that region renew calls for
regional autonomy.
Constituent Assembly
Since 1990, there have been repeated calls from Bolivian civil society —
particularly the indigenous majority — for a new constitution to increase the
recognition and participation of the indigenous and other traditionally excluded
groups in the political and cultural life of the country. The convocation of a
constituent assembly to reform the Bolivian constitution has been a key demand of
social protests since 2000.13 A constituent assembly was originally planned for 2004,
but disagreements with the Congress on the subjects to be considered and other
logistical considerations postponed it until mid-2006. In March 2006, President
Morales secured passage of legislation establishing elections for a constituent
assembly. Elections for constituent assembly delegates were held on July 2. The
MAS captured 50.7% of the popular vote and 137 of 255 seats in the constituent
assembly but lacks the two-thirds majority necessary to pass constitutional reforms
and will have to form alliances in order to advance its agenda.14
12 Kent H. Eaton, “Bolivia at the Crossroads: Interpreting the December 2005 Elections,”
Strategic Insights, Vol. 5, Issue 2, February 2006.
13 Kathryn Ledebur and Evan Cuthbert, “A New Constitution for Bolivia: The History and
Structure of the Constitutional Assembly,” Andean Information Network, June 28, 2006.
14 “Bolivia: No Carte Blanche,” Economist Intelligence Unit, July 17, 2006.

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CRS-7
On August 6, the constituent assembly was installed in Sucre, the colonial
capital of Bolivia. The assembly has up to one year to deliberate. Any constitutional
reforms that are approved by two-thirds of the delegates must then be approved by
a majority of Bolivians in a national referendum, if the reforms are to take effect.
President Morales and his indigenous supporters would like the assembly to draft a
new constitution that would redefine Bolivia as a “multinational state made up of
indigenous groups” and incorporate indigenous institutions within the national
structure. They would also like the constituent assembly to pass measures in support
of agrarian reform and state ownership of the country’s natural resources. The
political opposition is wary that Morales will try to use his executive power to
dominate the assembly and use it as a means of increasing his presidential powers,
as has occurred in Venezuela under President Hugo Chávez. Many opposition
delegates, particularly those from Bolivia’s wealthy eastern provinces, are pushing
for increased regional autonomy from the central government, a measure opposed by
the Morales government. Some opposition assembly members have already been
angered by President Morales’ decision to appoint Silvia Lazarte, Quechua member
of the MAS block, to preside over the assembly, rather than allowing her to be
selected by the members of the MAS delegation.15
Referendum on Regional Autonomy
In recent years, civic committees and citizens from the resource-rich areas
around Santa Cruz have been pushing for increased regional autonomy, with
implications for how central government resources are distributed. This movement
is supported by Bolivia’s four eastern regions and opposed by the less wealthy
regions in the center and west of the country, causing a deep divide in Bolivian
politics. Nine governors or prefects were elected on December 18, 2005; however,
their powers have yet to be well-defined. Several of the prefects are pushing for
autonomy over budgetary and even military powers. This push for regional autonomy
and devolution has caused friction between political and business leaders from the
eastern regions and the Morales government in La Paz.
On July 2, 2006, concurrent with the constituent assembly elections, Bolivia
held a referendum on whether to grant increased powers and autonomy to the
regional (departmental) governments. According to the law convoking both the
constituent assembly election and the referendum on regional autonomy, the
assembly delegates will be legally bound to grant increased powers (which are still
to be defined) to prefects in the departments where a majority of supporters approve
the autonomy measure. The election results revealed the deep socioeconomic and
geographic divisions within Bolivia. The country was split as the four wealthy
eastern provinces voted strongly in support of increased autonomy, while the other
five provinces opposed the measure. Morales and the MAS oppose increasing
regional autonomy but support measures to give indigenous communities more
autonomy and control over their lands. The issue of regional autonomy is likely to
be one of the most contentious issues to be taken up by the constituent assembly.
15 Monte Reel, “A Road Paved With Hope,” Washington Post, August 6, 2006; “Amid
Tensions, Bolivians Strive for Peace,” Miami Herald, August 6, 2006; “Assembly Gets Off
to a Troubled Start,” Latin America Weekly Report, August 8, 2006.

