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INFO RUEHAC/AMEMBASSY ASUNCION 8881
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RUEHMN/AMEMBASSY MONTEVIDEO 6188
RUEHQT/AMEMBASSY QUITO 7102
RUEHSG/AMEMBASSY SANTIAGO 1870
RUEKJCS/SECDEF WASHINGTON DC
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RUEHLMC/MILLENNIUM CHALLENGE CORP
C O N F I D E N T I A L SECTION 01 OF 05 LA PAZ 000412
SIPDIS
E.O. 12958: DECL: 03/13/2019
TAGS: ECON PGOV PREL ENRG EPET EINV BL EFIN PINR
ASEC, SNAR
SUBJECT: BOLIVIAN CORRUPTION: MORE SCANDALS LIKELY
(C-AL9-00459)
REF: A. SECSTATE 21121
¶B. LA PAZ 373
¶C. LA PAZ 345
¶D. LA PAZ 305
¶E. LA PAZ 303
¶F. LA PAZ 176
¶G. 08 LA PAZ 2614
¶H. 08 LA PAZ 313
¶I. LA PAZ 247
Classified By: Acting EcoPol Counselor Brian Quigley for reasons 1.4b,d
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Summary
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¶1. (C) As the Bolivian state extends its participation in
the economy well beyond its capacity, corruption scandals are
likely to surface across any number of the poorly managed and
highly politicized state enterprises. The state hydrocarbon
company (YPFB) is far and away the largest of these companies
and the recently uncovered corruption involving its former
president Santos Ramirez spotlights corruption at the top,
but the rot runs much deeper. The scandal triggered the now
standard spin of blaming the U.S. Embassy and opposition
leaders, but on March 11 Ramirez was thrown out of the MAS by
the party's ethics committee. The treatment of Ramirez by
Morales hints that he is walking a fine line between showing
himself tough on corruption and making sure his own party
doesn't turn on him. The inner workings of the Morales
Cabinet are still largely a matter of guesswork, but the
continual reshuffling of the same names through cabinet posts
indicates a lack of depth in trusted MAS leadership, a dirth
of experienced managers, and the desire by senior leadership
to continue to centralize power around themselves. The
administration claims that individuals are responsible for
corruption, but the opposition is pointing (correctly) to a
MAS economic model where corruption seems sure to thrive.
End Summary.
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Santos Ramirez: A Necessary Sacrifice
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¶2. (C) The scandal at the state hydrocarbon company (YPFB)
involving the murder of a Bolivian businessman and alleged
payoffs to then YPFB President Ramirez has led directly to
the expulsion of Embassy Second Secretary Francisco Martinez,
as the Morales administration tries to deflect blame for the
corruption away from itself and prominent MAS leaders (Ref.
B-G). MAS leadership has identified corruption as a
potential Achilles heal and is concocting conspiracy theories
(many at our expense) to salvage their credibility on the
issue. Foreign Minister David Choquehuanca allegedly briefed
the incoming OAS Ambassador that, because of his senior
position in Washington, he would be charged with vigorously
refuting any negative stories about Bolivian stewardship of
the economy, or commitment to fighting narcotics trafficking
or corruption. Choquehuanca identified these three issues as
vulnerabilities that "could derail" Evo Morales' "change
agenda."
¶3. (C) On March 11, Ramirez was kicked out of the MAS by
their ethics committee and may face jail time over the
scandal. It is inaccurate however, to conclude that Morales
did everything he could to destroy a political rival. We
believe that Morales made a calculated decision that he
couldn't stand publicly behind Ramirez and needed the cover
of a public investigation (which buys him time to figure out
a way to make sure it leads to the opposition (Septel), us,
or elsewhere). Additionally, Ramirez's party expulsion by
the rank and file members of the MAS creates the impression
that his expulsion was beyond the control of Morales. The
president initially deflected calls for Ramirez to be kicked
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out of the MAS, but in the end Ramirez had to be sacrificed
in the fight against corruption; it is a sacrifice that fits
the administration's rhetoric that eliminating corruption is
simply a matter of weeding out corrupt individuals wherever
they may be.
¶4. (C) Ruling MAS party congresswoman Ana Lucia Reis
(strictly protect) told us during a February 4 meeting of MAS
congressmen that Vice President Alvaro Garcia Linera told
congressmen that the administration was genuinely concerned
about combating corruption and that "the hand of the United
States is surely behind this." After initially supporting
Ramirez in the face of the corruption charges, Reis said
Morales "cut off" his longtime friend and political ally
after reading a police report in late January detailing
Ramirez's role in the latest scandal and "several others,
most of which are not public; they found skeletons
everywhere." Lower House President Edmundo Novillo and other
MAS leaders allegedly told Reis that Morales was "furious"
when he learned the full scope of Ramirez's dirty dealing and
immediately decided he wasn't worth the political capital of
defending.
