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

Bolivia: Political and Economic Developments
and Relations with the United States
Summary
Bolivia has experienced a period of political volatility, with the country having
had 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 decriminalize
coca cultivation and nationalized the country’s natural gas industry. His efforts to
reform the Bolivian constitution have, until recently, been stymied by a strong
opposition movement led by the leaders (prefects) of Bolivia’s wealthy eastern
provinces who are seeking greater regional autonomy.
In December 2007, the Constituent Assembly elected in mid-2006 passed a draft
constitution without the presence of opposition delegates. In late August 2008,
President Morales, buoyed by the strong support he received in a national recall
referendum held on August 10, 2008, proposed to convoke a referendum on the draft
constitution in December 2008. He later agreed to seek congressional approval for
that referendum. Several opposition prefects were angered by Morales’ proposal, and
launched protests and blockades, which turned violent in mid-September. On October
20, 2008, after multiparty negotiations on the draft constitution’s text, the Bolivian
Congress approved legislation convoking a constitutional referendum to be held on
January 25, 2009.
U.S.-Bolivian relations have been strained by the Morales government’s drug
policy and its increasing ties with Venezuela. Bilateral relations hit their lowest point
in recent memory on September 10, 2008, when President Morales accused the U.S.
Ambassador to Bolivia of supporting opposition forces and expelled him from the
country. The U.S. government responded by expelling Bolivia’s U.S. Ambassador.
On September 16, 2008, President Bush designated Bolivia as a country that had
failed to live up to its obligations under international narcotics agreements. That
decision was closely followed by a Bush Administration proposal to suspend
Bolivia’s trade preferences under the Andean Trade Preferences Act (ATPA).
President Bush has yet to announce a final decision on when (and if) the proposed
suspension will take effect. On November 1, 2008, Bolivian President Morales
announced an indefinite suspension of U.S. Drug Enforcement Administration
(DEA) operations in Bolivia after accusing some DEA agents of espionage.
Concerns regarding Bolivia in the 110th Congress have largely focused on
counternarcotics and trade issues. Bolivia received an estimated $99.5 million in
U.S. foreign aid in FY2008, including roughly $47 million in counternarcotics
assistance, significantly lower than in previous years. An enacted continuing
resolution (H.R. 2638/P.L. 110-329) will provide funding for U.S. programs in
Bolivia at FY2008 levels through March 6, 2009. H.Res. 1483, introduced in
September 2008, would express outrage over the expulsion of U.S. Ambassadors to
Venezuela and Bolivia, and call for these countries to resume full counternarcotics
cooperation with the United States. In October 2008, Congress enacted legislation
to extend ATPA trade preferences for Bolivia until June 30, 2009 (P.L. 110-436).

Contents
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Role of Indigenous Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Political Instability: 2003-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Morales Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Constituent Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Regional Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Gas Exports and Nationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Coca Cultivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Land Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S.- Bolivia Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Tensions Increase in 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Counternarcotics Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Andean Trade Preference Act (ATPA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Millennium Challenge Account (MCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Case Against Former President Sánchez de Lozada . . . . . . . . . . . . . . . . . . 23
List of Figures
Figure 1. Map of Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Bolivia: Political and Economic Developments
and Relations with the United States
Recent Developments
On November 10, 2008, Bolivian officials delivered a formal request asking the
U.S. government to extradite former President Gonzalo Sánchez de Lozada to stand
trial for civilian deaths that occurred when he ordered government security forces to
respond to violent civilian protests in the fall of 2003.
On November 1, 2008, Bolivian President Evo Morales announced an indefinite
suspension of U.S. Drug Enforcement Administration (DEA) operations in Bolivia
after accusing some DEA agents of espionage.
On October 21, 2008, after a multiparty congressional commission agreed to
over 100 changes to the draft text passed by the Constituent Assembly in December
2007, the Bolivian Congress ratified the new draft constitution and passed a law that
will enable a referendum on that constitution to be held on January 25, 2009.
On October 16, 2008, President Bush signed the Andean Trade Promotion
Extension Act (H.R. 7222) into law. As enacted, P.L. 110-436 extends Andean trade
preferences until December 31, 2009 for Colombia and Peru, and until June 30, 2009
for Bolivia and Ecuador.
On September 26, 2008, President Bush directed the United States Trade
Representative to publish a public notice proposing to suspend Bolivia’s Andean
Trade Promotion Act (ATPA) benefits because of the Morales government’s failure
to cooperate in counternarcotics matters. As of the date of this report’s publication,
President Bush has yet to announce a final decision on when (and if) the proposed
suspension of Bolivia’s ATPA benefits will take effect. If a suspension of Bolivia’s
trade benefits are imposed, they may be lifted as soon as the U.S. government
determines that Bolivia has improved its performance under the ATPA criteria.
On September 16, 2008, President Bush determined that Bolivia had failed
demonstrably to live up to its obligations under international narcotics agreements,
but waived sanctions so that U.S. bilateral assistance programs could continue.
On September 15, 2008, Chilean President Michelle Bachelet convened an
emergency meeting of the presidents from the countries composing the newly-formed
Union of South American Nations (UNASUR) to discuss the crisis in Bolivia.
UNASUR issued a declaration expressing its full support for the Morales government
and offering to help mediate between the government and the opposition.

