Order Code RL32580
Bolivia: Political and Economic Developments
and Relations with the United States
Updated July 14, 2008
Clare Ribando Seelke
Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division

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Bolivia: Political and Economic Developments
and Relations with the United States
Summary
Bolivia has experienced a period of political volatility with the country having
six presidents since 2001. Evo Morales, an indigenous leader and head of Bolivia’s
coca growers’ union, and his party, the leftist Movement Toward Socialism (MAS),
won a convincing victory in the December 18, 2005, presidential election with 54%
of the votes. Early in his term, President Morales moved to fulfill his campaign
promises to decriminalize coca cultivation, nationalize the country’s natural gas
industry, and enact land reform. Those policies pleased his supporters, but
complicated Bolivia’s relations with foreign investors and the United States.
Since President Morales took office, Bolivians have become increasingly
divided over the issues of constitutional reform and regional autonomy. A
constitutional reform process began in mid-2006 and concluded in late 2007 when
the Constituent Assembly (CA) passed a draft constitution without the presence of
opposition delegates. Efforts by the Catholic Church, the Organization of American
States (OAS), and neighboring governments have failed to ease tensions over the
reform process between the MAS government in La Paz and the opposition. Whereas
plans for a national referendum on constitutional reforms have stalled, four
departmental referendums on autonomy have been held, despite the lack of
congressional approval for them to be convened. A national recall referendum is
scheduled for August 10, 2008 on whether President Morales, the vice president, and
the prefects (departmental governors) should remain in office.
U.S. interest in Bolivia has primarily centered on its role as a major coca-
producing country. U.S.-Bolivian relations have been strained by the Morales
government’s unorthodox drug policy; ties with Venezuela and Iran; and its
nationalization measures. Bolivian officials have worked closely with the United
States on drug interdiction efforts, but U.S. officials have asserted that excess coca
cultivation remains a problem in Bolivia. In 2007, tensions flared when Bolivian
authorities complained that some U.S. assistance was going to support opposition
groups trying to undermine the MAS government. The U.S. Ambassador to Bolivia
was called back to Washington for consultations on security issues in mid-June 2008
after protesters surrounded the U.S. Embassy in La Paz demanding the extradition
of former president Gonzalo Sánchez de Lozada and his ex-defense minister. The
two have been charged in Bolivia with responsibility for civilian deaths that occurred
during protests in September and October 2003.
Bolivia received $122.1 million in U.S. assistance in FY2007, including $66
million in counternarcotics assistance. In FY2008, Bolivia received an estimated
$99.5 million, including roughly $47.1 million in counternarcotics assistance. The
FY2009 request for Bolivia is for $100.4 million, not including P.L. 480 Title II food
aid. In February 2008, Congress voted to extend trade preferences for Bolivia, along
with Colombia, Ecuador, and Peru, under the Andean Trade Preferences and Drug
Eradication Act (ATPDEA) through the end of December 2008. The 110th Congress
is likely to consider what level of foreign assistance Bolivia should receive in
FY2009, and whether its existing trade preferences should be extended.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Role of Indigenous Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Political Instability: 2003-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
December 2005 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Morales Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Constituent Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regional Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Gas Exports and Nationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Coca Cultivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Morales’ “Coca Yes, Cocaine No” Policy . . . . . . . . . . . . . . . . . . . . . . 13
Land Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Relations with the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Millennium Challenge Account (MCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Counternarcotics Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Andean Trade Promotion and Drug Eradication Act (ATPDEA) . . . . . . . . 20
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Case Against Former President Sánchez de Lozada . . . . . . . . . . . . . . . . . . 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),
won a convincing victory in Bolivia’s presidential and legislative elections. 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 (prefectures), with stronger electoral support than any
of the country’s traditional political parties. On January 22, 2006, Evo Morales
became Bolivia’s first indigenous president in the country’s 180-year history.
Midway through his five-year term, President Morales continues to have
relatively strong approval ratings, but his efforts to enact constitutional reform have
been put on hold due to vigorous opposition from leaders of the country’s wealthy
eastern provinces. Many Bolivians hoped that the Constituent Assembly elected in
July of 2006 would be able to reconcile the competing visions for the country put
forth by the MAS and by the opposition through dialogue and negotiation. Those
hopes faded during the fractious Constituent Assembly process. The Assembly
passed a draft constitution on December 9, 2007, but many opposition delegates did
not attend the final sessions during which it was approved and have denounced it as
unlawful. The draft constitution provides for indigenous rights, communal justice,
land redistribution, presidential reelection, and increased federal government control
over the country’s oil and gas resources.
Whereas plans for a national referendum on constitutional reforms have stalled,
departmental referendums on autonomy have been held in four provinces, despite
the lack of congressional approval for them to be held. On December 14, 2007,
prefects (departmental governors) from the four eastern departments that had voted
in favor of greater regional autonomy in the July 2006 referendum issued “autonomy
statutes” declaring some independence from the central government. Those statutes,
which some national leaders (even from the opposition) have dismissed as
unconstitutional, received strong popular support from those who voted in
departmental referendums held in four eastern departments during May and June
2008. The Morales government has used the high abstention rates in those recent
referendums to minimize the importance of the voting results.1
1 “Bolivian Assembly Approves New Constitution; Prefects Declare Autonomy,” Andean
(continued...)