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Cabinet Infighting, Rumors Abound
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¶5. (C) Dissident MAS member and Senate Vice President Luis
Gerald Ortiz (strictly protect) told PolOff the fallout from
the Ramirez case is dividing the party in congress. Many MAS
congressmen owe their political careers to Ramirez and have
abiding friendships with him. He is more popular among MAS
congressmen than Vice President Garcia Linera, much to
Garcia's irritation, and was the shoe-in favorite to take
Garcia's place on the ticket, leading to conspiracy theories
about MAS opponents setting him up.
¶6. (C) Ramirez was also a direct rival for influence with
Minister of the Presidency Juan Ramon Quintana. In that
sense, abandoning Ramirez to "justice" was also a victory for
Quintana. While Quintana remains unpopular among the
indigenous and social group portion of the MAS base
(ostensibly pro-Ramirez before the scandal), he remains an
effective operator for Morales. Indeed, Morales is reported
to have recently told a MAS caucus that, "Quintana got me
Fernandez (former governor of Pando, now in jail), what have
you given me?". Rumor mills contend that Quintana "has
something" on Morales, but a more straightforward
interpretation of his staying power is his effectiveness as a
MAS hatchet man.
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Incestual Reshuffling of "The Family"
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¶7. (C) Beyond the big three of Quintana (Presidency), Rada
(Government), and Lineira (Vice-President), the Morales
Cabinet has been a constantly shifting mixture of generally
the same people. This may simply reflect a lack of qualified
MAS members, but it also has the effect of keeping any
corruption within "the family." The newest member of the
cabinet, Patricia Ballivian, left her post as Minister of the
Bolivian Highway Administration (ABC), to head the Ministry
of Development. Corruption charges dogged her at ABC and the
former minister, Jose Maria Bakovic, postulated in an
interview that she was named development minister simply to
protect her and the government from facing additional
corruption charges and her shady dealings with Ramirez and
the Brazilian construction firm OAS.
¶8. (C) The same reshuffling is happening at YPFB, where
ex-Minister of Hydrocarbons, Carlos Villegas has been
appointed as the new head of YPFB (Note: Such direct
appointments are technically illegal, as the Senate should be
asked to approve all new heads of state enterprises. End
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note.) Moreover, the "watchdogs" (superintendents) across
industrial sectors have been politicized. For example,
within hydrocarbons the ex-president of YPFB, Guillermo
Aruquipa is now the superintendent of hydrocarbons, charged
with monitoring the company he once headed.
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"Teflon Evo" Avoids Investigation and Contract Reaffirmed
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¶9. (SBU) On March 4, the senate commission set up to
investigate the YPFB corruption case agreed not to
investigate President Morales for decreeing YPFB's authority
to use trust funds to enter into no bid contracts. In a
compromise with the commission's president Walter Gutieras,
from the opposition party Podemos, MAS members of the
commission were able to exempt Morales from investigation.
In exchange, four current and former members of the Morales
administration will be investigated: Carlos Villegas
(ex-minister of hydrocarbons and the new president of YPFB),
Saul Avalos (ex-minister of hydrocarbons), Luis Arce
(minister of treasury), and Guillermo Aruquipa
(superintendent of hydrocarbons). Two days later, the MAS
senators publicly retracted their signatures and Morales
claimed they had been "misled" by the opposition members of
the commission. In the end however, the signatures were left
in. Additionally, in spite of the scandal, Villegas
reaffirmed the contract with Catler-Uniservice to construct
the controversial gas separation facility.
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Corruption, Corruption: Who or What's to Blame
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¶10. (C) For the MAS, at least publicly, corruption is
simply the result of corrupt individuals; purge the dirty
people and corruption will disappear. For the opposition,
the system being put in place by the MAS facilitates
corruption. Senate President Oscar Ortiz recently published
a document that outlines how presidential decrees which
create "strategic enterprises" and fund them with special
trust funds (fidecomisos) are leading to a system rife with
corruption. To date, nine such public strategic enterprises
have been created and funded by decree without Senate
approval: The Food Production Support Company (EMAPA), Milk
of Bolivia (LACTEOSBOL), Paper of Bolivia (PAPEBOL),
Cardboard of Bolivia (CARTONBOL), Business of Marketing
(EDCO), Cement of Bolivia (ECEBOL), Bolivian Customs Deposits
(DAB), Sugar of Bolivia (AZUCARBOL), Aviation of Bolivia
(BoA). Moreover, six previously existing enterprises (some
taken over by the state during the Morales tenure) have
received access to trust funds by decree for particular
expansion projects: Minera Huanuni, Mutun Steel (ESM), The
Mining Corporation of Bolivia (COMIBOL), Vinto Metals, Entel
(the nationalized telephone company), and YPFB. In all,
there are now 15 national strategic companies and every one
of them creates a unique opportunity for corruption and
political manipulation. According to Ortiz, close to US$2
billion has been placed in trust funds for these strategic
companies.