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CRS-8
Economic Situation
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, and higher interest rates combined with hyperinflation forced Bolivian
governments to adopt austerity measures. Bolivia was one of the first countries in
Latin America to implement 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%, but the economy
remained highly dependent on foreign aid and had an extremely high debt/GDP ratio.
Sluggish economic growth in 2001 and 2002 (1.2% and 2.5%, respectively)16 fueled
resentment that the benefits of globalization and free market economic policies were
not reaching most of the impoverished population.
Bolivia posted faster growth rates of roughly 4% in both 2004 and 2005. Strong
international demand for Bolivian mining products and gas, as well as high tax
revenues from the natural gas sector, should fuel growth of about 3% in 2006.17
Despite that growth, some 63% of Bolivians live in poverty with 34.3% earning less
than $2 a day, according to the World Bank. Future growth will likely be constrained
by declining foreign investment and the country’s high debt burden, among other
things. Growth is unlikely to reach levels sufficient to relieve Bolivia’s high poverty
rates.
President Morales opposes free market economic policies and supports more
state involvement in economic policy-making and greater government spending on
infrastructure, health, and education. In June 2006, the MAS unveiled a five-year
national development plan (2006-2010) calling for $6.9 billion in government
investment complemented by $6 billion of private investment, particularly in the
housing, infrastructure, and small business sectors. The plan aims to increase GDP
growth to 7.6% by 2010, create 90,000 jobs annually and reduce the percentage of
the population living in poverty to below 50%. Critics of the plan argue that it lacks
a clear financing plan and is overly ambitious.18
The Morales government also continues to negotiate for further debt relief from
the major international donors. On July 1, 2006, the World Bank announced that
Bolivia would receive a total of $1.8 billion in total debt relief under the Multilateral
Debt Relief Initiative. That debt forgiveness does not extend to debt owed to the
Inter-American Development Bank, Bolivia’s largest external creditor. Further debt
relief may be difficult considering the international community’s increasing
skepticism of Morales’ economic policies and the distancing of relations that has
occurred between the Bolivian government and the IMF.
16 Statistics are drawn from the World Bank World Development Indicators 2003, Human
Development Report 2003, United Nations Development Program, and “Bolivia - Country
Profile 2003, Economist Intelligence Unit.
17 “Bolivia - Country Report,” Economist Intelligence Unit, August 2006.
18 “Bolivia: Going Pretty Well,” Latin American Economy and Business, June 2006.

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CRS-9
The most controversial components of the Morales government’s economic and
social development plan include its plans to nationalize the natural gas sector, to
industrialize the coca leaf for licit uses while using cooperative means to eradicate
excess crops, and to enact large-scale land reform.
Gas Exports and Nationalization
Bolivia has the second-largest gas reserves in South America after Venezuela,
with proven natural gas reserves estimated to be as high as 55 trillion cubic feet.
Some 50% of the gas used in Brazil, and 75% of the gas used in the industrial state
of São Paulo, flows from Bolivia. Bolivia is land-locked and must go through
neighboring countries in order to export its natural gas. In addition, Bolivia lacks the
technological and financial capacity to develop its natural gas resources without
significant foreign investment.
Despite these limitations, most Bolivians believe that their government needs
to assert greater control over its natural resources in order to ensure that the revenues
they produce are used to benefit the country as a whole.19 In a June 2004 referendum,
more than 92% of Bolivians support an increased state role in gas exploration and
production, while stopping short of nationalization. As a result of the referendum,
then-president Carlos Mesa sent legislation to the Congress to replace the 1996
Hydrocarbons Law, which had opened Bolivia’s hydrocarbons sector to private
investment. The state-owned energy company Yacimientos Petroliferos e Fiscales
Bolivianos (YPFB) would resume a more active role in oil and gas operations. The
proposed legislation raised taxes on oil and gas production and reestablished state
ownership of oil and gas “at the wellhead.” Existing contracts with oil companies,
most foreign-owned, needed to be renegotiated.
In May 2005, the Bolivian Congress enacted its own version of hydrocarbons
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 were given six months to bring their current contracts into line with the new
legislation. Foreign oil companies vehemently criticized the law, but most elected
to comply with its terms, at least in the short-term. As a result of the tax hikes, some
companies initiated legal action over having their existing contracts rewritten and
investment reduced, and predicted that new investments would not be feasible in
Bolivia. In the first six months of 2005, oil exploration in Bolivia fell by more than
80% compared with the previous year.20
19 The idea that governments should exert more control over their natural resources has
recently taken hold in Bolivia, Ecuador, and Venezuela. For more information on “resource
nationalism” in Latin America, see “Oil Nationalization Has Many Forms in Latin
America,” Petroleum Intelligence Weekly, June 12, 2006.
20 “Morales Threat Hangs Over Bolivian Gas Talks,” Financial Times, Nov. 17, 2005.

