Capitalization in Bolivia

On the occasion of partial privatization of Bolivia's state-owned oil and gas company last month, a few well-meaning words to Bolivians: Congratulations. You have taken an important step, the political difficulties of which are evident in the year-long delay in completing the process, the protests and conflicts that linger, and the need to give the outcome a euphemism, "capitalization." Whatever you call it, the step rightly acknowledges that Yacimientos Petroliferos Fiscales Bolivianos,

Jan. 6, 1997

4 min read

On the occasion of partial privatization of Bolivia's state-owned oil and gas company last month, a few well-meaning words to Bolivians:

Congratulations. You have taken an important step, the political difficulties of which are evident in the year-long delay in completing the process, the protests and conflicts that linger, and the need to give the outcome a euphemism, "capitalization."

Whatever you call it, the step rightly acknowledges that Yacimientos Petroliferos Fiscales Bolivianos, acting on its own, cannot extract maximum value from your country's oil and gas resources.

Resources and wealth

By enabling private interests to own half of YPFB, you have demonstrated wisdom that eludes many nations.

The unfortunate pattern is to equate natural resources with wealth and to proclaim sovereign control over them. Always, benefits of these resources that belong to "the people" accrue only to a select few.

Part of the reason for this is political. Sovereign resources fall under control of bureaucracies, which never work efficiently. People never handle other people's property as carefully as they do their own.

Declaring owners to be "the people" is the same as giving bureaucrats license to steal, which they readily do. It is human nature. It happens everywhere.

By partly privatizing-or capitalizing-YPFB, you Bolivians have transferred ownership to entities with direct interests in maximum economic results, interests that will not tolerate graft or unyielding incompetence. Bravo. In an interesting sign of your retreat from inflated nationalism, moreover, you have prepared to transfer half the assets of one YPFB unit to a group led by YPF SA, dynamic remnant of petroleum privatization in Argentina.

The other part of the reason state entities seldom deliver benefits in proportion to resource potential is economic. Natural resources are not wealth; they constitute one factor in the creation of wealth, which also requires labor and capital. State companies seldom have healthy endowments of both. When they do, capital tends to dissipate, at the mercy of politics, through nonproductive uses such as product subsidies.

It is no compromise of national dignity to acknowledge deficiencies of the type of highly technical labor and large amounts of money needed to conduct oil and gas operations. Indeed, it is a sign of sophistication.

Interdependence is a global trend. Nations prosper when they develop what they have and trade for what they need. Nations that wall themselves up in the rhetoric of self-reliance often have unmanageable numbers of hungry inhabitants.

One of the world's saddest ironies, in fact, is the head of government who brags to impoverished masses about keeping "the people's" oil and gas out of the hands of outsiders-and safely in the sovereign ground. Such bluster contributes only to "the people's" poverty.

Having recognized this, Bolivians, what now do you expect?

Do you think the outside investors-Amoco Corp., the Argentinean group led by YPF, and a combine of Enron Corp. and Shell International Overseas Holdings-will suddenly make you all rich? No offense intended, but the question must be asked. Unreasonable expectations commonly arise when countries widen their welcomes to international capital. They can lead to destructive political problems.

What outsiders can do

The key to success of your program is to recognize what the outsiders can and cannot do.

They can provide the capital and skilled labor without which your resources have no value. They can share the resulting wealth in recognition that without your resources their money and know-how count for nothing. They can offer jobs and share their knowledge and skills.

By itself, 50% capitalization of YPFB won't end your poverty, Bolivians. But it will stimulate the economic processes that make progress possible. You thus have given yourselves hope. For this you deserve the world's applause.