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YPFB -- The Largest Example
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¶11. (C) Beyond the well-documented case of Santos Ramirez
at the top, corruption can be found throughout YPFB and the
hydrocarbon sector. Before listing four areas where
corruption likely thrives, it should be noted that it has
been over a year since YPFB published its previously
extensive quarterly reports. Since that time, no one can say
how much money has flowed into or out of the company or,
concretely, what activities the company has undertaken. Four
areas of corruption revolve around: contraband, illicit
sales, relations with the Venezuelan state company PdVSA, and
LA PAZ 00000412 004 OF 005
equipment purchases.
¶12. (C) First, hydrocarbons in Bolivia are highly
subsidized and a brisk contraband business exists with the
country's neighbors. According to a major daily, at least 60
percent of employees at the National Migration Service have
been dismissed for acts of corruption over the last year and
a half. Gas canisters and diesel are two of the most
lucrative smuggled items. YPFB, either at its refineries or
at its service stations is reportedly tightly entangled in
smuggling networks. (Note: Hydrocarbons are not the only
contraband products. Still under senate investigation, the
highly publicized case linking Minister Quintana to 33 trucks
in Pando State also involves the illegal movement of
merchandise across borders. End note.) Second, because of
diesel shortages, quantitative limits on sales have been
imposed. For a price however, these limits can be overlooked
at the YPFB refineries, where middle men do a brisk business
supplying necessary diesel to Santa Cruz farmers. Third,
YPFB's relations with PdVSA are opaque. A former Treasury
Vice Minister told us that in part financial problems at YPFB
were exacerbated because it could not produce purchase
receipts from PdVSA for diesel imports, and thus could not be
reimbursed for those purchases by the Treasury.
Additionally, and not surprisingly, an untested partnership
between the newly created YPFB exploration company SIPSA and
PdVSA won the first drilling contract from the now wholly
nationalized Andina (formerly majority owned by Repsol). It
promptly spent $6 million to charter a ship solely for the
purpose of bringing a drilling rig directly from Venezuela
(Ref. G). Finally, equipment purchases with these
unsupervised trust funds (especially used equipment) are
being criticized across the state enterprises. For YPFB, the
latest accusations revolve around faulty home gas connection
monitors being installed in the poor, suburban areas of La
Paz. (Note: The newly appointed interim Prefect in Pando
Rafael Bandeira is being accused of purchasing used
replacement parts for the state governments vehicle fleet
worth more that the vehicles themselves. End note.)
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A Quick and Dirty Laundry List
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¶13. (C) Accusations of corruption are consistent and
growing across the public sector enterprises. The companies
are operated by inexperienced political operatives under a
cloak of secrecy. For example, when PAPEBOL (paper) was
formed, private sector industry contacts said that they were
never consulted and state factory plans emerged out of secret
government meetings (Ref. H). Moreover, the used machinery
PAPEBOL planned to purchase was obsolete and inappropriate
for the recycled paper to be manufactured. The milk company
was launched without consideration of where the raw supply
would come from, leading private executives to fear disloyal
competition (and pressure on producers to sell to the state
companies). There have also been corruption allegations made
about kickbacks by a water company (EPSAS) to government
officials (Ref. I), plane leases for the new national airline
BOA, the sale of visas, and bribes to police for political
cooperation (Ref. C). Finally, one may reasonably ask why
Entel, the nationalized telephone company, recently donated
23 computer systems to the Bolivian Workers Union (COB).
While not explicit corruption, the Bolivian state is in a
position to arbitrarily reward and punish through a growing
network of public companies.
¶14. (C) Additionally, the government lauds the threat of
punitive action or expropriation over much of the private
sector. For example, an electric company executive told us
that he was pressured to allow COMIBOL (the State Mining
Corporation) to have a ten percent stake in a hydroelectric
expansion. When asked what service they provided to the
company, the executive just laughed. In agriculture,
following the export ban on cooking oil in the spring of
LA PAZ 00000412 005 OF 005
2008, companies must now have all exports "approved" by the
Ministry of Agriculture. While our contacts say they have
had no serious problems to date, it is a clear political
lever held over the lowland agricultural producers.
Additionally, potential disloyal competition for the purchase
of agricultural production looms in the form of EMAPA, the
Food Production Support Company.
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Comment
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¶15. (C) The Bolivian state now controls close to a quarter
of the economy and a broad swath of economic actors have been
created whose actions do not necessarily correspond to profit
motives. With lax oversight, political goals, and
inexperienced managers, identifying and stopping corruption
at all levels of state enterprises will be a difficult task
indeed. It should be noted that corruption in prior
governments was also rampant. But beyond creating a state
oriented system where corruption will thrive, a difference
between the Morales administration and prior governments is
that in the past little public emphasis was given to the
issue and few measurable promises were made to combat it.
Morales, by contrast, has made the wholesale "elimination" of
corruption a cornerstone of his political discourse. Our
contacts (even some MAS contacts) confirm that corruption is
at least as bad in this administration as in prior
governments and that the MAS has set themselves up for a fall
by claiming to be anti-corrupt saints. Unfortunately
however, even MAS stalwarts like Ramirez appear more
interested in lining their pockets than living up to the
promise to break with Bolivia's long tradition of corruption.
URS
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