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At what price gas? Bolivian energy policy and nationalism

What are the implications of Bolivia’s recent decision to nationalise its energy sector?  To answer the question, several levels of analysis have to be completed:  international, regional and national.

At the international level, the largest potential implication is depression of international investor appetite for Latin American assets.  However, generalising from Bolivia to other countries in Latin America is unwarranted.  As recent ODI research has argued (www.odi.org.uk/opinions numbers 65 and 68), Latin America’s ‘new’ leaders should not be thought of as a homogenous group – while Morales and Chavez in Venezuela are clearly pursuing nationalist and populist economic policies, moderate social democrats are being elected or have been ruling elsewhere such as in Brazil, Uruguay and Chile.  Thus neither the nationalisation in Bolivia or the recent contract renegotiations in the Venezuelan petroleum industry should be interpreted as a signal that investors all over Latin America are at risk.  Nor is it clear that the either the Morales or Chavez government will to continue to pursue nationalisation in other industries, as the political and economic benefits of doing so may be limited.

From the regional standpoint, the nationalisation has served to incsrease tensions among South America’s largest economies.  The investors which were the hardest hit by the decision were the Brazilians, whose state owned energy company, Petrobras was the largest foreign investor in the sector.  The decision also impacts neighbours who are reliant on gas imports from Bolivia, notably Argentina.  Increased tensions among these countries are contrary to recent efforts, spearheaded by the Chavez government, to enhance regional trade and financial integration on a ‘Bolivarian’ model through new membership in Mercosur, the creation of regional development Bank, etc.

At the national level, the impact is uncertain because it is not yet known how the nationalisation and the revenues that it is likely to produce will be utilised.  The Bolivian government, like all governments experiencing a commodity boom, will face tradeoffs between using the revenues for short term spending on social services or other goods and investing the returns for future generations and / or to smooth income shortfalls in the future.   While neither is a priori a better option, the choice between these two very different models have to be assessed carefully to determine which is the more appropriate for achieving short and long term national development goals.

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