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Evo Morales’s third term as Bolivia’s president may not run as smoothly as his first two

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AGAINST the imposing ruins of Tiwanaku, capital of a pre-Inca empire, Evo Morales ceremonially began his third term in office as Bolivia’s president on January 22nd. The immensely popular Mr Morales, the country’s first leader of indigenous descent, won re-election in October with 61% of the vote and can boast a good economic record. GDP grew at an annual average rate of 5% in 2006-13. Last year Bolivia was the fastest-growing economy in South America. No doubt, he feels entitled to indulge in pre-Columbian pomp.

Mr Morales’s third—and, he promises, final—term in office is likely to be more testing. The biggest problem will be a drop in earnings from commodities. The government’s budget for 2015 is based on projections that the average price of oil will be $80 a barrel, well above the $50-60 most forecasters expect. That will affect Bolivia’s revenue from natural gas, which is the main export and provides nearly half of government revenue. The price of minerals, another economic mainstay, has also fallen.

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La PazSouth AmericaPoliticsBoliviaWorld politics

Until 2013, the commodities bonanza provided a budget surplus and the wherewithal for grandiose infrastructure projects and social programmes. In 2015 the government predicts a deficit of 3.6% of GDP, even with its optimistic assumptions about oil prices. In the short run, Bolivians will not feel much effect. The finance minister, Luis Arce, plans to fill the gap by borrowing and drawing on some $15 billion of reserves that Bolivia prudently accumulated in better days. The government still hopes to invest $6.2 billion this year, which will help keep the growth rate above 4%. Spending on social programmes and the bureaucracy is likely to be maintained.

As time goes on, that will become more difficult. Lenders may demand higher yields as public debt rises. There is speculation that Mr Arce will cancel a planned $1 billion international bond issue this year if borrowing becomes too expensive.

Mr Morales’s support rests on a tripod of social movements, the armed forces and the police. “All are accustomed to having their demands met”, warns Carlos Toranzo, an economic analyst. In his third term, Mr Morales may struggle to provide the above-inflation wage increases, new weaponry and swanky new offices that armed forces and police have become used to.

To keep investment and public spending going Bolivia needs to find new gas to replace dwindling reserves. But with prices so low, Bolivia cannot attract private investors without cutting the oversized tax it imposes. Such a climbdown is close to politically impossible. So big projects such as a new plastics industry using gas as a raw material and development of a long delayed (and energy intensive) iron smelting industry are unlikely to advance.

Mr Morales’s Movement to Socialism (MAS) holds two-thirds of the seats in the National Assembly, which rubber-stamps anything the government proposes. But disgruntlement outside it is rising. The administration is far less popular than the president. Protest marches are a daily event. Some indigenous leaders, notably Felipe Quispe, a pugnacious rival of Mr Morales, threatened road blockades on the day of his investiture before backing down.

Their grievance is against the MAS’s high-handed method of naming candidates for the gubernatorial and municipal elections due on March 29th. Mr Morales says local leaders should be chosen at community meetings, but if the government dislikes the result it imposes its own. And since the MAS is the only party with a chance of winning most contests, this stirs resentment among other left-wing politicians. They are especially incensed by the choice of Felipa Huanca—who pledged to finance her election campaign by selling potatoes—as candidate for governor of the La Paz department. “She is an embarrassment,” says Doña Antonia, a market stall holder in La Paz who belongs to Mr Morales’s Aymara ethnic group.

The traditional opposition, though cowed, can still mount a challenge from their strongholds in Bolivia’s two largest cities, Santa Cruz and La Paz, the capital. They will exploit any fracturing of support for the government. While the money was flowing in, they caused Mr Morales little trouble. As the economy slows, his dazzle will come to matter less.

Editor’s note: The first paragraph of this article was revised shortly after publication to describe Mr Morales’s investiture ceremony more accurately. 

Culled from The Economist

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