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President Morales and the opposition have separately agreed to hold a recall
referendum on whether Morales, the vice president, and the prefects (departmental
governors) should remain in office. The recall referendum is scheduled to take place
on August 10, 2008. Most observers doubt that either the results of the departmental
autonomy referendums or the recall referendum will settle the ongoing disputes
between the Morales government and the departmental prefects.2
U.S. interest in Bolivia has primarily centered on its role as a major coca-
producing country. Bolivian officials have worked closely with the United States on
drug interdiction efforts, but U.S. officials have asserted that excess coca cultivation
remains a problem in Bolivia. In 2007, tensions flared when Bolivian authorities
(including President Morales) complained that some U.S. assistance was going to
support opposition groups trying to undermine the MAS government. The U.S.
Ambassador to Bolivia was called back to Washington for consultations on security
issues in mid-June 2008 after protesters surrounded the U.S. Embassy in La Paz.
During its second session, the 110th Congress is likely to monitor conditions in
Bolivia and to conduct oversight on counternarcotics, trade, and human rights issues.

Background
Bolivia is a country rich in cultural diversity and natural resources, whose
political and economic development have been stymied by chronic instability,
extreme poverty, pervasive corruption, and deep ethnic and regional cleavages.3 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 64% of Bolivians live
in poverty and 35% earn less than $2 a day.4
Bolivia’s population of 9.1 million people is among the most ethnically diverse
in South America. Quechua and Aymara are the two predominant indigenous groups
who live largely in the altiplano and highland regions. Approximately 30% of the
1 (...continued)
Group, January 2008; “Country Report: Bolivia,” Economist Intelligence Unit, June 2008.
2 “Bolivia: Restoring the New Constitution and Democratic Stability,” International Crisis
Group (ICG), June 19, 2008.
3 For historical information on Bolivia, see Herbert S. Klein, A Concise History of Bolivia,
New York: Cambridge University Press, 2003.
4 U.N. Economic Commission for Latin America and the Caribbean, Social Panorama of
Latin America, 2007.

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CRS-3
Bolivian population are Quechuan, 25% are Aymaran, 30% are mestizo (mixed),
while 15% are of European origin.5
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).
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.6
In the 1980s, indigenous-based political parties and movements emerged in
Bolivia, and by 2006 some 17% of members of the Bolivian Congress were self-
identified as indigenous.7 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 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. The Constituent Assembly was presided over by an indigenous
woman and the draft constitution it produced recognizes indigenous autonomy and
the incorporation of indigenous communal justice into the judicial system.8
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
5 U.S. Department of State, “Background Note: Bolivia,” last updated in May 2008.
6 Gillette Hall and Harry Anthony Patrinos, “Indigenous Peoples, Poverty, and Human
Development in Latin America: 1994-2004,” World Bank, 2004.
7 Country Reports on Human Rights Practices 2006, U.S. Department of State, March 2007.
8 Robert R. Barr, “Bolivia: Another Uncompleted Revolution,” Latin American Politics and
Society, Fall 2005; Jeffrey R. Webber, “Left-Indigenous Struggles in Bolivia, Monthly
Review, September 2005; Hilary Burke, “Bolivia Split Over New Multicultural
Constitution,”Reuters, January 29, 2008; Monte Reel, “Bolivia’s Burning Questions: Who
May Dispense Justice?” Washington Post, February 2, 2008.

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CRS-4
have not been legally defined or protected, and that outsiders have been allowed to
exploit their resources. 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 Morales government has sought to help resolve these issues by promoting land
reform and decriminalizing coca cultivation.
Political Situation
Political Instability: 2003-2005
Political protests during 2003 led to the resignation of President Gonzalo
Sánchez de Lozada on October 17, 2003, just 15 months after he was elected. The
2003 protests were led by indigenous groups and workers concerned about the
continuing economic marginalization of the poorer segments of society. The
protesters carried out strikes and road blockages that resulted in up to 80 deaths in
confrontations with government troops. These events occurred against a backdrop of
opposition to U.S.-funded coca eradication programs and to the government’s
implementation of austere fiscal reforms backed by the International Monetary Fund
(IMF).9 The final spark that 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 Morales government believe that former
president Sánchez de Lozada, who currently resides in the United States, should be
held legally responsible for the civilian deaths that occurred in Bolivia in September
and October 2003. In September 2007, the Bolivian Supreme Court issued a new
extradition decree for the former president. A separate civil lawsuit was filed in the
U.S. court system in September 2007 by human rights lawyers seeking compensatory
damages for ten families of those killed in the 2003 protests.

