Dean N Straub Professor Martland VA323 Nationalization has been a common occurrence in the Andean nations.

Bolivia, Ecuador, and Peru have all nationalized their hydrocarbon, meaning oil and natural gas, industries to some extent. The claim of the governments is that this will be more beneficial as the wealth from exporting natural resources can be redistributed. However, is nationalization the answer? That the governments would like to enrich their populace is understandable, given their nations’ circumstances. The graph at right demonstrates Bolivia’s sad economic state, which is more extreme, but still similar to other nations (IMF, 9). Perhaps the governments hope that through the spreading of national wealth they can solve the problems of their countries, and specifically the plight of the indigenous peoples, which account for about 44% of each countries populations (UN, 19). Firstly, the overall situations of these nations must be analyzed. These nations have experienced much hardship in modern times. The rough terrain of the Andes causes transportation and agriculture to be difficult. With the continued development of an

none have written any laws to enforce this decree (World Bank 25-26). has been the result of the current high global demand. even the villages near the actual oil developments often suffer deprivation (World Bank. economic growth has been quite minimal. Indeed. “…and therefore they are bound and obliged to enforce it. However. in the oil and gas industry. 169. deprived of the protectionist system of the early 20th century. most of the economic growth is directly related to oil and natural gas (UN. they are pursuing a monist economic model that is disadvantageous to other sectors of the economy. The Andean nations’ economic policy is analogous to Spain’s in the 16th and 17th centuries. 19). these endeavors are often ineffectual. All three nations have signed the International Labor Organization’s Convention No. This expansion. As the governments only see noticeable growth in hydrocarbons. have been struggling to survive. local industries. Bureaucratic problems and corruption often stop people from receiving their due benefits (World Bank. When people are promised economic assistance by the government in . Despite the lack of binding legislation there has been some redistribution in the form of royalties on oil exports. such as agriculture (Vélez.” Sadly. 124). Even though they are trying to give their populations the resources to succeed. 12). 45). If the growth of the hydrocarbon industry is ignored from the economic picture.international economy. which outlines the responsibility of these nations to enrich the indigenous population from sales of natural resources. Spain failed to improve its infrastructure when harvesting the riches of the New World and fell behind other European powers. The Andean countries may succumb to the same fate if they continue to rely on the export of non-renewable resources for their prosperity and ignore the general productivity of their nations.

38). to control such a vital resource. and the government received 97% of the oil rents in 2002 (World Bank. the people would begin to think that the government is not competent. Shockingly. in its current organization.” (World Bank. what will happen to the people? Unfortunately. The sad state of the indigenous people of the countryside can . This is quite positive. only $71 million of $1. In 2005. from such companies as Repsol-YPF (Spain and Argentina) and Occidental Petroleum (USA). but for who have they claimed them. themselves. 18). how much of a help is this “nationalization”? Ostensibly. the state-run oil and gas company. each of the nations will be examined in more detail. accounted for 50% of production in 2005. the hydrocarbon industry accounted for 12. and its drug of choice is oil development.2 % of the Gross Domestic Product (GDP) (World Bank. as an increase in privatization has resulted in more profits. has led to an increase in production (World Bank. There is so much concern over this portion of the economy that PetroEcuador. 21. Changes are occurring. The governments have claimed their nations’ resources. mostly for infrastructure and sanitation (World Bank. as the industry has been transitioning to a freer market since the mid-1990s. The Ecuadorian government has an addiction problem. 40). Although these profits will no doubt line the regime’s pockets. 21). as “… the importance of foreign companies in oil production is growing. or the people? In order to answer this. as the government siphons money from the sale of oil and gas. 38). and the government’s end of the agreement is not met. the distribution of this bounty of the earth suffers from poor administration.318 billion in oil rents collected from 1998-2002 have reached the country as decentralized resources. Foreign investment.exchange for the use of their lands.

Comparatively. The lack of responsible government controls suggests that scrupulous private corporations would perhaps be a more viable alternative. And yet. these people still do not receive the benefits they deserve. when the Camisea Natural Gas Field provided enough energy to actually start exporting. 44). resulting in greater wealth. as they would have more efficient procedures. 139). Despite all this inflow of capital. This will keep Ecuador as a weak. with such events as more research into alternative fuels. In addition. Peru has zealously sought to expand its hydrocarbon-producing infrastructure (World Bank.” (Vélez. a recession might still result. This makes Peru an interesting case. Nationalization of this natural resource does not seem to be helping the development of Ecuador. Despite being a net importer of hydrocarbons until 2004. with a more diverse economy. as compared to Ecuador. This may prove devastating. in respect to its oil interests. may marginalize the industry in which Ecuador has put so much faith. Nationalization has brought fear to these villages and taken away natural beauty and peace. 135). extremely vulnerable to fluctuations in the world price of oil (Vélez. the fearful nature of Ecuador’s leaders. shows best by such acts as “… the militarization of the Sarayku indigenous community’s territory for the protection of oil fields. as it has not been an exporter of hydrocarbons for very long. but the Ecuadorian economy would have more infrastructures in place in order to absorb some of the displaced workers from the oil industry. which has been .somewhat be explained by this extremely unfair distribution of wealth. little effort has gone into developing a robust. as the changing economic environment. it suffers from similar problems. diverse economy for Ecuador. As for Peru. export economy.