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On May 1, 2006, President Morales fulfilled his campaign pledge to nationalize
the country’s natural gas industry.21 This action significantly raised energy costs for
neighboring Argentina and Brazil and has raised tax and royalty rates to a level that
many investors perceive to be unprofitable.22 The nationalization move prompted
Brazil’s Petrobras and Spain’s Repsol-YPF — the largest foreign investors in
Bolivia’s energy sector — to halt all new investments in the country, although both
companies are still operating in Bolivia and are renegotiating contracts with the
Morales government. Bolivia has reached an agreement with Argentina to increase
the prices of its natural gas exports, but negotiations with Brazil have stalled. The
Bolivian government has vowed to resort to international arbitration if its negotiators
are unable to reach an agreement with Brazil by mid-October.
Critics of the nationalization measure assert that, even with new investments
and advisors from Venezuela, Bolivia has neither the technological nor financial
capacity to develop and export its gas resources on its own. These criticisms were
validated as the Bolivian government announced in mid-August 2006 that it was
temporarily suspending the nationalization process due to a lack of economic
resources at YPFB.23 On August 28, 2006, the nationalization process was dealt
another blow as the head of YPFB, Jorge Alvarado, resigned. Alvarado violated the
terms of the nationalization decree by having YPFB contract to export crude oil
through an independent Brazilian company.24
Coca Cultivation
The coca leaf has been used for thousands of years by indigenous communities
throughout the Andean region for spiritual and medical purposes, and its use is
considered an important indigenous cultural right. The coca leaf is also a primary
component of cocaine, an illicit narcotic. Since the 1960s, coca leaf and coca paste
produced in Bolivia have been shipped to Colombia to be processed into cocaine.
At the height of its production, the Chapare region of Bolivia — a jungle region
stretching from the eastern Andes mountains to the Amazon — produced enough
coca leaf to make some $25 billion worth of cocaine per year.25
21 Presidential Decree No. 28071 placed Bolivia’s oil and natural gas reserves under state
control. It returned the Bolivian government to a majority holding in the companies it had
privatized in the 1990s as well as two Petrobras refineries. The Morales government has
said that most of those holdings are currently held in trust, but some will be transferred from
private investors to the Bolivian government. It is unclear whether an indemnity will be
paid for those transferred shares. The decree gives all companies until October 2006 to sign
new contracts agreeing to new tax/royalty measures. For large fields with outputs of more
than 100 million cubic feet per day, the tax/royalty burden will increase to 82%. Smaller
fields will be subject to a 50% tax/royalty as outlined in the May 2005 Hydrocarbons Law.
See “Country Report: Bolivia,” Economist Intelligence Unit, August 2006.
22 “Bolivia Endangers Southern Cone Growth,” Energy Economist, June 1, 2006.
23 “Nationalization of Gas Stalling,” Miami Herald, August 15, 2006.
24 “Head of Bolivian State Oil Company Quits,” Miami Herald, August 28, 2006.
25 Daniel Kurtz-Phelan, “Coca is Everything Here,” World Policy Journal, Fall 2005.

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CRS-11
Since the 1980s, successive Bolivian governments, with financial and technical
assistance from the United States, have tried various strategies to combat illicit coca
production. In 1988, Bolivia passed legislation criminalizing coca growing outside
30,000 acres (12,000 hectares) in the Yungas region that was set aside to meet the
country’s traditional demand for coca. During the 1990s, the Bolivian government
tried to implement that drug control law by paying coca growers to eradicate their
crops. After this policy produced only modest results, the Banzer-Quiroga
administration (1997-2002), implemented a forced eradication program focusing on
the Chapare region.26 Although the program dramatically reduced coca cultivation
in Bolivia, human rights abuses were committed by security forces during its
implementation.27 In addition, the government failed to implement viable alternative
development programs to benefit coca growers and their families. Forced eradication
caused economic hardship and fueled social discontent in the Chapare region.
Frequent clashes between coca growers and security forces, which occasionally
turned violent, de-stabilized the region and the country as a whole.
This ongoing conflict continued until October 3, 2004, when Chapare growers,
led by Evo Morales and others, signed a one-year agreement with the Mesa
government, which permitted limited coca production in the region and replaced
forced eradication with a more cooperative, voluntary approach. Under the
agreement, each family is allowed to produce one cato (1,600 square meters) of coca,
but any coca grown beyond that is subject to eradication. U.S. State Department
figures found that drug cultivation in Bolivia increased by 8% in 2005 compared to
the previous year, but the United Nations Office on Drugs and Crime (UNODC)
reported an 8% decrease in cultivation for the same period. UNODC credited that
reduction largely to the success of the Chapare agreement.28 Regardless of its merits,
the Chapare agreement was only supposed to remain in place if a European Union-
funded study, which has yet to get underway, concluded that the “traditional” demand
for coca in Bolivia exceeds the current 12,000 hectares allowed by law. Critics argue
that since, according to police sources, some 99% of the coca grown in the Chapare
goes to the cocaine industry, it is not going to meet traditional demand for coca and
must therefore be eradicated.29
Morales’ “Coca Yes, Cocaine No” Policy. Evo Morales and the MAS
have developed a “coca yes, cocaine no” policy for Bolivia based on some of the
principles of the Chapare agreement. The policy seeks to (1) recognize the positive
attributes of the coca leaf; (2) industrialize coca for licit uses; (3) continue
“rationalization” of coca (voluntary eradication) in the Chapare and extend it to other
26 President Jorge Quiroga assumed the presidency on Aug. 7, 2001, when President Hugo
Banzer, whom he had served as vice president, resigned because of illness. Quiroga could
not, by law, subsequently run for election.
27 Gretchen Gordon, “The United States, Bolivia and the Political Economy of Coca,”
Multinational Monitor, Jan/Feb 2006.
28 U.S. Department of State, International Narcotics Control Strategy Report, March 2006;
UNODC, Bolivia Coca Cultivation Survey, June 2006.
29 “Zero Cocaine, Not Zero Coca,” Latin American Special Report, July 2006.