Succeeding Sánchez de Lozada as president was his former vice president,
Carlos Mesa, a popular former television journalist and political independent. Mesa
appointed a new cabinet, also largely of independents, and demonstrated a sensitivity
to indigenous issues. He 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. Mesa 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.
9 Jeffrey Sachs, “Call It Our Bolivian Policy of Not-So-Benign Neglect,” The Washington
Post, October 26, 2003; Emad Mekay, “Politics: Activists Trace Roots of Bolivian Turmoil
to IMF,” Inter Press Service, October 20, 2003.

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Despite these measures, President Mesa, like his predecessor, proved unable to
resolve continuing discord over issues related to the exploitation of Bolivia’s natural
resources, coca eradication
programs, indigenous rights,
and the extent of power sharing
Morales Biography

between the central government
Evo Morales was born on October 26, 1959, in Oruro,
and the country’s nine
Bolivia. Morales, like most coca growers, is
departments. In June 2005,
descended from the Quechua and Aymara Indians
Mesa resigned in favor of
drafted by the Spanish to work in Bolivia’s silver and
Eduardo Rodriguez, head of the
tin mines and then driven to the Chapare jungle when
Supreme Court, in response to
the prices of those commodities collapsed in the
continuing street protests that at
1970s. After high school, Morales served briefly in
times paralyzed the country.
the Bolivian military and then became a coca farmer.
Some analysts argue that this
He rose to prominence as a leader of the powerful
chronic instability was caused
Bolivian coca grower’s union. In 1997, Morales was
not by the failure of one leader
first elected to the Bolivian Congress as an MAS
representative. In 2002, Morales and the MAS
or political party, but by the
finished a close second in the presidential balloting,
inability of Bolivia’s weak
having broadened their support base from coca
institutions to respond to the
growers and the indigenous.
demands of the country’s

i n c r e a s i n g l y m o b i l i z e d
Source: “Evo Morales,” Latin News, September 2005.
population.10 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
On December 18, 2005, a record 85% of the Bolivian electorate voted in
elections that were deemed to be free and fair. Evo Morales won a convincing victory
in the presidential election with 54% of the votes cast as compared to 29% for former
president Jorge Quiroga, representing the Social and Democratic Power Party
(PODEMOS), a new center-right political party, and 8% for Samuel Doria Medina,
a cement magnate standing for the center-right National Unity Front (UN).
In the legislative elections, the MAS became the first party since Bolivia’s
return to democracy in 1982 to win both the presidency and a majority in the lower
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.
While some analysts forecasted a Morales victory, few predicted that he would
win by such a decisive margin. That margin proved that Morales had broadened his
support beyond rural, indigenous, union, and lower-middle class voters. Some
factors that likely contributed to his victory included the perception that most
Bolivians had not benefitted from pro-market economic reforms adopted by previous
10 Michael Shifter, “Breakdown in the Andes,” Foreign Affairs, September/October 2004.

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CRS-6
governments, the corruption of the traditional parties, and the tough, nationalistic
stances he had taken against foreign investors and U.S. counternarcotics programs.11
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. Ongoing conflicts have since occurred between the
Morales government in La Paz and departmental governments regarding the
distribution of resources and political power in the country.
Morales Administration
Midway through his five-year presidential term, Evo Morales and the MAS, a
leftist party with origins in Bolivia’s social movements, have already had a profound
effect on Bolivia’s political system. Supporters maintain that, despite entrenched
opposition to many of his policies, the Morales government has implemented some
significant social and economic reforms, such as nationalizing the country’s gas
industry and enacting land reform. Critics argue that the Morales government has
used anti-democratic methods, such as encouraging the Constituent Assembly to
approve a draft constitution despite a boycott by opposition delegates, to try and
impose his will on the country.12
Despite these differing interpretations, most analysts agree that the Morales
government has benefitted from high energy prices and that, despite ongoing cycles
of civil unrest, President Morales continues to enjoy strong personal approval ratings.
His governments’ position has been reinforced vis-a-vis the opposition prefects by
the support he has received from fellow Latin American leaders and by the
Organization of American States (OAS).13
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 2000.14 A constituent assembly was originally planned for 2004,
11 Kent H. Eaton, “Bolivia at the Crossroads: Interpreting the December 2005 Elections,”
Strategic Insights, Vol. 5, Issue 2, February 2006.
12 “Bolivian President Faces Challenge in 2nd Half of Term,” Xinhua News Agency, January
23, 2008; “2 Years After Morales’ Win, Bolivia’s Divisions Deepen,” South Florida Sun-
Sentinel, January 6, 2008.
13 “Insulza Backs Morales,” Latinnews Daily, January 25, 2008.
14 Kathryn Ledebur and Evan Cuthbert, “Bolivia’s Constituent Assembly: Essential for a
(continued...)