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On September 11, 2008, the U.S. State Department announced that it had
declared Bolivia’s U.S. Ambassador, Gustavo Guzmán, persona non grata and asked
him to leave the United States immediately.
On September 11, 2008, opposition protests turned violent, with at least 18
demonstrators killed during a shootout in Pando, Bolivia’s northernmost department,
the vast majority of whom were Morales supporters. According to the Morales
government, the attack on protesters was planned by Pando’s departmental prefect,
Leopoldo Fernández. In response, President Morales called a state of emergency and
sent troops in to restore order in the province whereupon Fernández was arrested.
Also on September 10, 2008, opposition protestors temporarily shut down a
major natural gas pipeline near Bolivia’s border with Argentina. Their actions
interrupted Bolivia’s natural gas exports to Argentina and Brazil and caused millions
of dollars in damages to the pipeline.
On September 10, 2008, President Morales accused the U.S. Ambassador to
Bolivia, Philip Goldberg, of supporting opposition forces, declared him persona non
grata, and expelled him from the country.
On September 6, 2008, in response to a national electoral court ruling that
challenged the legality of his earlier decree calling for a constitutional referendum,
President Morales sent a bill to the Bolivian Congress seeking its approval to
schedule a vote on the constitution and land reform. He moved the proposed date of
those referendums from December 7, 2008 to January 25, 2009.
On September 3, 2008, opposition prefects issued a statement announcing
roadblocks in five eastern provinces and threatening to interrupt gas supplies to
Argentina and Brazil if President Morales proceeded with his plans to hold a
referendum on the constitution in December 2008.
On August 28, 2008, President Morales issued a decree scheduling a referendum
on the constitution passed by the Constituent Assembly in late 2007 for December
7, 2008, a move that prompted widespread protests from the opposition.
On August 10, 2008, some 67% of Bolivian voters reaffirmed their support for
the government of Evo Morales in a national recall referendum. Of the eight prefects
(departmental governors) that were also subject to a recall vote, four opposition
prefects and two government-allied prefects were also approved with more than 50%
of the vote. Two opposition prefects were voted out of office.
On June 24, 2008, coca growers unions in the Chapare region of Bolivia
announced that they would no longer sign new aid agreements with the U.S. Agency
for International Development (USAID).
On June 9, 2008, a few thousand 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. After

CRS-3
the protests, the U.S. Ambassador to Bolivia Philip Goldberg was called back to
Washington for consultations on security issues.
Throughout May and June 2008, departmental referendums on whether to
implement autonomy statutes were held in the four eastern provinces of Santa Cruz,
Beni, Pando and Tarija, despite the lack of congressional approval for them to be
convened. Notwithstanding relatively high abstention rates, the statutes received
strong popular support from those who voted in each of the referendums.
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.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 64% of Bolivians live
in poverty and 35% earn less than $2 a day.2
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
Bolivian population are Quechuan, 25% are Aymaran, 30% are mestizo (mixed),
while 15% are of European origin.3
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).
1 For historical information on Bolivia, see Herbert S. Klein, A Concise History of Bolivia,
New York: Cambridge University Press, 2003.
2 U.N. Economic Commission for Latin America and the Caribbean, Social Panorama of
Latin America
, 2007.
3 U.S. Department of State, “Background Note: Bolivia,” last updated in May 2008.

