Bolivia: Political and Economic Developments and Relations with the United States

Prepared for Members and Committees of Congress

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,


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
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.

Recent Developments......................................................................................................................1
Backgr ound ..................................................................................................................................... 2
Role of Indigenous Groups.......................................................................................................3
Political Instability: 2003-2005.................................................................................................4
Political Situation............................................................................................................................5
Morales Administration.............................................................................................................5
Constituent Assembly................................................................................................................6
Regional Autonomy..................................................................................................................8
Economic Situation.........................................................................................................................9
Gas Exports and Nationalization.............................................................................................10
Coca Cultivation.......................................................................................................................11
Land Reform...........................................................................................................................13
U.S.-Bolivia Relations...................................................................................................................14
Tensions Increase in 2008.......................................................................................................15
Counternarcotics Cooperation.................................................................................................16
U.S. Assistance........................................................................................................................17
Andean Trade Preference Act (ATPA)....................................................................................18
Millennium Challenge Account (MCA)..................................................................................19
Human Rights..........................................................................................................................20
Case Against Former President Sánchez de Lozada...............................................................20
Figure 1. Map of Bolivia...............................................................................................................21
Table 1. U.S. Counternarcotics Assistance to Bolivia, FY2000-FY2009......................................18
Author Contact Information..........................................................................................................22

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
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
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

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
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
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 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

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 2
Bolivians live in poverty and 35% earn less than $2 a day.
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 3
Aymaran, 30% are mestizo (mixed), while 15% are of European origin.
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).
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 4
In the 1980s, indigenous-based political parties and movements emerged in Bolivia, and by 2006 5
some 17% of members of the Bolivian Congress self-identified as indigenous. 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.

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.
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.

For example, an indigenous woman presided over the Constituent Assembly and the draft 6
constitution it produced recognizes indigenous autonomy.
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 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 7
confrontations with government troops. These events occurred against a backdrop of opposition
to U.S.-funded coca eradication programs and to the government’s implementation of austere 8
fiscal reforms backed by the International Monetary Fund (IMF). 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.

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 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.

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 support beyond rural,
indigenous, union, and lower-middle class voters. Some factors that likely contributed to his
victory included the perception that most Bolivians had not benefitted from pro-market economic
reforms adopted by previous governments, the corruption of the traditional parties, and the tough, 9
nationalistic stances he had taken against foreign investors and U.S. counternarcotics programs.
The December 2005 elections were also Morales Biography
significant because they included the first Evo Morales was born on October 26, 1959, in Oruro,
direct election of governors (prefects) in Bolivia. Morales, like most coca growers, is descended
Bolivia. Department prefects have from the Quechua and Aymara Indians drafted by the
traditionally been appointed by the executive Spanish to work in Bolivia’s silver and tin mines and then driven to the Chapare jungle when the prices of those
and have not been held directly accountable to commodities collapsed in the 1970s. After high school,
citizen’s demands. Although MAS dominated Morales served briefly in the Bolivian military and then
the presidential and legislative elections, became a coca farmer. He rose to prominence as a
candidates from the new center-right leader of the powerful Bolivian coca grower’s union. In
1997, Morales was first elected to the Bolivian Congress
Social and Democratic Power Party as a MAS representative. In 2002, Morales and the MAS finished a close second in the presidential balloting,
(PODEMOS), won most of the gubernatorial having broadened their support base from coca growers
races. Ongoing conflicts have since occurred and the indigenous.
between the Morales government in La Paz Source: “Evo Morales,” Latin News, Sept. 2005.

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

9 Kent H. Eaton, “Bolivia at the Crossroads: Interpreting the December 2005 Elections, Strategic Insights, Vol. 5,
Issue 2, February 2006.

constitution despite a boycott by opposition delegates, in order to impose his will on the 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 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.
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 11
demand of social protests since 2000. 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 12
redefine Bolivia as a “multinational state made up of indigenous groups” 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 13
entire country. 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 14
order to move negotiations forward. 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

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.
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.
13Bolivias Reforms: The Danger of New Conflicts,” International Crisis Group (ICG), January 8, 2007.
14Bolivia’s New Constitution: Avoiding Violent Confrontation,” ICG, August 31, 2007.

August 2007, the Bolivian Congress reached a last minute agreement to extend the assembly until
December 14, 2007.
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 15
question of land ownership. 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 a victory for both the Morales government and for
moderate legislators in the Bolivian Congress, others have criticized the ambiguity of the 16

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
16Bolivia’s Evo Morales to Pass on Third Term,” Miami Herald, October 20, 2008;Bolivia: Constitutional

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
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. 17
Those protests led to violent clashes that left 2 people dead and more than 100 injured. In July
2007, the four eastern prefects commemorated the anniversary of the autonomy referendum by
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


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

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.

over taxes, land, security, and natural resources than is currently allowed under the current or 18
proposed Bolivian constitutions. 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 19
referendums to minimize their results. 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.

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, 20
manufacturing, and hydrocarbons sectors. Despite that growth, some 63% of Bolivians live in 21
poverty with 34.3% earning less than $2 a day. 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 22
financing plan and is overly ambitious.