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CRS-7
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, 2006.
The MAS captured 50.7% of the popular vote and 137 of 255 seats in the constituent
assembly but lacked the two-thirds majority necessary to pass constitutional reforms.
Any constitutional reforms approved by two-thirds of the delegates present were then
to be voted on by Bolivians in a national referendum. On August 6, the constituent
assembly was installed in Sucre, the colonial capital of Bolivia.
President Morales and his supporters urged the assembly to draft a constitution
that would redefine Bolivia as a “multinational state made up of indigenous groups”15
and incorporate indigenous institutions within the national structure. They also
favored measures in support of agrarian reform and state ownership of the country’s
natural resources. Many opposition delegates, particularly those from Bolivia’s
wealthy eastern provinces, maintained that the MAS proposals could result in a
“radically ethnic” governing model that is not representative of the entire country.16
They expressed concern that President Morales was trying to use his executive power
to dominate the assembly, as occurred in Venezuela under President Hugo Chávez.
Opposition delegates in the assembly pushed for increased regional autonomy from
the central government.
Throughout the assembly process, neither side appeared willing to compromise
its positions in order to move negotiations forward.17 For the first eight months of
its deliberations, the assembly was bogged down in a protracted debate over voting
procedures. Opposition delegates repeatedly rejected MAS proposals to allow
individual articles to be approved by a simple majority as long as the final draft
document was approved by two third of the delegates. In response, they launched
large-scale demonstrations, hunger strikes, and work stoppages in protest. As a
result, most of the constitutional commissions did not begin to consider reform
proposals until the spring of 2007. In August, the Bolivian Congress reached a last
minute agreement to extend the assembly deliberations until December 14, 2007.

By the fall, both sides’ positions were becoming deeply entrenched and
increasingly divergent. In October, the MAS government introduced a decree, which
was approved by the Congress in November, to divert a significant portion of the
direct hydrocarbons tax (IDH) revenue that had gone to the departments to pay for
a national pension payment for seniors. This provoked heated resistance from the
opposition prefects and assembly delegates. At the same time, opposition delegates
supported Sucre residents’ proposal to move the capital from Laz Paz to Sucre, a
seemingly inviolable proposal opposed by most of the MAS delegation. Recurring
14 (...continued)
Peaceful Transition and National Unity,” Andean Information Network, January 2007.
15 Monte Reel, “A Road Paved With Hope,” Washington Post, August 6, 2006.
16 “Bolivia’s Reforms: The Danger of New Conflicts,” International Crisis Group (ICG),
January 8, 2007.
17 “Bolivia’s New Constitution: Avoiding Violent Confrontation,” ICG, August 31, 2007.

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CRS-8
protests in Sucre, which turned violent, kept the CA suspended for most the fall.
Violent clashes between police and opposition protesters in Sucre in November 2007
resulted in three deaths and dozens of injuries.
The CA passed a draft constitution on December 9, 2007, but many opposition
delegates did not attend the final sessions during which it was approved and have
denounced it as unlawful. Seven of Bolivia’s nine departmental prefects have
rejected its proposals. The draft constitution provides for indigenous rights,
communal justice, land redistribution, presidential reelection, and increased federal
government control over the country’s oil and gas resources. It does not resolve the
issue of what size of private land should be considered excessive and therefore
vulnerable to government expropriation. Plans to convoke a national referendum on
whether or not to adopt the draft constitution have been put on hold.
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 largely supported by Bolivia’s four wealthy eastern regions. 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 would 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.
Notwithstanding the results of the autonomy referendum, the Morales
government, including the MAS delegates in the Constituent Assembly, has resisted
devolving power or resources to prefects in the four departments that voted in favor
of the autonomy measure. President Morales has asserted that no gas-producing
departments will receive a higher percentage of revenue at the expense of the national
government. In November 2006, he proposed legislation that would allow the
Bolivian legislature to impeach elected prefects. These moves prompted six of the
country’s nine prefects to break ties with the MAS government in November 2006
and to launch massive protests in December 2006.

Conflicts between the eastern prefects and the MAS government in La Paz
continued throughout 2007. In mid-January 2007, after the opposition prefect from
Cochabamba hinted that he would seek greater regional autonomy, MAS

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sympathizers launched protests demanding his resignation. Those protests led to
violent clashes that left 2 people dead and more than 100 injured.18 In July, the four
eastern prefects commemorated the anniversary of the autonomy referendum by
announcing draft autonomy statutes. In late November, the prefects were deeply
angered when the Morales government was able to push its proposal to redirect the
IDH hydrocarbons revenues from their departmental budgets to pensions for seniors
through the Bolivian Congress. They also vehemently opposed the draft constitution
passed by the Assembly in early December.
In response to the draft constitution, four prefects issued autonomy statutes on
December 14, 2007. The statutes, though varying by department, generally seek
greater departmental control over taxes, land, security, and natural resources than is
currently allowed under the current or proposed Bolivian constitutions.19 Whereas
plans for a national referendum on constitutional reforms have stalled, departmental
referendums on autonomy have been held in four provinces, despite the lack of
congressional approval for them to be convened. The statutes received strong
popular support from those who voted in each of the referendums held in May and
June 2008. The Morales government has used the high abstention rates in those
recent referendums to minimize their results.20
Economic Situation
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 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) fueled resentment that the benefits of globalization
and free market economic policies were not reaching most of the 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, fueled growth of about 4% in 2006. Bolivia’s
GDP grew by close to 4% again in 2007, despite significant flooding that damaged
much of the country’s agricultural production. Economic growth was driven by
strong performance in the construction, financial services, manufacturing, and
18 Monte Reel, “Bolivia’s Political Fissures Force Morales to Shift Course,” Washington
Post, January 22, 2007.
19 “Bolivian Departments Aim to Control Taxes, Land, Natural Resources,” BBC Monitoring
Americas, December 15, 2007.
20 “Bolivian Assembly Approves New Constitution; Prefects Declare Autonomy,” Andean
Group, January 2008; “Country Report: Bolivia,” Economist Intelligence Unit, June 2008.