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CRS-12
regions; and, (4) increase interdiction of cocaine and other illicit drugs at all stages
of production.
In order to implement his new policy, President Morales has sought to
decriminalize coca growing and his government is trying to develop alternative uses
of the coca plant for products such as coca tea. Venezuela is funding the restoration
of two factories in the Yungas region for the industrialization of coca products —
such as baking flour and toothpaste — for export. In June 2006, President Morales
announced a plan to end the current division of the Yungas region into legal and
illegal coca growing zones, to allow licensed growers to sell coca directly to
consumers, and to permit each family in the Yungas to grow one cato of coca. In
July 2006, his government then targeted some 3,000 hectares in the Yungas for
cooperative eradication, marking the first time that the Bolivian government has
attempted eradication in that region.30 According to Bolivian government estimates,
the Bolivian government did not meet its coca eradication targets for the first six
months of 2006 but seized 31% more cocaine during that time than in the same
period in 2005.
Proponents of the “coca yes, cocaine no” policy argue that it is a culturally
sensitive approach to coca eradication that is widely accepted in Bolivia. For those
reasons, they believe that, although it may take time to show results, it stands a much
better chance of being successful than previous forced eradication programs. They
assert that Morales’ experience as a coca grower has enabled him to negotiate
agreements with producers in regions where prior governments were unable to limit
coca cultivation.31
Critics of Morales’ coca policy argue that it is based on the false premises that
traditional demand for coca exceeds the current legal threshold, and that there are
viable markets outside Bolivia for licit coca-based products. They further point out
that the new “rationalization” policies violate Bolivia’s existing drug control
legislation and may encourage further increases in illegal drug cultivation and
processing in both the Chapare and Yungas regions. They point to estimates from
Bolivia’s Special Force to Fight Crime and Narco-trafficking (FELCN) that the
number of cocaine laboratories operating in the country almost doubled in the first
seven months of the Morales government.32
Land Reform
Extreme land concentration and the lack of indigenous access to arable land has
been a long-standing cause of rural poverty in Bolivia. In 1953, Bolivia enacted a
large-scale land reform program, distributing some 2 million acres to indigenous and
30 “Cáceres Anuncia la Reducción de Coca en Zona Tradicional,” La Razon, July 29, 2006.
31 “Is Coca the New Hemp?” New York Times, March 28, 2006; Kathryn Ledebur and
Coletta A. Youngers, “Crisis or Opportunity?” Bolivian Drug Control Policy and the U.S.
Response,” June 2006.
32 “Zero Cocaine, Not Zero Coca,” Latin American Special Report, July 2006; “Bolivian
Cocaine Rises with Morales,” Washington Times, July 27, 2006.

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CRS-13
peasant communities. Nevertheless, today some 100 families reportedly own 12.5
million acres of land in Bolivia, while 2 million survive on 2.5 million acres.33 In
1996, Bolivia passed an Agrarian Reform Law 1996 that 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. Previous land reform efforts
in Bolivia and other countries in Latin America reportedly have been incomplete,
because they have failed to provide land recipients the access to credit and technical
assistance needed to use the land efficiently.34
In May 2006, the Morales government launched its agrarian reform program,
giving land titles for 7.5 million acres to 60 indigenous communities and promising
to distribute titles, accompanied by access to credit and technical training, for an
additional 50 million acres to Bolivia’s rural poor over the next five years. According
to the government, about one-third of the land to be distributed is state-owned, and
in accordance with the 1996 agrarian reform legislation, the additional two-thirds
would be reclaimed from individuals or companies that own land in the eastern
lowlands without legal titles or with illegally obtained titles.35
This land redistribution policy is vehemently opposed by the agro-industrial
sector and other large landowners in the Santa Cruz region, who see it as a threat to
their livelihoods.36 It is also likely to affect hundreds of Brazilian landowners who
have acquired large tracts of land in eastern Bolivia for soya farming and other
agricultural pursuits. Landowners have reported an increase in peasant occupations
of private land in 2006, actions which they say have been encouraged by the Morales
government.37
Trade Policy
Bolivia is a member of the Andean Community (CAN), with Peru, Ecuador, and
Colombia.38 President Morales assumed the rotating presidency of the CAN in June
2006. The members of the Andean Community have requested an extension of trade
benefits from the United States and are interested in negotiating a free trade
agreement with the European Union. The future of the CAN had been in question
after Venezuela suddenly quit the trading block in April 2006 because it opposed free
trade agreements negotiations conducted by Peru, Ecuador, and Colombia with the
United States. Prospects for the CAN have improved, however, as Chile appears
likely to rejoin the group.
33 Helen Barnes, “Conflict, Inequality and Dialogue for Conflict Resolution in Latin
America: The Cases of Argentina, Bolivia and Venezuela,” 2005.
34 Alain de Janvry and Elisabeth Sadoulet, “Land Reforms in Latin America,” University of
California at Berkeley, June 2002.
35 Douglas Hertzler, “Bolivia’s Agrarian Reform,” June 28, 2006.
36 “Bolivian Landowners See Politics, Chávez Behind Reform,” Reuters, June 5, 2006.
37 “Bolivia: A Country Report,” Economist Intelligence Unit, August 2006.
38 CRS Report RL33162, Trade Integration in the Americas, by M. Angeles Villarreal.

