Author: Carlos Pinto
Bolivia is one of the few countries in the world that does not offer to foreign investors the protections provided by bilateral investment treaties (BITs), therefore it constitutes a priority that the current as well as the next Government of our country – acknowledging the imperative need to attract foreign investment to alleviate the inevitable economic crisis that will occur– make an important effort to subscribe bilateral investment treaties with the main economies of the world, thus enabling Bolivia to receive a share of the foreign investment that is destined to Latin America each year. It is important to underscore that the subscription of BITs represents one of many policies that he country must rapidly implement to turn Bolivia into a serious recipient of foreign investment.
BITs are international instruments subscribed between two states whose main objectives include: (a) guaranteeing to investors in both nations a fair and equitable treatment by the country that receives the investment, (b) protection against the illegal expropriation of their assets once the investment materializes, and (c) access to impartial forums, such as arbitration, to resolve any controversy arising between the State and the investor.
In this sense, the practical function of a BIT, at the time of investing in a business, the foreign investor verifies if the country where it intends to destine its investment has subscribed a BIT with its country of origin and, to the extent the receiving country does not offer the protections of a BIT, it will most likely desist and divert its investment to a State that offers the protections of a BIT.
During the so-called neoliberal period (1985-2005), the Bolivian State subscribed 22 BITs with friendly countries such as Germany, Austria, Argentina, Chile, China, United States, Spain, France, Mexico, Switzerland, Sweden, to mention some of them. As a consequence of those BITs, in the nineties and during the first five years of the 2000 decade, Bolivia received unprecedented direct foreign investments that permitted the development of the hydrocarbons industry, leading to the discovery of the mega-fields of San Antonio, Margarita, Itaú and San Alberto, the most important gas reservoirs in the country, and consequently led to the injection of significant resources for the articulation of transportation infrastructure for natural gas that has enabled until now the export of this natural resource to Brazil and Argentina.
As of 2006, once that Movimiento al Socialismo (MAS) took the reins of power, it adopted as a State policy the nationalization of the companies that had been privatized during the neoliberal period, triggering a wave of investment arbitration processes initiated by the affected foreign investors, all of them based on the protections granted by the BITs. In response to said arbitration processes, the MAS regime subjected the BITs to a close scrutiny, harshly criticizing them under the argument that they had generated imbalances to the detriment of the State, and thereafter, referred to them as unconstitutional agreements, following the adoption of the new Political Constitution in 2009.
Thus, between 2007 and 2013 all the BITs were denounced and forfeited their legal validity, after which MAS announced that it would subscribe new BITs under more favorable terms for the country, however the regime was not able to negotiate a single agreement until its departure in November 2019.
The preceding situation, added to the nationalization of the so-called strategic companies, has seriously affected the country’s reputation at the international level, turning Bolivia into one of the countries with the lowest level of foreign investment in Latin America.
As an example, according to the data of the Economic Commission for Latin America and the Caribbean (CEPAL), the direct foreign investment received by Bolivia in 2018 was equivalent to 0.8% of its Gross Domestic Product (GDP), a level that is quite inferior in comparison to other countries in the region that also have an important presence in extractive sectors, like Peru, where foreign investment totaled 3% of the GDP and Chile where it reached 2.2% of the GDP.
Translated into numbers, it becomes evident that the direct foreign investment received by Bolivia in 2018 totaled US$ 316 million, compared with US$ 6,488 million invested in Peru and US$ 6,082 million received by Chile. Peru subscribed 35 BITs and Chile subscribed 55 BITs with friendly countries.
The aforementioned situation evidences that the country must undertake all the necessary efforts to expand its offer of BITs to the largest extent possible, if it intends to project a more attractive venue for the foreign investment it direly needs, like Peru and Chile did at the time, a decision that has evidently paid well. However, it is important to understand what is the path we must follow in order to compete for the investment that is destined to the region.
As a matter of fact, it turns out that negotiating BITs with friendly countries will encounter complexities that were inexistent during the neoliberal stage, given that some locks were incorporated into the State’s Political Constitution enacted in 2009 as well as a number of subsequent laws that will pose difficulties during any negotiation of a BIT, one of which, for example, indicates that “Bolivian investments will be prioritized over foreign investments”, a situation that manifestly contradicts one of the fundamental principles of the BITs and constitutes an absurd, when it is undeniable that formal, local or foreign, investment, brings with itself the same benefits for the country that receives the investment, i.e., the entry of foreign exchange, the generation of new jobs and the resulting increase of fiscal collection.
Therefore, the road to subscribe new BTs, will entail a definition of whether it will be necessary to implement a constitutional reform to open the locks, or if it is otherwise possible to unlock or circumvent them with complementary legislation that offers the incentives that friendly countries look for their investments. Whatever the way, it is clear that the authorities of the current and the upcoming Government will face a titanic endeavor to transform Bolivia – once again, after 14 years of ill-advised decisions based on a political ideology that has kept us outside the international community of foreign investors – into a country that is open to foreign investment and is willing to compete with our neighbors in equal or better conditions. The success of this task will determine, almost exclusively, the duration and severity of the economic crisis we are already experiencing.
The author is an attorney specialized in business and investments