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CRS-10
hydrocarbons sectors.21 Despite that growth, some 63% of Bolivians live in poverty
with 34.3% earning less than $2 a day.22 Future growth will likely be constrained by
declining foreign investment and the country’s high debt burden, among other things.

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.23
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. In March 2007, the Inter-American Development Bank (IDB)
agreed to cancel Bolivia’s $1 billion debt, along with the outstanding debt owed by
Guyana, Honduras, Nicaragua, and Haiti.24
Investors are concerned about the ad-hoc nature of the Morales government’s
economic policy. They are also worried about Morales’ stated goal of increasing
state control over mining, energy, transport, and telecommunications.25 Inflation,
which reached 11.7% in 2007, has become a major challenge for the government to
address. The most controversial components of the Morales government’s economic
and social development plans have been its efforts 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.
21 “Country Report: Bolivia,” Economist Intelligence Unit, February 2008.
22 U.N. Economic Commission for Latin America and the Caribbean, Social Panorama of
Latin America, 2007.
23 “Bolivia: Going Pretty Well,” Latin American Economy and Business, June 2006.
24 “IDB Forgives Debt of 5 Nations,” Caribbean Update, May 1, 2007.
25 “Country Report: Bolivia,” Economist Intelligence Unit, June 2008.

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CRS-11
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.26 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 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.27
On May 1, 2006, President Morales fulfilled his campaign pledge to nationalize
the country’s natural gas industry. As a result of the May 2006 nationalization
measure, the Bolivian government’s income from gas and oil rose to an estimated
$1.57 billion in 2007 (compared to $173 million in 2002). The nationalization
measure significantly raised energy costs for neighboring Argentina and Brazil and
raised tax and royalty rates to a level that some investors perceived to be
unprofitable. As a result, Brazil’s Petrobras and Spain’s Repsol-YPF — the largest
foreign investors in Bolivia’s energy sector — halted new investments in the country
through the end of 2007. Owing to a lack of investment in production in recent
years, Bolivia is currently unable to fulfill its domestic needs for natural gas and meet
the contract demands of Brazil and Argentina. State oil companies from a number of
countries (including Petrobras and Repsol) have pledged to make $1.5 billion in
investments in Bolivia in 2008, which should enable it to boost production by 2009.
Critics of the nationalization measure assert that, even with new investments, YPFB
has neither the technological nor financial capacity to develop and export Bolivia’s
gas resources.28
26 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.
27 “Morales Threat Hangs Over Bolivian Gas Talks,” Financial Times, November 17, 2005.
28 Tina Hodges, “Bolivia’s Gas Nationalization: Opportunity and Challenges,” Andean
Information Network, January 15, 2008; “Bolivia Reduces Gas Supplies to Neighbors,”
Latin American Weekly Report, January 10, 2008. Eduardo Garcia, “Analysis- Bolivia Races
Against Time to Boost Natural Gas Output,” Reuters, September 21, 2007.

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CRS-12
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.29
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.30 Although the program dramatically reduced coca cultivation
in Bolivia, human rights abuses were committed by security forces during its
implementation.31 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.32 Regardless of its merits,
the Chapare agreement was only supposed to remain in place if a European Union-
funded study, which just got underway in 2007 after a long delay, concluded that the
29 Daniel Kurtz-Phelan, “Coca is Everything Here,” World Policy Journal, Fall 2005.
30 President Jorge Quiroga assumed the presidency on August 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.
31 Gretchen Gordon, “The United States, Bolivia and the Political Economy of Coca,”
Multinational Monitor, January/February 2006.
32 U.S. Department of State, International Narcotics Control Strategy Report, March 2006;
UNODC, Bolivia Coca Cultivation Survey, June 2006.

