CODEL NELSON SCENESETTER

Código Fecha Clasificación Origen
07LAPAZ383 13 February 2007 Solo uso oficial Embassy La Paz

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E.O. 12958: N/A
TAGS: PGOV, PREL, ECON, BL
SUBJECT: CODEL NELSON SCENESETTER


SUMMARY


1. (SBU) Embassy La Paz warmly welcomes CODEL Nelson to Bolivia
February 21. Shortly after indigenous coca leader Evo Morales’
one-year anniversary as president, Bolivians find themselves again
facing the social unrest that has plagued their country since 2003,
but which had subsided after Morales took office. The fourth
president in as many years, Morales rose to power promising a
"revolution" that would deliver a more inclusive society, a new
constitution, nationalization of natural resources, and land reform.
Morales has delivered on some of his promises, but is facing
increasing difficulties governing Bolivia, which he himself has
exacerbated this year by condoning and even encouraging street
protests against those who oppose him. While we support Morales’
stated goal of social inclusion, serious questions exist about his
commitment to democracy and to the rule of law—our top priorities
here— particularly given his demonstrated impatience with
compromise. Cuban and Venezuelan advice, interference, and
assistance are an additional area of concern.

2. (SBU) Summary continued: Although Bolivia’s macro-economic
outlook remains strong in the short term, Morales’ nationalization
of hydrocarbons and the February 9 move against non-U.S. interests
in the mining sector will threaten new investment. Trade should be
key to Bolivia’s future, and Congress’ extension of ATPDEA benefits
was well-received here. The GOB has shown little real interest in a
long-term trade agreement. On counter-narcotics, the Morales
government’s mixed results on counter-narcotics reflect its confused
strategy — encouragement of coca cultivation (and thus, more
cocaine) coupled with increased interdiction efforts. Your visit
provides an opportunity to encourage Morales to follow a democratic
path and to respect U.S. mining interests; to take counter-narcotics
issues more seriously and to become a true partner in fighting the
flow of illegal drugs; and to take advantage of free trade and other
opportunities, including the Millennium Challenge Account (MCA).
End summary.


BOLIVIA: BACKGROUND NOTES


3. (SBU) Landlocked Bolivia is the highest and most isolated of the
Latin American republics. Once over 780,000 square miles, Bolivia
lost large chunks of its land to Chile and Paraguay, leaving it with
some 424,000 square miles, roughly three times the size of Nevada.
Aymara indigenous groups dominate La Paz and the highlands; the
Quechuas populate the cities of Sucre and Cochabamba and surrounding
areas. The rich lowlands, known as the "half-moon" states, tend to
be less influenced by indigenous cultures. The government
recognizes 38 different indigenous groups and over 60 percent of
Bolivians identify themselves as indigenous, making Bolivia the most
indigenous country in Latin America. Bolivia is a country of
contrast, with a small prosperous minority of its population
immersed in modern business and technology and the overwhelming poor
majority still mired in poverty and living relatively unchanged by
progress.

4. (SBU) Rapidly urbanizing Bolivia is the second poorest country in
Latin America, with poverty afflicting two-thirds of its population.
In 2005, its GDP was approximately USD 8.5 billion. Agriculture
accounts for roughly 14.5 percent of Bolivia’s GDP, and soybeans
grown in eastern Bolivia are the major cash crop. Extraction of
minerals and hydrocarbons make up an estimated 10 percent of GDP,
with manufacturing accounting for another 12 percent. Lack of
economic opportunities has fueled mass migration to Argentina,
Brazil, Spain, and the United States, as well as rural-to-urban and
western-to-eastern migration within the country.