CRS-4
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 2006 some 17% of members of the Bolivian Congress self-identified
as indigenous.5 In recent years, indigenous representatives have used the legislature
as a forum to advocate for indigenous rights, equitable economic development, and
the preservation of indigenous land and culture. Some 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. For
example, an indigenous woman presided over the Constituent Assembly and the draft
constitution it produced recognizes indigenous autonomy.6
The issues of land tenure and coca cultivation have been long-standing sources
of conflict. An Agrarian Reform Law passed in 1996 allows indigenous communities
to have legal titles 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. Coca leaf is used legally by indigenous
communities for spiritual and medical purposes, and its use is considered an
important indigenous cultural right. Previous U.S. and Bolivian policy to eradicate
illegal cultivation forcibly was met with violent protests. The Morales government
has sought to help resolve these issues by promoting land reform and decriminalizing
coca cultivation.
Political Instability: 2003-2005
Political protests 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.7 These events occurred against a backdrop of opposition to U.S.-
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 2006, U.S. Department of State, March 2007.
6 Jeffrey R. Webber, “Left-Indigenous Struggles in Bolivia, Monthly Review, September
2005; Hilary Burke, “Bolivia Split Over New Multicultural Constitution,”Reuters, January
29, 2008.
7 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. For more information, see the section on the “Case
(continued...)

CRS-5
funded coca eradication programs and to the government’s implementation of austere
fiscal reforms backed by the International Monetary Fund (IMF).8 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.

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 legislation through Congress that allowed more
popular participation in elections. Further, he announced plans for a constituent
assembly to consider a new constitution.
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 between the central government and the country’s nine departments. In June
2005, Mesa resigned in favor of Eduardo Rodriguez, head of the Supreme Court, in
response to continuing street protests that at times paralyzed the country. 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.
Political Situation
Morales Administration
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.
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
7 (...continued)
Against Former President Sánchez de Lozada” at the conclusion of this report.
8 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.

CRS-6
support beyond rural, indigenous,
union, and lower-middle class
Morales Biography
voters. Some factors that likely

contributed to his victory included
Evo Morales was born on October 26, 1959, in
the perception that most Bolivians
Oruro, Bolivia. Morales, like most coca
had not benefitted from pro-market
growers, is descended from the Quechua and
economic reforms adopted by
Aymara Indians drafted by the Spanish to work
previous governments, the
in Bolivia’s silver and tin mines and then
driven to the Chapare jungle when the prices of
corruption of the traditional
those commodities collapsed in the 1970s.
parties, and the tough, nationalistic
After high school, Morales served briefly in the
stances he had taken against
Bolivian military and then became a coca
foreign investors and U.S.
farmer. He rose to prominence as a leader of
counternarcotics programs.9
the powerful Bolivian coca grower’s union. In
1997, Morales was first elected to the Bolivian
The December 2005 elections
Congress as a MAS representative. In 2002,
were also significant because they
Morales and the MAS finished a close second
included the first direct election of
in the presidential balloting, having broadened
governors (prefects) in Bolivia.
their support base from coca growers and the
indigenous.
Department prefects have

traditionally been appointed by the
Source: “Evo Morales,” Latin News, Sept. 2005.
executive and have not been held
directly accountable to citizen’s
demands. Although MAS
dominated the presidential and legislative elections, candidates from the new center-
right Social and Democratic Power Party (PODEMOS), 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.
More than halfway through his five-year presidential term, Evo Morales and the
MAS 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 starting to enact land reform. Critics
argue that the Morales government has used anti-democratic methods, such as
encouraging the Constituent Assembly elected in mid-2006 to approve a draft
constitution despite a boycott by opposition delegates, in order to impose his will on
the country.10
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.
Morales recently received the support of 67% of Bolivian voters in a national recall
9 Kent H. Eaton, “Bolivia at the Crossroads: Interpreting the December 2005 Elections,”
Strategic Insights, Vol. 5, Issue 2, February 2006.
10 “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.