18Bolivian Departments Aim to Control Taxes, Land, Natural Resources,” BBC Monitoring Americas, December 15,
19Bolivian Assembly Approves New Constitution; Prefects Declare Autonomy, Andean Group, January 2008;
Country Report: Bolivia,” Economist Intelligence Unit, June 2008.
20Country Report: Bolivia,” Economist Intelligence Unit, February 2008.
21 U.N. Economic Commission for Latin America and the Caribbean, Social Panorama of Latin America, 2007.
22Bolivia: Going Pretty Well,” Latin American Economy and Business, June 2006.

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, 23
Venezuela. 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, 24
transport, and telecommunications. 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 job
losses and lost revenue that would likely result from a suspension of Bolivia’s ATPA trade 25
benefits could also dampen growth in some sectors. 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.
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 26
benefit the country as a whole. In a June 2004 referendum, more than 92% of Bolivians support

23 For more information, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J.
F. Hornbeck.
24Country Report: Bolivia,” Economist Intelligence Unit, June 2008.
25Bolivians 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.

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
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 27
investment reduced, and predicted that new investments would not be feasible in Bolivia.
On May 1, 2006, President Morales fulfilled his campaign pledge to nationalize the country’s
natural gas industry. As a result of the May 2006 nationalization measure, the Bolivian
government’s income from gas and oil rose to an estimated $1.57 billion in 2007 (compared to
$173 million in 2002). The nationalization measure significantly raised energy costs for
neighboring Argentina and Brazil and raised tax and royalty rates to a level that some investors
perceived to be unprofitable. As a result, Brazil’s Petrobras and Spain’s Repsol-YPF—the largest
foreign investors in Bolivia’s energy sector—halted new investments in the country through the
end of 2007. Owing to a lack of investment in production, 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 28

lacks the capacity to develop Bolivia’s gas resources.
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 29
to make some $25 billion worth of cocaine per year.
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

27 “Morales Threat Hangs Over Bolivian Gas Talks,Financial Times, November 17, 2005.
28 Tina Hodges, “Bolivia’s Gas Nationalization: Opportunity and Challenges,” Andean Information Network, January
15, 2008; “Bolivia Reduces Gas Supplies to Neighbors, Latin American Weekly Report, January 10, 2008. Eduardo
Garcia, “Analysis-Bolivia Races Against Time to Boost Natural Gas Output,” Reuters, September 21, 2007.
29 Daniel Kurtz-Phelan, “Coca is Everything Here, World Policy Journal, Fall 2005.

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 30
region. Although the program dramatically reduced coca cultivation in Bolivia, human rights 31
abuses were committed by security forces during its implementation. In addition, the
government failed to implement viable alternative development programs to benefit coca growers
and their families. Forced eradication caused economic hardship and fueled social discontent in
the Chapare region. Frequent clashes between coca growers and security forces, which
occasionally turned violent, de-stabilized the region and the country as a whole.
This ongoing conflict continued until October 3, 2004, when Chapare growers, led by Evo
Morales and others, signed a one-year agreement with the Mesa government, which permitted
limited coca production in the region and replaced forced eradication with a more cooperative,
voluntary approach. Under the agreement, each family is allowed to produce one cato (1,600
square meters) of coca, but any coca grown beyond that is subject to eradication. U.S. State
Department figures found that drug cultivation in Bolivia increased by 8% in 2005 compared to
the previous year, but the United Nations Office on Drugs and Crime (UNODC) reported an 8%
decrease in cultivation for the same period. UNODC credited that reduction largely to the success 32
of the Chapare agreement. 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 33
demand for coca and must therefore be eradicated.
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 34
attempted eradication in that region. According to the U.S. Department of State’s International

30 President Jorge Quiroga assumed the presidency on August 7, 2001, when President Hugo Banzer, whom he had
served as vice president, resigned because of illness. Quiroga could not, by law, subsequently run for election.
31 Gretchen Gordon, “The United States, Bolivia and the Political Economy of Coca, Multinational Monitor,
January/February 2006.
32 U.S. Department of State, International Narcotics Control Strategy Report, March 2006; UNODC, Bolivia Coca
Cultivation Survey, June 2006.
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.

Narcotics Strategy Control Report covering 2007, the Morales government met its coca
eradication targets for 2007 and seized more cocaine base, marijuana, and precursor chemicals
than in 2006.
Proponents of the “coca yes, cocaine no” policy argue that it is a culturally sensitive approach to
coca eradication that is widely accepted in Bolivia. For those reasons, they believe that, although
it may take time to show results, it stands a much better chance of being successful than previous
forced eradication programs. They assert that Morales’ experience as a coca grower has enabled
him to negotiate agreements with producers in regions where prior governments were unable to 35
limit coca cultivation. 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 36
and Yungas regions.
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 37
million survived on 2.5 million acres. 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 38
land recipients the access to credit and technical assistance needed to use the land efficiently.
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 39
This land redistribution policy has been vehemently opposed by the agro-industrial sector and 40
other large landowners in the Santa Cruz region, who see it as a threat to their livelihoods. It is

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.
40Bolivian Landowners See Politics, Chávez Behind Reform,” Reuters, June 5, 2006.