SOCIAL UNREST


5. (SBU) Shortly after indigenous coca leader Evo Morales’ one-year
anniversary as president, Bolivians find themselves again facing the
social unrest that has plagued their country since 2003, but which
had subsided after Morales took office. The fourth president in as
many years, Morales rose to power promising a "revolution" that
would deliver a more inclusive society, a new constitution,
nationalization of natural resources, and land reform. A sharp
political strategist, Morales has delivered on some of his promises,
and has maintained high popularity rates. However, his first year
in office has brought Morales to terms with the difficulties of
governing Bolivia. He has exacerbated the challenge by condoning
street protests against those who opposed him. A cocalero ambush of
Bolivian anti-drug forces in the Chapare, a mining clash in Huanuni,
a 500,000-person strong demonstration in favor of regional autonomy
in eastern Bolivia, January riots in Cochabamba, and a February 7
protest by miners in La Paz have presented Morales with serious
challenges.


DEFENDING DEMOCRACY


6. (SBU) While we support Morales’ stated goal of social inclusion,
serious questions exist about his commitment to
democracy and to the rule of law—our top priorities here—
particularly given his demonstrated impatience with democratic rules
and compromise. Bolivia convened a constitutional convention in
August 2006, which to date has failed to make any progress, largely
due to executive branch interference and Morales’ opposition to
Bolivian constitutional norms and traditions. Before the convention
may begin its work, it must decide what vote will be required to
approve constitutional changes. The GOB has taken a hard-line
approach, repeatedly refusing to compromise with the opposition.
Morales has packed the Supreme Court using recess appointments,
instructed his party to pass a questionable land reform law and a
military treaty with Venezuela in a late-night senate session
November 28, and permitted violence against opposition hunger
strikers, as well as the kidnapping of an opposition prefect. Most
recently, the GOB is widely thought to have instigated the January
protests in Cochabamba aimed at sacking an opposition prefect.
(Despite GOB denials, evidence exists that the administration paid,
transported and fed armed cocaleros who were bussed to Cochabamba to
riot against an opposition-led local government). In addition to
frequent public attacks on the opposition, Morales also has targeted
Bolivia’s prefects (governors), eastern Bolivia (because it seeks
regional autonomy), the judiciary, and the press.


ONE PLACE WHERE WE’RE NOT BIG BROTHER


7. (SBU) In addition to internal pressures, Cuban and Venezuelan
advice, interference, and assistance continue to be a serious
concern. Cuban doctors and newly-inaugurated hospitals bring
medical care to isolated communities. Venezuela has agreed to
purchase Bolivian soy, has provided micro credit financing to small
businesses, has donated tractors to Bolivian farmers, and has funded
community radio stations to broadcast the GOB’s messages. Most
recently, the Venezuelan government has agreed to buy essentially
all of Bolivia’s tainted beef, otherwise quarantined by an outbreak
of hoof-and-mouth disease, as well as its industrialized coca.
These Venezuelan programs receive frequent public acclaim from
Bolivia’s poor. On the other hand, middle class Bolivians resent
Venezuela’s growing presence and influence, and have balked at the
Bolivian military singing the Venezuelan national anthem and
depending on Venezuelan-donated helicopters to transport their
president. Regionally, Bolivia has strengthened ties with Chile, but
has alienated Brazil and Argentina at various points over the past
year, largely because of its nationalistic but incoherent
hydrocarbons policy.


NATIONALIZATION OF RESOURCES AND TRADE


8. (SBU) Although Bolivia’s macro-economic outlook remains strong in
the short term, Morales’ nationalization of hydrocarbons and moves
against non-U.S. interests in the mining sector (where the bulk of
U.S. investments lie) threaten new investment. On May 1, 2006,
Morales announced GOB nationalization of the hydrocarbons sector.
Despite the presence of Bolivian troops in hydrocarbons fields, the
reality was less dramatic. Instead of a traditional
nationalization, the GOB required companies to sign new contracts
under duress and gave Bolivia’s state oil company YPFB control over
the entire hydrocarbons chain. The main impact has been to halt new
investment in the sector, which Bolivia needs to meet domestic
demand and fulfill contractual obligations to Brazil and Argentina.
As a political measure, however, the "nationalization" remains
wildly popular.

9. (SBU) With respect to the mining sector, high-level GOB officials
have given repeated assurances that the Morales administration will
respect existing U.S. mining interests. However, the GOB has
reiterated threats to nationalize the mining industry, and on
February 9 took over a smelter owned by Swiss company Glencore
(which had been sold by ex-President Gonzalo Sanchez de Lozada). We
continue to urge the GOB to respect existing mining concessions and
to limit tax and royalty hikes.

