Bolivia Privatization Pie Sliced Four-Million Ways

Unusual plan puts cash in pension funds for all Bolivian workers

FOLLOWING the lead of Mexico, Argentina, and Chile, Bolivia plans to sell off its long-standing state companies. But this privatization scheme has a unique twist: It comes with 4 million Bolivian partners. ``I want society to feel they are part of a process of change,'' President Gonzalo Sanchez de Lozada recently told the Monitor.

Mr. Sanchez de Lozada won't even use the controversial term privatization but calls his approach capitalization. He aims to sell off Bolivia's six largest state monopolies, which the government values at $3 billion. The companies, which account for more than one-half of the nation's economic activity, include the state oil, electricity, telecommunications, railroad, airline, and smelting firms.

In many privatizations, foreign investors purchase outright ownership. In Bolivia, however, they will be asked to make investments in the companies - typically 50 percent of the assessed value - in return for half-ownership. The other half will be evenly distributed in shares in private pension funds (not yet set up) among all Bolivian workers over 18 years of age.

``It's a brilliant, sexy idea, but a gamble,'' says former Central Bank President, Herbert Muller.

Sanchez de Lozada concedes he is staking his presidency on his capitalization plan, which will be tested next month when the electric company is scheduled for sale. If it works, he says, it will be a catalyst for investment, reduce unemployment and underemployment by two-thirds over the long term, and create a pool of savings, via the pension funds, for most Bolivians. He estimates that an amount equivalent to one-third to one-half of the gross domestic product will be transferred into the pension fund, the biggest transfer of wealth to the poor since the 1952 land-reform program.

Bolivia is one of the poorest nations in the Western Hemisphere. The World Bank says 70 percent of its 7 million inhabitants live below the poverty line. Unemployment and underemployment are estimated at 30 percent and the legal minimum wage is $40 a month. Only 350,000 Bolivians have bank accounts, and only 12 percent of the population receives social-security benefits.

In 1985, then-Finance Minister Sanchez de Lozada engineered an economic stabilization plan that opened the economy to free-market reforms and reduced hyperinflation from 24,000 percent in 1985 to its current 8.5 percent.

Yet economic stabilization did not create sufficient growth to improve the plight of the nation's poor majority and ``Goni'' - as the president is popularly called - came up with capitalization as a way to pull Bolivia out of its chronic poverty.

``Goni analyzed correctly the drawbacks of traditional privatization,'' says a La Paz diplomat. ``It gives a great boost to government revenues, helps balance the budget, but it's a one time thing. It doesn't attract new capital, and labor remains unhappy.''

But Mr. Muller says he believes Bolivia won't attract the kind of foreign capital that Sanchez de Lozada is counting on to create an ``investment shock'' because of the nation's small market and poor infrastruture.

Other critics point out that:

* The recent Mexican crisis may have soured investor enthusiasm.

* The government has been slow in passing privatization laws and clarifying rules for the complicated pension plan.

* There will be political fallout over lost jobs, since most state companies are overstaffed and the new private managers are expected to make layoffs.

* The railroad, airline, and smelting firms are not as attractive investments as oil, telecommunications, and electricity and may wind up being conventionally privatized.

* Since the government will receive nothing from the sales, there will be a short-term increase in the national debt.

But the Achilles' heel is the justice system, which can make contracts unreliable since judges can be arbitrary or corrupt. ``If a company doesn't have confidence in its ability to enforce contracts, or render timely judgements,'' says the same La Paz diplomat, ``they won't invest.''

Sanchez de Lozada says he is cleaning up judicial corruption.

Historians have said Bolivia's poverty is the result of 400 years of plunder capitalism. From the Spanish Conquest to the tin barons of the 20th century, the country's economic life had always been controlled by a small clique. Since a popular revolt in 1952 resulted in agrarian reform and nationalization of the mines, Bolivians have been one of the hemisphere's most nationalistic nations. Hence, many associate privatization with a loss of sovereignty.

As a result, Sanchez de Lozada has had some trouble rallying public support for his program.

``Privatization still has a bad name,'' says former Foreign Minister Ronald MacLean. ``In Spanish the verb `privar' means to deny something in favor of a few.''

Selling a complex economic idea in a nation where only 50 percent of the population manages to complete the eighth grade has not been easy.

``It's difficult to explain a giraffe to a Bolivian who lives on the Altiplano,'' says Sanchez de Lozada. ``But when they see one, I think they'll like it.''

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