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 41
the Morales government.
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 42
will take the steps necessary to avoid those outcomes.

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 43
his position on the coca issue and his possible ties with Cuba and Venezuela.
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 44
policies they [Morales and the MAS government] pursue.” 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 45
some influence over the Morales government.

41Bolivia: A Country Report,” Economist Intelligence Unit, January 2007.
42Bolivia’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,Ches Second Coming? New York Times, November 20, 2005.
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 “Dont Do Chavez a Favor in Bolivia, Christian Science Monitor, December 22, 2005.

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 46
decline in Bolivian counternarcotics cooperation that had occurred since Morales took office.
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 47
has occurred despite the Morales government’s eradication efforts. 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 48
undermine the MAS government. U.S. officials also expressed some concerns about the
instability in Bolivia surrounding the constitutional reform process.
This year, U.S.-Bolivian relations have deteriorated from what analysts described as “tenuous” at 49
best this summer, to extremely tense this fall. 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 he had received political asylum 50
from the U.S. government. 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 51
since the Andean trade preference programs began in 1991. Some analysts have asserted that

46 White House,Memorandum for the Secretary of State, Presidential Determination No. 2006-24,” September 18,
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.
49As U.S. Presses Drug War, Bolivian is Antagonist and Uneasy Ally,” New York Times, August 29, 2008.
50Bolivia, U.S. Look to Improve Relations,” EFE, July 4, 2008.
51United States Trade Representative (USTR), “U.S. Trade Representative Schwab Announces Proposed Suspension
of Bolivias Tariff Benefits,” September 26, 2008.

these recent Bush Administration decisions regarding Bolivia are meant to punish the Morales 52
government for expelling the U.S. Ambassador. Regardless of the reasoning behind them, most
observers expect bilateral relations to remain tense, at least in the short to medium term.
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 53
counternarcotics programs in Bolivia and across South America.
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 54
usage] has declined as Bolivian society has urbanized.” In September 2007, President Bush
expressed concern about the expanded coca cultivation in Bolivia that occurred in 2006 despite 55
the Morales government’s eradication efforts.
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

52U.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.
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.

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 5657
expelled from the Chapare.” Bolivian officials have since denied those assertions. On
September 16, 2008, President Bush determined that Bolivia, along with Venezuela and Burma,
had failed demonstrably to live up to its obligations under international narcotics agreements, but 58
waived sanctions so that U.S. bilateral assistance programs could continue.
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 59
counternarcotics assistance through the Andean Counterdrug Initiative account. In FY2008,
Bolivia received an estimated $99.5 million, including roughly $47.1 million in counternarcotics
assistance. The FY2009 request for Bolivia is for $100.4 million, not including P.L. 110-480 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

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.
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.

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 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, 60
USAID will focus its programs on the Yungas region.
Table 1. U.S. Counternarcotics Assistance to Bolivia, FY2000-FY2009
(in historical U.S. $ millions)
Year Interdiction Alternative Total
FY2000 57.00 101.00 158.00
FY2001 32.020.00 52.00
FY2002 48.00 39.687.6
FY2003 49.041.70 90.70
FY2004 49.20 41.891.0
FY2005 48.641.70 90.30
FY2006 42.60 36.679.2
FY2007 35.031.00 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.

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

60More 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.

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, 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 63
sectors, that would likely be lost without the ATPA benefits. 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 64
relevant in Bolivia.” 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.
Bolivia could also benefit from assistance from the Millennium Challenge Account (MCA). In
December 2005, Bolivia submitted a compact proposal worth $598 million to the Millennium
Challenge Corporation (MCC). That initial proposal focused on linking raw material producers to
small and medium-sized businesses who would then produce valued-added manufactured goods
for export. After taking office, the Morales government decided to modify the compact proposal
slightly and resubmit it to the MCC. On September 21, 2007, the Bolivian government submitted
a second proposal to the MCC for consideration. That proposal focused on improving road
infrastructure in the historically isolated northern region of La Paz, Beni, and Pando. It also
included a smaller project focusing on rural productive development.
In December 2007, a visit by the MCC Bolivia Transaction Team to Bolivia was postponed due to
unrest in the country surrounding the Constituent Assembly process. On January 29, 2008, Philip
Goldberg, then-U.S. Ambassador to Bolivia, stated that the MCC dialogue process with Bolivia 65
has been put on hold for the time being. The MCC is continuing to monitor developments in

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.
63Bolivian 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.
65 Transcript of Conference Call sponsored by the Bolivian-American Chamber of Commerce, January 29, 2008; Email

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.
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.
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 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.

from MCC official, January 29, 2008.

Figure 1. Map of Bolivia
Source: Map Resources. Adapted by CRS.

Clare Ribando Seelke
Specialist in Latin American Affairs, 7-5229