until now. From the Camisea fields alone. Unfortunately. 25). because the wealth is distributed among hydrocarbon. This increase in capital should lead to higher production of hydrocarbons. undoubtedly. when compared with heating oil. heating. This. This cheap source of warmth. 8). so the benefit should be felt across the whole country (World Bank. For example. in urban centers like Lima. will dramatically change people’s lives.exporting much longer. as it is not as vital to its economy. or wood. The oil rents are also a smaller part of Peru’s economy. 8). only accounting for only 1. As for the social implications. 18). 11).7 million in tax revenues (IADB. coal. but what of the rest of the Peruvian economy? When production of natural gas and oil falters. This may be particularly effective. or address other social ills of the Peruvian nation.producing regions and nonproducing regions. Perhaps this can be used for improvements in health or education. which.4% of the GDP in 2002 (World Bank. will hopefully have a positive impact on the quality of life. had depended on heating with oil. Peru falls into the same trap as Ecuador. which is similar . will be based on natural gas (IADB. 25). Peru has kept the level of destruction of the environment and native life quite low (IADB. Peru should receive $105. Perhaps this explains why Peru is fairer in its sharing of the national wealth. Perhaps this explains why Peru has been attempting to exploit these resources in a more responsible manner. the Peruvian industrial base may be in no way prepared to absorb the influx of unemployed workers. Most government tax revenues have been used in the maintenance and purchase of capital goods for the government-dominated hydrocarbon industry (World Bank.

Exacerbating the problem is that the Peruvian ministry that controls 59% of the industry suffers from sloppy bookkeeping (World Bank. by no means. this weakens the government greatly. For example. wealth is still unequally spread. This invites corruption and poor implementation of resources. The economy is being expanded almost solely by oil and gas. This has resulted in “… an overall surplus of 2. but in an even more extreme situation. if the faith in government falls to revolutionary levels. as had seemed to occur during the time of the Shining Path. . it will probably be less serious. 21). as evidenced by rampant poverty (IMF. As for Bolivia. suggesting that the inefficiencies of one government institution will lead to a bloody coup. because the industry is currently a much less important part of the economy. Due to this fact. fearing for the well-being of its people. In addition. 18). The poor have not been significantly helped by nationalization. This is represented by almost 20% of Bolivia’s GDP being supplied by hydrocarbons (World Bank. nonexporters are not achieving any real growth.to the possible scenario in Ecuador. Also. Bolivia. has reversed the liberalizing tends of the 1990s by nationalizing a large portion of the hydrocarbon industry. This could lead to much social disorder. 11-12). However.” (IMF. 21). despite government claims. this is misleading. This is. by presenting itself as an inefficient and careless institution. accomplished in large part by the passage of a 2005 law which placed oil and natural gas in the public sector. it is very similar to Ecuador. tempting much public criticism and scorn. but that it could be a contributing factor. This is very similar to what is occurring in Ecuador.1 percent of GDP for the combined public sector. Despite overall growth in the economy.

Even the hydrocarbon industry has maladies. although they have varying economic and social conditions. in that the owner of a small business is generally not making many times the salary of the lowest employee. as they suffer from much corruption and inefficiency. The government also seems to be promoting small business. 22). much good could be done for the people of Bolivia with the wealth attained. but may be more harmful in the long-run. 11). as this situation seems to advantage higher income groups. It suffers from weak development. These . This has led to some short-term advantages to the national government. and inadequate design of rules and procedures (World Bank. This could have far reaching implications in making Bolivia a competitive player in the international market. all share some measure of nationalization of the hydrocarbon industry. 17). lack of budgetary discipline. and giving them the money to purchase such goods. The three nations. as it is subsidizing credit for small businesses (IMF. This has the added effect of making conservation of energy less attractive (IMF. allowing them to pay off debts and provide more services. as compared to a scrupulous corporation. why is it not succeeding? This has drawn much criticism. The wages have been raised in the health and education sectors (IMF. With all such a large benefit from the government. thereby increasing general prosperity by increasing the range of goods available to people. If Bolivia could overcome the administrative problems in the hydrocarbon industry. 14). This is even more frightening when it is considered that the hydrocarbon industry is privileged with high subsidies. and encourages smuggling. This may lead to a higher quality of education and medical care. As small businesses tend to have a better wealth distribution than large corporations. Yet the effects are not all bad. leading to a healthier and better informed populace.

to answer the initial question.deficiencies may corrode the productivity and profits of oil companies. So. Only time will be able to determine this conclusively. the poverty level of these nations may very well drop significantly. mitigating the positive effects of oil. and the funds distributed in a fair and efficient manner. but this can not be known. it can not be said that nationalization is the wrong path with certainty. If government administration could be streamlined and made more transparent. The positive socio-economic changes would perhaps occur more quickly in the hands of private industry. the answer is that nationalization may be the answer to the societies’ problems. Despite all the evidence portraying the government as an incompetent body of administration. .

Fredy Rivera and Franklin Ramírez Gallegos. World Bank.org/exr/doc98/pro/pe02221. Public Information Notice on the Executive Board Discussion. http://www-wds. Bolivia: 2006 Article IV Consultation – Staff Report.pdf. Comparative Study on the Distribution on Oil Rents in Bolivia.woldbank.org/external/pubs/ft/scr/2006/cr06270.imf. Ecuador. Jan. Guadalupe Paz.iadb. 2007. Jan. Jan. 2007. Energy Sector Management Assistance Programme. and Peru. Peru: Camisea Project: Environmental and Social Impact Report. and Riordan Roett. “Ecuador: Democracy and Economy in Crisis. 30th. 30th. http://www. . 2005.pdf United Nations. Santiago. 2006. July. Staff Statement. and Statement by the Executive Director for Bolivia.org Keyword: Oil Rents Comparative Report Number: ESM304 Inter-American Development Bank. 30th. Governance crises and the Andean region: a political economy analysis. Vélez. Economic Development Division.WORKS CITED International Monetary Fund. 2007 http://www. April 2003. Russell Crandall. Aug. Andrés Solimano.” Ed. Chile: United Nation. June 2003. Colombia.

121-149.. Boulder. 2005. Colorado: Lynne Rienner Publishers. Inc.1st ed. .

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