Bolivia’s oil and gas industry is the most dynamic sector of the Bolivian economy and receives by far the most foreign investment. However, Bolivia has struggled to benefit from its vast underground wealth since the sector was privatised in 1996 as part of its structural adjustment reforms. With privatisation, the royalties for the vast majority of companies were lowered from 50 per cent to only 18 per cent.There was great national concern over the reform. Research showed that the government was capturing less and less revenue from the sector (37 per cent of the turnover in 1999 was reduced to 27 per cent in 2004), in a context of huge increases in investment, production and exports with corresponding increasing prices.

Civil society organisations such as the Centre for Labour and Agricultural Development (CEDLA) took the lead in researching and educating the population about the impact of the reforms, which contributed to popular discontent and a series of mobilisations and protests led by indigenous groups. As a result of the pressure, the Bolivian Congress finally passed a law in May 2005 which provided – among other things – for a new royalties and tax structure on oil and gas extraction. All reserves became subject to the 18 per cent royalty rate, as well as to a new direct tax of 32 per cent on the value of all oil and gas production.The reforms to the sector since 2005 have generated a huge increase in revenue for the Bolivian government (from an income of around US$173 million in 2002 to an estimated US$1.57 billion in 2007).

As a result, the Morales government has increased spending on social programmes.Three major cash transfer programmes have been developed: an expansion of public pensions to relieve extreme poverty among the elderly; a grant for poor families to increase primary school enrolment; and, most recently, a grant for uninsured new mothers as an incentive for them to seek medical care during and after their pregnancies, in order to reduce maternal and infant mortality. School breakfasts are also provided for primary school children to guarantee all school children at least one meal a day. None of these programmes would have been possible without the reforms to oil and gas taxation.

Reference no.4