CRS-7
referendum held on August 10, 2008. His governments’ position has been
strengthened vis-a-vis the opposition prefects by the support he has received from
fellow Latin American leaders, the Organization of American States (OAS), and,
most recently, the newly-formed Union of South American Nations.
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 2000.11 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 2006. In March 2006, President Morales
secured passage of legislation establishing elections for a constituent assembly.
Elections for assembly delegates were held on July 2, 2006. The MAS captured
50.7% of the popular vote and 137 of 255 seats in the 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, 2006, 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”12
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.13
They argued that President Morales was trying 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.14 For the first eight months of
its deliberations, the assembly was bogged down in a protracted debate over voting
procedures. As a result, most of the constitutional commissions did not begin to
consider reform proposals until the spring of 2007. In August 2007, the Bolivian
Congress reached a last minute agreement to extend the assembly until December 14,
2007.
11 Kathryn Ledebur and Evan Cuthbert, “Bolivia’s Constituent Assembly: Essential for a
Peaceful Transition and National Unity,” Andean Information Network, January 2007.
12 Monte Reel, “A Road Paved With Hope,” Washington Post, August 6, 2006.
13 “Bolivia’s Reforms: The Danger of New Conflicts,” International Crisis Group (ICG),
January 8, 2007.
14 “Bolivia’s New Constitution: Avoiding Violent Confrontation,” ICG, August 31, 2007.

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By the fall, both sides’ positions were becoming deeply entrenched and
increasingly divergent. In October 2007, the MAS government introduced a decree,
which was approved by the Congress that 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
protests in Sucre, which turned violent, kept the assembly 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 Constituent 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. It
does not resolve the issue of what size of private land should be considered excessive
and therefore vulnerable to government expropriation. President Morales put his
plans to convoke a national referendum on the draft constitution on hold until after
a national recall referendum was held on August 10, 2008 to determine whether he
and the prefects should remain in office.
After securing some 67% of the votes in the recall referendum, President
Morales decided to push forward with constitutional reform. In late August, he
issued a decree scheduling a referendum on the constitution passed by the
Constituent Assembly for December 7, 2008, a move that prompted widespread
protests from the opposition. Then, in a conciliatory response to a national electoral
court ruling that challenged the legality of that decree, President Morales sent a bill
to the Bolivian Congress seeking its approval to schedule referendums on the
constitution and on the question of land ownership.15 He moved the proposed date
of those referendums from December 7, 2008 to January 25, 2009.
After weeks of protests and confrontations between MAS and opposition
supporters, a multiparty commission in the Bolivian Congress took up consideration
of the draft constitution passed in December 2007. In order to assuage opposition
legislators, the commission made more than 100 changes to the original text of that
constitution, including adding a provision that will limit President Morales to one
possible reelection. On October 22, 2008, the Bolivian Congress voted
overwhelmingly in favor of two laws which, taken together, approved the draft
constitution, called for referendums on the constitution and on the land issue to be
held on January 25, 2009, and scheduled the next general elections for December
2009. While some observers have praised the recent congressional compromise as
15 The referendum on land ownership will enable voters to decide what size of private land
should be considered excessive and therefore vulnerable to government expropriation. This
issue was left unresolved by the Constituent Assembly.

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a victory for both the Morales government and for moderate legislators in the
Bolivian Congress, others have criticized the ambiguity of the agreement.16
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 gas-producing
departments will not receive higher percentages 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
sympathizers launched protests demanding his resignation. Those protests led to
violent clashes that left 2 people dead and more than 100 injured.17 In July 2007, the
four eastern prefects commemorated the anniversary of the autonomy referendum by
16 “Bolivia’s Evo Morales to Pass on Third Term,” Miami Herald, October 20, 2008;
“Bolivia: Constitutional Compromise Boosts Morales,” Oxford Analytica, October 22, 2008;
George Gray Molina, “El Acuerdo Boliviano,” Argumentos, October 23, 2008; “Morales
Defies Court, Arrests Pando politicians,” Latin American Weekly Report, October 30, 2008.
17 Monte Reel, “Bolivia’s Political Fissures Force Morales to Shift Course,” Washington
Post
, January 22, 2007.

CRS-10
announcing draft autonomy statutes. In late November 2007, 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 2007.
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.18 Whereas
plans for a national referendum on constitutional reforms have stalled until recently,
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
autonomy referendums to minimize their results.19 According to the constitutional
accord approved by the Bolivian Congress on October 22, 2008, the autonomy
statutes drafted by the eastern departments will have to be brought into compliance
with the new constitution.
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
hydrocarbons sectors.20 Despite that growth, some 63% of Bolivians live in poverty
18 “Bolivian Departments Aim to Control Taxes, Land, Natural Resources,” BBC Monitoring
Americas
, December 15, 2007.
19 “Bolivian Assembly Approves New Constitution; Prefects Declare Autonomy,” Andean
Group
, January 2008; “Country Report: Bolivia,” Economist Intelligence Unit, June 2008.
20 “Country Report: Bolivia,” Economist Intelligence Unit, February 2008.