10. (SBU) Trade is the key to Bolivia’s future. Congress’ extension
of Andean Trade Promotion and Drug Eradication Act (ATPDEA) benefits
was well-received here, ensuring the continuity of thousands of
jobs. However, high-level GOB officials refuse to take serious
steps toward a free trade agreement, instead advocating the
extension of the unilateral trade preferences. We have explained
that "fast track" trade promotion authority expires in June, and
that the new U.S. Congress is not likely to extend it. The Morales
administration, however, continues to want something for nothing.


COCA CASTS SHADOW


11. (SBU) The Morales government’s mixed results on
counter-narcotics reflect its confused strategy-encouragement of
coca cultivation coupled with increased interdiction efforts.
Despite the Embassy’s attempts to focus the relationship elsewhere,
counter-narcotics is often the negative focal point of the bilateral
relationship. Given President Morales’ leadership of the
Chapare-based coca federations, this is not surprising. Morales
repeatedly called for "zero cocaine, not zero coca," drawing a
distinction between illegal drugs and legal use of coca leaf, which
is also chewed or brewed as tea. It should be noted that Bolivian
coca production vastly exceeds licit demand, as the GOB tacitly
accepts, having refused to proceed with a market study funded by the
EU which would show just that.

12. (SBU) Per capita rates of illegal drug use in urban Bolivia
approach U.S. levels, confirming that Bolivia is a consumer country
and not merely a producer. Narcotics Affairs Section
(NAS)-supported demand reduction efforts focus on local and regional
partners due to central government indifference. NAS- and
DEA-supported interdiction programs have been successful under the
Morales government. Comparing 2006 to 2005, cocaine seizures were
up 23 percent. Destruction of base labs and maceration pits were up
55 and 54 percent respectively. While Bolivian CN forces have
improved coordination and efficiency, the increased seizures are due
in part to increased supply.

13. (SBU) Anecdotal evidence suggests that coca plantings have grown
dramatically since Morales’ election, edging out other licit and
less-profitable crops. And just as coca planting has increased,
eradication is down. The GOB achieved its goal of eradicating 5,000
hectares in 2006, but has gotten off to a slow start in 2007. The
Morales government has been unwilling to enforce Bolivian law (or
informal agreements limiting coca cultivation), has stalled the
launch of the licit demand study required by Bolivian law, and now
is considering raising legal limits from 12,000 to 20,000 hectares
nationwide (to include the Chapare). This increase would place
Bolivia in violation of its own law and treaty obligations. In an
attempt to justify increased coca growth, the GOB has announced
plans to legalize and industrialize coca for use in products such as
toothpaste, demand for which is notional, at best.


COMMENT


14. (SBU) Your visit presents an opportunity to further our strategy
of engagement with the GOB. We have expressed serious concerns
about the Morales government’s commitment to a democracy that
includes separation of powers, checks and balances, an active
political opposition and a free press. We continue to emphasize
that what Morales says matters as much as what he does in terms of
his attacks on the United States. On counter-narcotics, we have
continued to support interdiction and eradication efforts, demand
reduction programs, and capacity building, while engaging in frank
discussions about the GOB’s shortcomings and redirecting our support
where it has greatest impact, i.e., to interdiction. Via USAID,
we’re spending about $90 million annually to further social and
economic inclusion of Bolivia’s historically marginalized indigenous
groups and to support democratic institutions and processes,
including decentralized governance. In addition, USAID encourages
economic growth for the poor through exports and trade, and also
provides assistance in the areas of health, alternative development,
and environmental protection. Your visit provides an additional
opportunity to encourage Morales to follow a democratic path and to
respect U.S. mining interests; to take counter-narcotics issues
seriously and to become a true partner in fighting the flow of
illegal drugs; and to take advantage of free trade and other
opportunities, including the Millennium Challenge Account (MCA).
End comment.