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CRS-13
“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.33
Morales’ “Coca Yes, Cocaine No” Policy. Evo Morales and the MAS
have developed a “coca yes, cocaine no” policy for Bolivia based on 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 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.34 According to the U.S. Department of State’s
International Narcotics Strategy Control Report covering 2007, the Morales
government met its coca eradication targets for 2007 and seized more cocaine base,
marijuana, and precursor chemicals than in 2006.
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.35
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 both the new “rationalization” policies and the December 2006 MAS proposal
to expand the areas allowed for licit cultivation may encourage further increases in
illegal drug cultivation and processing in both the Chapare and Yungas regions.36
33 “Zero Cocaine, Not Zero Coca,” Latin American Special Report, July 2006.
34 “Cáceres Anuncia la Reducción de Coca en Zona Tradicional,” La Razon, July 29, 2006.
35 “Is Coca the New Hemp?” New York Times, March 28, 2006; Kathryn Ledebur and
Coletta A. Youngers, “Bolivian Drug Control Policy,” January 2007.
36 “Growing Narcotics Trade Worries Officials,” Washington Times, July 16, 2007.

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CRS-14
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
peasant communities. Nevertheless, as of 2005 some 100 families reportedly owned
12.5 million acres of land in Bolivia, while 2 million survived on 2.5 million acres.37
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.38
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
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.39
This land redistribution policy has been 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.40 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. In 2006, landowners reported an increase in peasant
occupations of private land, actions which they say have been encouraged by the
Morales government.41
On November 28, 2006, the Morales government secured passage of a new
agrarian reform law with the support of two alternate senators from opposition
parties. This move prompted strong criticism from opposition party leaders who
accused the MAS of using “inducements” to gain that support. Those accusations
have not been substantiated.42
37 Helen Barnes, “Conflict, Inequality and Dialogue for Conflict Resolution in Latin
America: The Cases of Argentina, Bolivia and Venezuela,” 2005.
38 Alain de Janvry and Elisabeth Sadoulet, “Land Reforms in Latin America,” University of
California at Berkeley, June 2002.
39 Douglas Hertzler, “Bolivia’s Agrarian Reform,” June 28, 2006.
40 “Bolivian Landowners See Politics, Chávez Behind Reform,” Reuters, June 5, 2006.
41 “Bolivia: A Country Report,” Economist Intelligence Unit, January 2007.
42 ICG, January 2007.

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CRS-15
Although press reports have described the agrarian reform bill as “radical,”
some observers maintain that it does not represent a dramatic departure from the land
policy enacted in 1996. The new agrarian reform law stipulates that government
land, unused tracts of private land, and land that was illegally acquired will be
distributed to settlers, peasants, and indigenous peoples. Opponents of the law are
concerned that it is likely to lead to arbitrary expropriations of private lands and will
inhibit landowner’s ability to buy or sell existing holdings, but Bolivian government
officials say they will take the steps necessary to avoid those outcomes.43

Trade Policy
Bolivia is a member of the Andean Community (CAN), with Peru, Ecuador, and
Colombia. The members of the Andean Community have requested an extension of
trade benefits from the United States and started 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.
Bolivia is also an associate member of Mercosur, the trading block composed
of Brazil, Argentina, Uruguay, Paraguay, and, as of July 2006, Venezuela.44 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 Act (ATPDEA), which offers access to the U.S. market for products from
the Andean countries of Peru, Colombia, Ecuador and Bolivia. ATPDEA, is an
extension of the Andean Trade Preference Act (ATPA) that began in 1991. In
February 2008, Congress voted to extend trade preferences for Bolivia, along with
Colombia, Ecuador, and Peru, under the Andean Trade Preferences and Drug
Eradication Act (ATPDEA) through December 2008.45
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
43 “Bolivia’s Morales Signs Sweeping Land Reform Bill,” Agence France-Presse,
November 29, 2006.
44 For more information, see CRS Report RL33620, Mercosur: Evolution and Implications
for U.S. Trade Policy, by J.F. Hornbeck.
45 For more information, see CRS Report RS22548, ATPA Renewal: Background and Issues,
by M. Angeles Villarreal.

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CRS-16
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.46
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.”47 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.48
Despite an initial openness to dialogue, U.S.-Bolivian relations became tense
in 2006. U.S. officials 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.49 In June 2006,
Adolfo Franco, Assistant Administrator of the U.S. Agency for International
Development (USAID) for Latin America and the Caribbean, asserted that the
Morales government had “demonstrated inclinations to consolidate executive power
and promote potentially anti-democratic reforms.”50 In September 2006, President
46 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, November 20, 2005.
47 Sean McCormack, U.S. State Department Regular News Briefing, December 20, 2005;
Interview with Secretary of State Condoleezza Rice on CNN, Federal News Service,
December 19, 2005.
48 “Don’t Do Chavez a Favor in Bolivia,”Christian Science Monitor, December 22, 2005.
49 “A War of Words: The Avoidable Bush/Bolivia Meltdown,” The Democracy Center, Vol.
30, June 30, 3006.
50 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.