CRS-11
with 34.3% earning less than $2 a day.21 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.22
The Morales government has also negotiated 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.
With respect to trade, 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. Bolivia is also an associate member of
Mercosur, the trading block composed of Brazil, Argentina, Uruguay, Paraguay, and,
as of July 2006, Venezuela.23 In May 2006, the Morales government signed a trade
and cooperation agreement with Cuba and Venezuela. Morales and the MAS
opposed 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.
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.24 Inflation,
which reached 11.7% in 2007, has become a major challenge for the government to
address. Some predict that the global financial crisis could reduce demand for
Bolivia’s commodity exports and weaken remittance inflows from Bolivians living
abroad, thereby causing economic growth to slow in 2009. Some maintain that the
21 U.N. Economic Commission for Latin America and the Caribbean, Social Panorama of
Latin America
, 2007.
22 “Bolivia: Going Pretty Well,” Latin American Economy and Business, June 2006.
23 For more information, see CRS Report RL33620, Mercosur: Evolution and Implications
for U.S. Trade Policy
, by J.F. Hornbeck.
24 “Country Report: Bolivia,” Economist Intelligence Unit, June 2008.

CRS-12
job losses and lost revenue that would likely result from a suspension of Bolivia’s
ATPA trade benefits could also dampen growth in some sectors.25 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.
Some 50% of the gas used in Brazil, and 75% of the gas used in the industrial state
of São Paulo, flows from Bolivia. However, 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.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.”
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
25 “Bolivians Worry Spat with U.S. Could Kill Jobs,” Christian Science Monitor, October
28, 2008.
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.

CRS-13
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, 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 still lacks
the capacity to develop Bolivia’s gas resources.28
Coca Cultivation
The coca leaf has been used for thousands of years by indigenous communities
in 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.
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.
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.

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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
“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
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.
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
32 U.S. Department of State, International Narcotics Control Strategy Report, March 2006;
UNODC, Bolivia Coca Cultivation Survey, June 2006.
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.

CRS-15
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
assert that both the “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
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
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.
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.

CRS-16
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. 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.42
U.S.- Bolivia Relations
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 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 some
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.43
40 “Bolivian Landowners See Politics, Chávez Behind Reform,” Reuters, June 5, 2006.
41 “Bolivia: A Country Report,” Economist Intelligence Unit, January 2007.
42 “Bolivia’s Morales Signs Sweeping Land Reform Bill,” Agence France-Presse,
November 29, 2006.
43 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.

CRS-17
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.”44 Some analysts predicted that Evo Morales would become another Hugo
Chávez, an outspoken, anti-American, leftist leader. Others disagreed, predicting that
the United States could use foreign aid and trade preferences to exert some influence
over the Morales government.45
Despite an initial openness to dialogue, U.S.-Bolivian relations became tense
soon after President Morales took office. U.S. officials expressed concerns about the
Morales government’s commitment to combating illegal drugs, its ties with
Venezuela and Cuba, and its nationalization of Bolivia’s natural gas industry. In
September 2006, President Bush expressed concern about the decline in Bolivian
counternarcotics cooperation that had occurred since Morales took office.46
In 2007, there continued to be periodic friction in U.S.-Bolivian relations. In
September 2007, President Bush expressed concern about the reported expansion of
coca cultivation in Bolivia that has occurred despite the Morales government’s
eradication efforts.47 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.48 U.S. officials also expressed some concerns about the instability
in Bolivia surrounding the constitutional reform process.
Tensions Increase in 2008
This year, U.S.-Bolivian relations have deteriorated from what analysts
described as “tenuous” at best this summer, to extremely tense this fall.49 Bilateral
relations took a turn for the worse in June 2008, when the U.S. Ambassador to
Bolivia, Philip Goldberg, was called back to Washington for consultations on
security matters after protesters surrounded the U.S. Embassy in La Paz. The
protesters were demanding the extradition of former president Gonzalo Sánchez de
Lozada and his ex-defense minister Carlos Sanchez Berzain who have been charged
in Bolivia with responsibility for civilian deaths that occurred during protests in the
fall of 2003. The June protests occurred in response to Berzain’s announcement that
44 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.
45 “Don’t Do Chavez a Favor in Bolivia,” Christian Science Monitor, December 22, 2005.
46 White House, “Memorandum for the Secretary of State, Presidential Determination No.
2006-24,” September 18, 2006.
47 White House statement, text of presidential determination memo, “Major Illicit Drug-
Producing and Drug-Transit Countries for FY2008,” September 17, 2007.
48 “Morales Puts U.S. Diplomat in Sights,” Washington Times, November 28, 2007.
49 “As U.S. Presses Drug War, Bolivian is Antagonist and Uneasy Ally,” New York Times,
August 29, 2008.