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CRS-14
Bolivia is also an associate member of Mercosur, the trading block composed
of Brazil, Argentina, Uruguay, Paraguay, and, as of July 2006, Venezuela.39 In May
2006, the Morales government signed a trade and cooperation agreement with Cuba
and Venezuela. Morales and the MAS oppose the Free Trade Area of the Americas
(FTAA) and have been critical of the type of bilateral and sub-regional trade
agreements reached by other countries in Latin America with the United States.
Bolivia currently benefits from the Andean Trade Promotion and Drug
Eradication Act40 (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. The prospects for renewal of ATPDEA will be discussed below.
Relations with the United States
For some 20 years, U.S. relations with Bolivia have centered largely on
controlling the production of coca leaf and coca paste, much of 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 worsened
Bolivia’s chronic instability.
Prior to the December 2005 elections, most analysts predicted that a Morales
victory would complicate U.S. relations with Bolivia. Although U.S. officials
refrained from commenting publicly on their concerns about a possible Morales
victory for fear of inadvertently swaying Bolivian support to his candidacy (as
occurred in 2002), they expressed serious concerns about his position on the coca
issue and his possible ties with Cuba and Venezuela.41
After the election, U.S. State Department officials congratulated Evo Morales
but noted that “the quality of the relationship between the United States and Bolivia
will depend on what kind of policies they [Morales and the MAS government]
pursue.” Secretary of State Condoleezza Rice said that “the issue for us is, will the
39 For more information, see CRS Report RL33620, Mercosur: Evolution and Implications
for U.S. Trade Policy, by J.F. Hornbeck.
40 For more information, see CRS Report RL30790, The Andean Trade Promotion Act:
Background and Issues for Reauthorization, by J.F. Hornbeck.
41 In 2002, then U.S. Ambassador to Bolivia Manuel Rocha stated that “if Morales was
elected, the U.S. would have to reconsider all future aid [to Bolivia]. Most observers, and
Morales, too ... say that [those comments] got him and MAS at least 20 percent more votes.”
See David Rieff, “Che’s Second Coming?” New York Times, Nov. 20, 2005.

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CRS-15
new Bolivian government govern democratically? Are they open to cooperation that,
in economic terms, will undoubtedly help the Bolivian people? ... from our point of
view, this is a matter of behavior.” On January 2, 2006, Evo Morales met with then
U.S. Ambassador to Bolivia, David Greenlee, at which time the two agreed on the
importance of “confronting drug-trafficking and respecting democracy in the
region.”42
Some analysts predicted that Evo Morales would become another Hugo Chávez,
an outspoken, anti-American, leftist leader. Others disagreed, maintaining that the
United States still exerts a lot of influence over Bolivia in terms of foreign aid, trade
preferences, and influence over international finance. They urged U.S. officials not
to antagonize Evo Morales but to use “power and rhetoric, sparingly, if at all” to urge
Morales and the MAS to maintain open-market and democratic policies.43
Despite that initial openness to dialogue, U.S.- Bolivian relations have become
tense in the past few months. U.S. officials have expressed concerns about the
Morales government’s commitment to combating illegal drugs, its increasing ties
with Venezuela and Cuba, and its May 2006 nationalization of Bolivia’s natural gas
industry.44 In June 2006, Adolfo Franco, Assistant Administrator of the U.S. Agency
for International Development (USAID) for Latin America and the Caribbean, also
expressed U.S. concerns that the Morales government had “demonstrated inclinations
to consolidate executive power and promote potentially anti-democratic reforms.”45
The Bolivian government has in turn been frustrated by U.S. attempts to influence
its policies, particularly in the area of drug control. President Morales has accused
the United States of engaging in “policies of imposition” by demanding that the
Bolivian government use forcible methods to eradicate coca fields.46 The Bolivian
government has also reportedly been disappointed by the U.S. government’s failure
to respond to its request to extradite former president Gonzalo Sánchez de Lozada.
U.S. Assistance
For the past several years, Bolivia has been the third largest recipient of U.S.
foreign assistance in Latin America, behind Colombia and Peru. Bolivia received
$126 million in U.S. assistance in FY2005 and an estimated $116.5 million in
42 Sean McCormack, U.S. State Department Regular News Briefing, Dec. 20, 2005;
Interview with Secretary of State Condoleezza Rice on CNN, Federal News Service, Dec.
19, 2005; “Bolivia’s Morales, US Discuss Drugs and Democracy,” Agence France Presse,
Jan. 2, 2006.
43 “Don’t Do Chavez a Favor in Bolivia,”Christian Science Monitor, Dec. 22, 2005;
“Morales Set to Challenge U.S. on Trafficking, Aid,” Miami Herald, Jan. 13, 2006.
44 “A War of Words: The Avoidable Bush/Bolivia Meltdown,” The Democracy Center, Vol.
30, June 30, 3006.
45 Testimony of Adolfo A. Franco, Assistant Administrator of the Bureau of Latin America
and the Caribbean for USAID, before the House International Relations Committee, June
21, 2006.
46 “Morales: Bolivia Deserves Renewal of U.S. Trade Preferences,” EFE News Service,
August 2, 2006.

