The Latin oil romance

May 24, 2005 02:00 AM

They're falling for it. Venezuela, Ecuador, and Bolivia -- South America's three hydrocarbon gusher states -- are placing high hopes for prosperity on petroleum wealth.
That's risky enough in itself without them also moving toward more state control of oil and gas. In Bolivia, street protesters are even demanding outright nationalization of the industry. Earlier, tens of thousands of poor indigenous people and industrial workers successfully pressured the government to pass a law that sharply raises taxes on foreign energy companies. Bolivia's biggest foreign investor -- Brazil's state-owned Petrobras -- promptly announced it will scale back investment in that neighbouring country.

It's no wonder, though, that the poor are demanding more of their governments. Oil and gas wealth is not trickling down to them.
In Ecuador, for instance, rising oil prices helped spur economic growth by more than 6 % last year. But as many as 70 % of Ecuadorians live in poverty. In April, street protests forced out President Gutierrez (at issue was his meddling in the courts, but the low standard of living also played a role). Now Ecuador, eyeing Bolivia's energy-tax spike, says it, too, will review its foreign oil contracts.

Those pushing for more state control of energy are being influenced by Venezuela, the world's fifth-largest oil supplier. In April, populist president Hugo Chavez decided that foreign oil and gas companies operating in his country must turn half of their profits over to the government, pay $ 2 bn in back taxes, and form joint ventures with the state oil company.
So far, Venezuelan oil has been a dry well for most Venezuelans. The state oil company says it spends billions of dollars on social programs, but the Venezuelan government reports an increased poverty rate: 55 % in 2003, compared with 43 % in 1998. This, amidst surging oil revenues.

It sounds counterintuitive, but oil and natural gas can bring a host of problems. No country wants to repeat the example of the Dutch, whose 1970s oil-and-gas windfall boosted currency so high that it hurt exports, creating joblessness. Oil wealth can help delay democratic reform, as in Saudi Arabia; disappear into the hands of a few, as in Nigeria; and cause political schisms, as in Bolivia.
A recent report by the International Monetary Fund points out that corruption and weak governance explain a lot about why economic growth has not reached Latin America's poor. Issues like those seem the ones to address, rather than hugging the pipelines and oil wells ever closer.

Source: Christian Science Monitor
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