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CRS-17
Bush expressed concern about the decline in Bolivian counternarcotics cooperation
that had occurred since the previous October.51
In 2007, there continued to be periodic friction in U.S.-Bolivian relations. In
September 2007, President Bush expressed concern about the reported expanded
coca cultivation in Bolivia that has occurred despite the Morales government’s
eradication efforts.52 Tensions in U.S.-Bolivian relations flared during the fall of
2007 as Bolivian authorities (including President Morales) complained that some
U.S. assistance was going to support opposition groups seeking to undermine the
MAS government.53 U.S. officials also expressed some concerns about the instability
in Bolivia surrounding the constitutional reform process.
The U.S. Ambassador to Bolivia was called back to Washington for
consultations on security issues in mid-June 2008 after protesters surrounded the U.S.
Embassy in La Paz demanding the extradition of former president Gonzalo Sánchez
de Lozada and his ex-defense minister Carlos Sanchez Berzain. The two have been
charged in Bolivia with responsibility for civilian deaths that occurred during protests
in September and October 2003. The June protests occurred in response to Berzain’s
announcement that he had received political asylum from the U.S. government.54
U.S. Assistance
For the past several years, Bolivia has been among the largest recipients of U.S.
foreign assistance in Latin America. However, assistance levels have been declining
since FY2007. Bolivia received $122.1 million in U.S. assistance in FY2007,
including $66 million in counternarcotics assistance through the Andean Counterdrug
Initiative account. In FY2008, Bolivia received an estimated $99.5 million,
including roughly $47.1 million in counternarcotics assistance. The FY2009 request
for Bolivia is for $100.4 million, not including P.L. 480 Title II food aid. Table 1
provides figures on U.S. counternarcotics aid to Bolivia since FY2000, including
how funds have been broken down between interdiction/eradication and alternative
development.
From FY2000 through FY2007, Bolivia received interdiction assistance as well
as alternative development assistance through the Andean Counterdrug Initiative
(ACI). Beginning in FY2008, the Andean Counterdrug Initiative (ACI) was renamed
as the Andean Counterdrug Program (ACP). In addition, alternative development
programs previously supported by Andean Counterdrug Initiative funds shifted to the
Economic Support Fund (ESF) account. In the FY2009 budget request, funds for
alternative development were shifted to the Development Assistance (DA) account.

51 White House, “Memorandum for the Secretary of State, Presidential Determination No.
2006-24,” September 18, 2006.
52 White House statement, text of presidential determination memo, “Major Illicit Drug-
Producing and Drug-Transit Countries for FY2008,” September 17, 2007.
53 “Morales Puts U.S. Diplomat in Sights,” Washington Times, November 28, 2007.
54 “Bolivia, U.S. Look to Improve Relations,” EFE, July 4, 2008.

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CRS-18
Interdiction funding provides operational support for specialized counterdrug
police and military units and is intended to improve data collection for law
enforcement activities. ACP 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. A small amount of ACP funds are also used to fund
voluntary eradication programs.
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 have been linked to illicit coca eradication. AD includes economic
development in coca-growing areas, demand-reduction education programs, and the
expansion of physical infrastructure. For the past few years, USAID has been
carrying out AD work in the Chapare in municipalities where some of the mayors are
former coca growers. In June 2008, however, Chapare coca grower representatives
announced that they would henceforth not sign any new AD or other assistance
agreements with USAID. Instead, USAID will focus its programs on the Yungas
region.55
Table 1. U.S. Counternarcotics Assistance to Bolivia,
FY2000-FY2009
(in historical U.S. $ millions)
Alternative
Year
Interdiction
Development
Total
FY2000
57.00
101.00
158.00
FY2001
32.00
20.00
52.00
FY2002
48.00
39.60
87.60
FY2003
49.00
41.70
90.70
FY2004
49.20
41.80
91.00
FY2005
48.60
41.70
90.30
FY2006
42.60
36.60
79.20
FY2007
35.00
31.00
66.00
FY2008 est.
30.00
17.00
47.00
FY2009 req.
31.00
15.25
46.25
Sources: Figures are drawn from the annual State Department and USAID
Congressional Budget Justifications for fiscal years 2002 through 2009.

55 “More Rumbling with the United States,” Latin American Andean Group Report, June
2008.

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CRS-19
Millennium Challenge Account (MCA)
Bolivia could also benefit from assistance from the Millennium Challenge
Account (MCA). In December 2005, Bolivia submitted a compact proposal worth
$598 million to the Millennium Challenge Corporation (MCC) That initial proposal
focused on linking raw material producers to small and medium-sized businesses
who would then produce valued-added manufactured goods for export. After taking
office, the Morales government decided to modify the compact proposal slightly and
resubmit it to the MCC. On September 21, 2007, the Bolivian government submitted
a second proposal to the MCC for consideration. That proposal focused on improving
road infrastructure in the historically isolated northern region of La Paz, Beni, and
Pando. It also included a smaller project focusing on rural productive development.
In December 2007, a visit by the MCC Bolivia Transaction Team to Bolivia was
postponed due to unrest in the country surrounding the Constituent Assembly
process. On January 29, 2008, Philip Goldberg, the U.S. Ambassador to Bolivia,
stated that the MCC dialogue process with Bolivia has been put on hold for the time
being.56 The MCC is continuing to monitor developments in Bolivia closely in order
to determine when the proper political, economic, and social situation is in place that
could enable the dialogue process to move forward.
Counternarcotics 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 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.57
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
that the level of drug cooperation from Bolivia would lessen following the December
2005 election of Evo Morales. Morales was a coca growers union leader who had
been extremely critical of U.S. drug policy.
56 Transcript of Conference Call sponsored by the Bolivian-American Chamber of
Commerce, January 29, 2008; Email from MCC official, January 29, 2008.
57 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.

