Bolivian president rejects plan to increase taxes on foreign energy firms

May 11, 2005 02:00 AM

Bolivian President Carlos Mesa decided he could not risk a confrontation with the country's foreign lenders and foreign energy companies, analysts said, when he rejected a far-reaching oil and gas bill approved by Congress that unilaterally nearly doubled taxes on the companies.
But the president's decision is sure to provoke massive street protests, with the only question being whether they will ratchet up enough pressure to force him to step down, a fate suffered by his predecessor 18 months ago.

If Mesa does resign, it is not clear who would replace him since the two men in line to succeed him -- Senate President Homberto Vaca Diez and House Speaker Mario Cossio -- have shown no interest in leading a country that is becoming increasingly ungovernable.
Mesa has called for a summit meeting of the country's political, social and business leaders. But Sacha Llorenti, Bolivia's chief human rights advocate, speaking by telephone from La Paz, said few people were giving the summit much chance of success in a country where the right and left have hardened their positions, and the political centre is steadily evaporating.

"The only way out is to have new elections presided over by the chief justice of the Supreme Court," Andres Soliz, a former senator, said. "Mesa has shown he can't manage the situation."
Carlos Toranzo, another political analyst, said Mesa "was caught between a rock and a hard place" and "was trying to buy time" by rejecting the oil and gas bill. Mesa called the measure "an instrument of division."

The president's Cabinet was reportedly divided over the bill, which would break existing contracts by raising income taxes and royalty payments on the foreign oil and gas companies to 50 % from 28 %, give the Bolivian state oil company a say in sales of the gas, and require the companies to consult with indigenous groups before beginning production on gas found in tribal areas.
Some Mesa advisers reportedly said he had to sign the bill because rejecting it would prompt the street protests and perhaps cause Congress to raise taxes even higher. The Movement Toward Socialism party, led by Evo Morales, had sought an increase in royalty payments from 18 % to 50 % while radical leftists wanted to go even further by having the state nationalize the foreign companies that found and control the gas.

The leftists do not believe claims by the government and most economists that allowing the foreign companies unfettered access to tap into their huge natural gas reserves would produce a bounty of tax revenue.
Other Mesa advisers said he had to reject the bill because Bolivia's foreign lenders -- who supply the money that allows the country to pay all of its bills -- had made clear that failure to do so risked a disastrous aid cut-off.

High-ranking officials in Argentina, France, Spain and Brazil -- all of which are home to the major foreign companies -- privately told the Mesa administration that Bolivia would face reprisals if he didn't reject the bill, including billion-dollar lawsuits by the companies, a Western diplomat said. Failure to reject the bill would have also foreclosed any chance for Bolivia to sign a free trade agreement with the United States.
"It's an uncertain situation without a clear solution for the government," Toranzo said. "Mesa wants to be in good with both God and the Devil, and that's impossible."

Source: Knight Ridder News
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