CRS-18
he had received political asylum from the U.S. government.50 Also in June, coca
growers unions in the Chapare region of Bolivia announced that they would no
longer sign new aid agreements with USAID.
Bilateral relations reached their lowest point in recent memory in mid-
September 2008, when President Morales accused U.S. Ambassador Goldberg of
inappropriately supporting opposition forces, declared him persona non grata, and
expelled him from the country. Within a day, the U.S. State Department followed
suit, expelling Bolivia’s U.S. Ambassador Gustavo Guzmán. These ambassadorial
expulsions were followed by President Bush’s September 16, 2008 determination
that Bolivia had failed demonstrably to live up to its international narcotics
commitments. Soon thereafter, a resolution was introduced (H.Res. 1483) in
Congress expressing outrage over the expulsion of U.S. Ambassadors to Venezuela
and Bolivia, and calling for these countries to resume full counternarcotics
cooperation with the United States. On September 26, 2008, as a result of Bolivia’s
“demonstrable failure to cooperate in counternarcotics matters over the past 12
months,” President Bush proposed to suspend Bolivia’s ATPA trade benefits for the
first time since the Andean trade preference programs began in 1991.51 Some
analysts have asserted that these recent Bush Administration decisions regarding
Bolivia are meant to punish the Morales government for expelling the U.S.
Ambassador.52 Regardless of the reasoning behind them, most observers expect
bilateral relations to remain tense, at least in the short to medium term.
Counternarcotics Cooperation
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.53
50 “Bolivia, U.S. Look to Improve Relations,” EFE, July 4, 2008.
51 “United States Trade Representative (USTR), “U.S. Trade Representative Schwab
Announces Proposed Suspension of Bolivia’s Tariff Benefits,” September 26, 2008.
52 “U.S./Bolivia: Relations Will Remain Tense,” Oxford Analytica, September 30, 2008;
“Bolivia-U.S.: Bolivia Expels U.S. Ambassador,” Latin American Regional Report, Andean
Group
, October 2008.
53 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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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.
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.”54 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.55
Figures from the United Nations Office of Drugs and Crime (UNODC) showed
that the area under coca cultivation in Bolivia increased by 5% in 2007 (as compared
to a 27% increase in Colombia). However, U.S. figures cited during the release of
the FY2008 State Department report on Major Illicit Drug Producing Countries
showed a larger increase in coca cultivation in Bolivia of some 14% in 2007. Also
during that report release, David Johnson, U.S. Assistance Secretary of State for
International Narcotics and Law Enforcement Affairs, asserted that “cocalero
syndicates — endorsed by the Government of Bolivia — expelled USAID from the
Chapare region...and [and that] last week the U.S. Drug Enforcement Administration
was similarly expelled from the Chapare.”56 Bolivian officials have since denied
those assertions.57 On September 16, 2008, President Bush determined that Bolivia,
along with Venezuela and Burma, had failed demonstrably to live up to its
54 U.S. Department of State, International Narcotics Control Strategy Report, March 2006.
55 White House statement, text of presidential determination memo, “Major Illicit Drug-
Producing and Drug-Transit Countries for FY2008,” September 17, 2007.
56 U.S. Department of State, “Remarks on the Release of the Annual Report on the Major
Illicit Drug Producing Countries for Fiscal Year 2009,” David T. Johnson, Assistant
Secretary of State for International Narcotics and Law Enforcement Affairs, September 16,
2008.
57 Comments by Luis Arce, Bolivia’s Minister of the Economy, and Felipe Cáceres, Vice
Minister of Social Defense, at an event co-hosted by the Inter-American Dialogue and the
Washington Office on Latin America, October 24, 2008.