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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. This willingness 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 wary of President
Morales’ December 2006 policy to allow more coca to be grown in order to satisfy
demand for traditional 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.”58
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. The House Appropriations Committee report to the
FY2007 foreign operations appropriations bill (H.R. 5522; H.Rept. 109-486) cited
concerns about reports that Bolivia has lessened its commitment to combating drugs
and recommended cutting counternarcotics funding to Bolivia to $51 million from
the requested $66 million.
In September 2007, President Bush expressed concern about the expanded coca
cultivation in Bolivia that occurred in 2006 despite the Morales government’s
eradication efforts.59 Figures from the United Nations Office of Drugs and Crime
(UNODC) showed that coca cultivation in Bolivia increased by 5% in 2007. U.S.
officials have noted that, while Bolivia has met its self-established eradication goals
for 2005, 2006, and 2007, those levels are much lower than what was eradicated in
previous years. Some also argue that Bolivia has interdicted more cocaine, at least
in part, because more is being cultivated.60
Andean Trade Promotion and Drug Eradication Act (ATPDEA)
The United States extends special duty treatment to imports from Bolivia,
Colombia, Ecuador, and Peru under the Andean Trade Preference Act (ATPA; Title
II of P.L. 102-182) which was enacted on December 4, 1991 and was originally
authorized for 10 years. ATPA lapsed on December 4, 2001 and was renewed and
modified under the Andean Trade Promotion and Drug Eradication Act (ATPDEA;
Title XXXI of P.L. 107-210) on August 6, 2002. ATPDEA renewed ATPA trade
preferences until December 31, 2006, with a retroactive date of December 4, 2001,
and also expanded trade preferences to include additional products in the following
categories: petroleum and petroleum products, textiles and apparel products,
58 U.S. Department of State, International Narcotics Control Strategy Report, March 2006.
59 White House statement, text of presidential determination memo, “Major Illicit Drug-
Producing and Drug-Transit Countries for FY2008,” September 17, 2007.
60 United Nations Office on Drugs and Crime (UNODC), Coca Cultivation in the Andean
Region, June 2008; U.S. Department of State, International Narcotics Control Strategy
Report, released February 29, 2008.

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footwear, tuna in flexible containers, and others. Congress has approved short term
extensions of ATPDEA benefits, with the most recent extension scheduled to expire
on December 31, 2008. Ecuadorian officials estimate that some $5.6 billion in U.S.
trade and 350,000 jobs could be lost without ATPDEA.61
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, such as national macroeconomic policies and
foreign investor confidence. In general terms, however, the overall effect on
Bolivia’s economy if the ATPDEA benefits were to be eliminated would likely be
small because exports under this program account for a small percentage of GDP.
Only 13% of Bolivia’s total exports in 2006 were destined for the United States, with
about half of those exports entering duty-free under ATPDEA.
Human Rights
Between 1996 and 2004, the implementation of forced eradication programs in
Bolivia had been accompanied by charges of human rights abuses committed by
Bolivian security forces. In 2003, violent clashes erupted between protesters and
government troops in the Chapare and the La Paz departments 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-
2007 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 foreign operations appropriations laws
for FY2004 through FY2008 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 and FY2005 was not made
contingent on the determination, but funding for FY2006 and FY2007 was contingent
on that determination. The FY2008 Consolidated Appropriations Act (H.R.
2764/P.L 110-161) includes a provision in the act itself stipulating that aid to
Bolivian military and police be contingent upon the Secretary’s determination.
Case Against Former President Sánchez de Lozada
Human rights organizations and the Morales government believe that former
President Sánchez de Lozada, who currently resides in the United States, should be
held legally responsible for the civilian deaths that occurred in Bolivia during
September and October 2003. The 2003 protests were led by indigenous groups and
61 “Andean Trade Reprieve,” EIU-Business Latin America, July 9, 2007. See CRS Report
RS22548, ATPA Renewal: Background and Issues, by M. Angeles Villarreal.

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workers concerned about the continuing economic marginalization of the poorer
segments of society. The protesters carried out strikes and road blockages that
resulted in up to 80 deaths in confrontations with government troops. In September
2007, the Bolivian Supreme Court issued a new extradition decree for the former
president that is currently being translated into English and will soon be sent to the
U.S. State Department. A separate civil lawsuit was filed in the U.S. court system
in September 2007 by human rights lawyers seeking compensatory damages for ten
families of those killed in the protests.

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Figure 1. Map of Bolivia

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