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FY2006. The FY2007 request for Bolivia is for $99.8 million. As reflected in Table
1, 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.47
Table 1. U.S. Counternarcotics Assistance to Bolivia,
FY2000-FY2007
(in millions $)
ACI
Interdict.
Alt. Dev.
FMF
IMET
Total
FY2000
57.00
101.00
—
0.50
158.50
FY2001
32.00
20.00
—
0.70
52.70
FY2002
48.00
39.60
2.00
0.70
90.30
FY2003
49.00
41.70
2.00
0.80
93.50
FY2004
49.20
41.80
4.00
0.60
95.60
FY2005
48.60
41.70
—
—
90.30
FY2006
42.60
36.60
1.00
0.80
81.00
FY2007
35.00
31.00
0.03
0.05
66.08
Total
361.40
353.40
9.03
4.15
727.98
Sources: Figures are drawn from the annual State Department and USAID
Congressional Budget Justifications for fiscal years 2002 through 2007.
ACI funds include interdiction efforts and alternative development (AD)
programs. 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 are also be used to support increased
interdiction of precursor chemicals and cocaine products. They provide support for
a U.S.-owned helicopter fleet and funding to maintain and purchase vehicles, riverine
patrol boats, training and field equipment, and to construct and refurbish antiquated
counternarcotics bases.
Alternative development programs provide a range of assistance to help farmers
as they stop relying solely on coca production and as their illicit crops are eradicated
by law enforcement. U.S. programs supporting AD in the Chapare and Yungas
regions of Bolivia are linked to illicit coca eradication. AD includes economic
development in coca-growing areas, demand-reduction education programs, and the
47 For more information, see CRS Report RL33370, Andean Counterdrug Initiative (ACI)
and Related Funding Programs: FY2007 Assistance, by Connie Veillette.

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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.
USAID now works in municipalities where some of those mayors are former coca
growers. Human rights organizations working in the Chapare region have supported
USAID’s decision to work with coca growers.
Article 98 and U.S. Assistance to Bolivia. Since 2003, the Bush
Administration has sought bilateral agreements worldwide to exempt Americans
from International Criminal Court prosecution, so-called “Article 98 agreements.”48
Bolivia has signed, but not ratified, an Article 98 agreement. Pursuant to the
American Servicemembers’ Protection Act, or ASPA, (P.L. 107-206, title II), the
Administration terminated military assistance to nations that had not signed Article
98 agreements on July 1, 2003. Bolivia received a presidential waiver from these
provisions until January 1, 2004 but lost FMF and IMET funding in FY2005 for
failure to ratify that agreement. The Nethercutt Amendment to the FY2005
Consolidated Appropriations Act (H.R. 4818/P.L. 108-447) and FY2006 Foreign
Operations Appropriations Act (H.R. 3057/P.L. 109-102) prohibited some economic
assistance to the governments of those same countries that do not have Article 98
agreements. The House-passed version of the FY2007 Foreign Operations
Appropriations Act (H.R. 5522) would continue those aid prohibitions for FY2007.
FMF funds in FY2005 ($ 2 million) were to be used 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, Cyprus, and
East Timor. In FY2005, Bolivia lost nearly $2 million in FMF funding. Some $1
million in FMF funds have been slated for Bolivia in FY2006 but are also subject to
ASPA provisions. Bolivia also generally receives small amounts of International
Military Education and Training (IMET) funds. IMET funds are used to provide
professional military education to Bolivian military personnel at U.S. military
command and staff colleges. Bolivia lost $800,000 in FY2005 and could lose
$800,000 in FY2006. The FY2007 request for Bolivia included only an estimated
$30,000 in FMF funds and $50,000 in IMET funds.
Bolivia also benefits from U.S. economic assistance programs. In FY2006,
Bolivia received an estimated $10 million in Development Assistance (DA) funds.
The FY2007 request is for another $10 million in DA to increase economic
opportunities, help disadvantaged indigenous groups, and support the Bolivian
government’s health-sector priorities. In FY2006, Bolivia received an estimated
$16.5 million in Child Survival and Health (CSH) funds. The FY2007 request is for
$13.7 million to support health programs, HIV/AIDS programs, nutrition and
48 In July 2002, the Rome Statute that created the International Criminal Court (ICC) entered
into force. The ICC is the first permanent world court with jurisdiction to try individuals
for war crimes and other grave human rights abuses. For more information, see CRS Report
RL33337, Article 98 Agreements and Sanctions on U.S. Foreign Aid to Latin America.

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vaccination programs for children, the Amazon Malaria Initiative, and Avian Flu
initiatives. Pursuant to Nethercutt aid restrictions, the FY2005 Economic Support
Funds (ESF) for Bolivia, which totaled an estimated $8 million, were reprogrammed
to non-governmental organizations. The same is likely to occur with the estimated
$6 million that the Bolivian government was to receive in FY2006. The FY2007
ESF request for Bolivia is for $6 million. ESF funds, which are two-year monies, are
slated to be used to strengthen municipal governments, reinforce democratic
practices, promote trade capacity and economic competitiveness, and further justice
sector reform in Bolivia. Peace Corps funds for Bolivia, which totaled an estimated
$3 million in FY2006 support a presence of more than 140 volunteers in Bolivia.
The FY2007 Peace Corps request is also for $3 million.
In addition to this bilateral assistance, in 2004, USAID’s Office of Transition
Initiatives (OTI) launched a program in Bolivia to help to defuse tensions in areas of
the country prone to social conflict and to help the country prepare for key electoral
events. Through June 2006, OTI had committed more than $10 million to 291
projects in Bolivia. Recent projects have sought to support the processes of regional
devolution in Bolivia by helping newly elected prefects develop the capacity to
respond to their constituents’ demands. Other projects focus on improving the
political representation of indigenous groups in Bolivia.
Millennium Challenge Account (MCA)
In addition to traditional development assistance, Bolivia could 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.49
In December 2005, Bolivia submitted a compact proposal worth $598 million
to the MCC, which has been endorsed by the Morales government. The compact
focuses on linking raw material producers to small and medium-sized businesses who
will then produce valued-added manufactured goods for export. If funded, the
program would spend some $433.5 million on road construction and infrastructure
rehabilitation; $157.5 million on financial services to the small businesses, and $7
million on program administration. As of July 2006, the MCC was still engaged in
ongoing discussions with the Bolivian government, other U.S. agencies, and the
broader donor community regarding Bolivia’s compact proposal.50 Some analysts
wonder whether some of the economic and political policies that the Morales
administration has promoted might threaten Bolivia’s eligibility for MCC assistance.
Others wonder whether Morales would accept MCC assistance even if it is offered,
49 For more information on the MCA, see CRS Report RL32427, Millennium Challenge
Account, by Curt Tarnoff.
50 For updated information on the status of Bolivia’s compact with the MCC, see
[http://www.mca.gov/public_affairs/fact_sheets/country_status_reports/Bolivia_CSR.pdf].