CRS-20
obligations under international narcotics agreements, but waived sanctions so that
U.S. bilateral assistance programs could continue.58
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.59 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. A
continuing resolution (H.R. 2638/P.L. 110-329) will provide funding for U.S.
programs in Bolivia at FY2008 levels through March 6, 2009. 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.

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 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 is also used to fund voluntary
eradication programs.
Alternative development (AD) 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
58 White House statement, text of presidential determination memo, “Major Illicit Drug-
Producing and Drug-Transit Countries for FY2009,” September 16, 2008.
59 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.

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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
agreements with USAID. Instead, USAID will focus its programs on the Yungas
region.60
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.

Andean Trade Preference Act (ATPA)61
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. The purpose of ATPA is to promote economic growth in the
Andean region and to encourage a shift away from dependence on illicit drugs by
supporting legitimate economic activities. 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, footwear, tuna in flexible containers, and others. Since that time,
Congress has approved short term extensions of ATPA benefits.
60 “More Rumbling with the United States,” Latin American Andean Group Report, June
2008.
61 See CRS Report RS22548, ATPA Renewal: Background and Issues, by M. Angeles
Villarreal.

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On September 26, 2008, President Bush directed the United States Trade
Representative (USTR) to publish a public notice proposing to suspend Bolivia’s
trade benefits because of the Morales government’s failure to cooperate in
counternarcotics matters. He reiterated his reasons for suspending Bolivia’s trade
benefits when he signed the Andean Trade Preference Extension Act (H.R.
7222/P.L.110-436) into law on October 16, 2008. P.L. 110-436 extends trade
benefits for Bolivia and Ecuador through June 30, 2009 and for Colombia and Peru
through December 31, 2009.62
A public hearing on the proposed suspension of Bolivia’s ATPA benefits was
held on October 23, 2008. At that hearing, witnesses examined the effects of the
ATPA on Bolivia’s economy as a whole, as well as its impact on specific sectors of
the Bolivian economy. In general terms, most experts predict that the overall effect
on Bolivia’s economy if the ATPA benefits were to be eliminated would likely be
small because exports under this program account for a small percentage of Bolivia’s
GDP. Despite having a small overall effect on the Bolivian economy, Bolivian
officials have said that there are some 20,000 jobs, mainly in the textile and jewelry
sectors, that would likely be lost without the ATPA benefits.63 While some argue
that Bolivia does not deserve to receive U.S. trade benefits because of its declining
counternarcotics cooperation and recent expulsion of the U.S. Ambassador, others
fear that the proposed suspension might result in more harm than good. In a recent
statement, Representative Eliot Engel, Chairman of the House Subcommittee on the
Western Hemisphere, predicted that a suspension of ATPA benefits “would empower
champions of anti-Americanism and would make the United States less and less
relevant in Bolivia.”64 As of the date of this report’s publication, President Bush has
yet to announce a final decision on when (and if) the proposed suspension of
Bolivia’s ATPA benefits will take effect.
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
62 United States Trade Representative (USTR), “U.S. Trade Representative Schwab
Announces Proposed Suspension of Bolivia’s Tariff Benefits,” September 26, 2008; Office
of the White House Press Secretary, U.S. “Fact Sheet: Creating New Opportunities for
Businesses Around the World,” October 16, 2008.
63 “Bolivian Officials Urge Administration to Continue ATPA Benefits for Country,” Daily
Report for Executives
, October 24, 2008.
64 Press Release: Engel Objects to Suspension of Bolivia From Andean Trade Preferences,”
October 23, 2008.

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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, then-U.S. Ambassador to Bolivia,
stated that the MCC dialogue process with Bolivia has been put on hold for the time
being.65 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.
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 provisions 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
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
65 Transcript of Conference Call sponsored by the Bolivian-American Chamber of
Commerce, January 29, 2008; Email from MCC official, January 29, 2008.


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president. That extradition request was translated into English and sent to the U.S.
State Department on November 10, 2008. 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. A ruling on that case is
expected to be delivered during the spring of 2009.
Figure 1. Map of Bolivia