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UNCLAS LA PAZ 000383 

SIPDIS 

SENSITIVE 
SIPDIS 

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.