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CRS-19
given that recipients of MCC aid are generally expected to pursue certain
internationally accepted economic and political reforms.51
Counter-Narcotics Efforts
By the late 1990s, Bolivia, like Peru, was considered a counternarcotics success
story and a close U.S. ally in the fight against illegal narcotics. As aggressive coca
eradication programs in Bolivia resulted in significant reductions in illegal coca
production, the bulk of U.S. concern (and counternarcotics funding) shifted to
neighboring Colombia. At that time, some argued 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,” in which coca
production shifts to other areas with less law enforcement presence. Those warnings
appear to have some merit as, according to the State Department, coca cultivation in
Bolivia increased 23% in 2002, 17% in 2003, 6% in 2004, and 8% in 2005. These
findings, and the social discontent that has resulted from forced eradication, have
prompted some critics to question the efficacy of existing counternarcotics programs
in Bolivia and across South America.52
Bush Administration officials maintain that it is vital that governments in Latin
America continue to combat the cultivation of coca in order to help stem the flow of
illicit narcotics to the United States. Many U.S. officials were seriously concerned
about the level of drug cooperation they would receive from Bolivia following the
December 2005 election of Evo Morales, a coca growers union leader who had been
extremely critical of U.S. drug policy. At first, some U.S. officials expressed a
willingness to engage in a dialogue with the Morales government on how to fight
drug processing and trafficking while allowing some level of coca cultivation for
traditional uses. Thomas Shannon, Assistant Secretary of State for Western
Hemisphere Affairs, said that “Bolivia has waged an important war against the
production of cocaine in Bolivia and eradication [of coca leaf] has been an important
part of this. We’re going to have to talk to the new government to understand fully
how we can keep on with this process.”53
An initial willingness to work with the Morales government has been replaced
by increasing frustration on the part of the U.S. government with Bolivia’s
counternarcotics efforts. The State Department found that the Chapare agreement,
rather than contributing to reductions in coca cultivation, actually “undercut the
Government of Bolivia’s commitment to its forced eradication policy and resulted
in less eradication in 2005.” U.S. officials are reportedly wary of President Morales’
assertions that more cultivation should be allowed in order to provide for traditional
51 Tyler Bridges, “To Bolivians, U.S. Aid Often Goes Unnoticed,” Miami Herald, March 26,
2006.
52 Colletta A. Youngers and Eileen Rosin, Drugs and Democracy in Latin America: The
Impact of U.S. Policy, Washington D.C.: Lynne Reiner Publishers, 2004.
53 “Bolivia to Reject U.S. Aid if Conditional on Fighting Drugs,” Dow Jones Industrial
News, Dec. 27, 2005; “Region: Shannon Conciliates While Chávez Rants,” Latin News
Daily, Jan. 11, 2006.

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coca usage and coca-based products for export. The State Department asserts that
“many suspect [that traditional coca usage] has declined as Bolivian society has
urbanized.”54
U.S. officials’ concerns about the Morales government’s commitment to
combating coca production may have a direct impact on future counternarcotics
funding levels for Bolivia. In June 2006, John Walters, the Director of the White
House Office of National Drug Control Policy, said that Bolivia’s “current level of
[anti-drug] cooperation is not what it has been in the past, nor what it needs be to
continue reducing the problem.”55 The House Appropriations Committee report to
the FY2007 foreign operations appropriations bill (H.R. 5522; H.Rept. 109-486) cites
concerns about reports that Bolivia has lessened its commitment to combating drugs
and recommends cutting counternarcotics funding to Bolivia to $51 million from the
requested $66 million, which is already some $14 million less than the FY2006
estimated allocation. The Senate Appropriations Committee report to the FY2007
foreign operations appropriations bill (H.R. 5522; S.Rept. 109-277) would provide
$64 million in counternarcotics funding to Bolivia. It would, however, require the
State Department to submit a report by no later than October 15, 2006, determining
the Bolivian government’s commitment to implementing programs funded by the
ACI account.
Andean Trade Promotion and Drug Eradication Act (ATPDEA)
The United States currently extends duty-free treatment to imports from Bolivia
and other Andean countries under the Andean Trade Promotion and Drug Eradication
Act (ATPDEA). The act provides certain trade benefits in return for cooperation in
counternarcotics efforts. In February 2002, the ATPDEA reauthorized the 1991
Andean Trade Preference Act (ATPA) that expired in December 2001. The
ATPDEA added products that had been previously excluded under the ATPA,
including petroleum and petroleum products, certain footwear, tuna in flexible
containers, and certain watches and leather products. Duty-free benefits under
ATPDEA end on December 31, 2006, but legislation has been proposed, H.R. 5070
(Rangel), that would renew its benefits for another year. Free trade agreements
negotiated with Colombia and Peru would make the ATPDEA duty benefits
permanent for these countries.
Bolivia participated as an observer in the U.S.-Andean free trade negotiations
that began in May 2004. When the Administration first notified Congress of the
intent to begin free trade negotiations with Andean countries, a press release that
accompanied the notification said that the Administration planned negotiations
initially with Colombia and Peru and would work with Ecuador and Bolivia “with
a view to including them in the agreement as well.”56 Then USTR Zoellick stated a
year later that, although the door was open for Bolivia, the country was facing
54 U.S. Department of State, International Narcotics Control Strategy Report, March 2006.
55 “U.S. Drug Czar Criticizes Bolivia’s Cooperation,” Agence France Presse, June 26, 2006.
56 Office of the USTR, “USTR Notifies Congress of Intent to Initiate Free Trade Talks with
Andean Countries,” Press Release, November 18, 2003.

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economic and political challenges that made it difficult for it to be a participant in the
negotiations.57 In March 2006, President Morales announced that Bolivia would
“never” negotiate a free trade agreement with the United States but has since
moderated his position.
The effects of the ATPDEA on Bolivia’s economy are unclear because of the
challenges in isolating the effects of the preferential trade program from other
variables that affect the economy. National macroeconomic policies and foreign
investor confidence may have a much larger effect on economic trends. In general
terms, however, the overall effect on Bolivia’s economy of the elimination of
ATPDEA benefits would likely be small because exports under this program account
for a small percentage of GDP, just 1.79% in 2005. Moreover, only 12% of Bolivia’s
total exports in 2005 were destined for the United States, with about half of those
exports entering duty-free under ATPDEA.
The Morales government has offered to step up its drug interdiction efforts in
exchange for a one-year extension of ATPDEA trade benefits.58 Some say that
extending ATPDEA could help buoy support for U.S. policies in Bolivia and in the
broader Andean region. In July 2006, Thomas Shannon, U.S. Assistant Secretary of
State for Western Hemisphere Affairs, told reporters that ATPDEA has been “an
important counterpoint to drug production in the region ... [that has] produced
hundreds of thousands of jobs.” Others, including Senate Finance Committee
Chairman Charles Grassley, oppose continued preferential benefits for countries like
Ecuador and Bolivia that have enacted policies prejudicial against foreign
investment. 59
Human Rights
Since 1998, the implementation of forced eradication programs in Bolivia has
been accompanied by charges of human rights abuses committed by Bolivian security
forces. In 2003, violent clashes erupted between protesters and government troops
that resulted in more than 80 deaths, prompting new allegations of abuses by security
forces. The State Department’s annual Country Reports on Human Rights Practices
covering 2004 and 2005 recognized improvements from 2003, 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 repeatedly expressed concern with human rights abuses in
Bolivia. 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
57 Rosella Brevetti. “Zoellick Hopes Progress in Global Round Will Help Lagging
Hemispheric Trade Talks,” Daily Report for Executives, Bureau of National Affairs, Inc,
September 10, 2004.
58 ATPDEA Renewal Hangs in the Balance,” Latin American Regional Report: Andean
Group, July 2006.
59 “U.S. Could Scrap Trade Benefits Programs,” Reuters, July 27, 2006.

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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.60 Funding for FY2004 was not made
contingent on the determination.
Congress has continued to monitor the human rights situation in Bolivia. Report
language in the FY2005 Foreign Operations Appropriations Act (P.L.108-447) and
the FY2006 Foreign Operations Appropriations Act (P.L. 109-102) required the
Secretary of State to determine whether Bolivian security forces are respecting
human rights and cooperating with investigations and prosecutions of alleged
violations. Funding for FY2005 was not made contingent on the determination, but
funding for FY2006 is contingent on that determination. Report language in the
FY2007 Foreign Operations Appropriations Act (H.R. 5522) would continue to make
aid to Bolivian security forces in FY2007 contingent upon a State Department
certification
More than two years have passed since the Bolivian Congress authorized a
“Trial of Responsibility” to determine whether former president Sánchez de Lozada
and some of his cabinet ministers and military commanders should be held legally
responsible for the civilian deaths that occurred in Bolivia in September and October
2003. On August 9, 2006, the Bolivian armed forces announced that it would respect
Bolivia’s Supreme Court ruling that two former military commanders can be tried in
the civilian court system as part of the “trial of responsibilities” without legislative
approval. Sánchez de Lozada and two of these former cabinet officials currently
reside in the United States. Gustavo Guzmán, the recently-appointed Bolivian
Ambassador to the United States, has expressed hope that U.S. officials will facilitate
the extradition of Sánchez de Lozada to Bolivia to stand trial.
60 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 2004
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 stated 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 2004 report has been criticized by human rights
organizations for being factually incorrect and poorly written. 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. See 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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Figure 1. Map of Bolivia

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