Thursday, May 04, 2006

Mining in Bolivia Faces Uncertain Times Ahead

Bolivia's mining sector could be in for a shake up as the government is reported to be placing control over mining, forestry as well as other areas in the countries economy. President Evo Morales is said to be nationalizing natural gas.

Morales is reported to have said that this movement around natural gas, "was just the beginning, because tomorrow it will be the mines, the forest resources and the land." Higher taxes and royalty payments are on the agenda for existing properties, in an attempt to spread the wealth in Bolivia's mining sector.

Bolivia, a country with a rich history of struggle over control of precious metals, has faced competing interests since the Spaniards discovered silver in 1544. According to a Country Report, "From 1557 to 1985, the mining industry dominated the Bolivian economy. By 1985, however, the production of every significant mineral in the country had failed to exceed the output registered in 1975."

According to the same report, In order to capture gold as a reserve for the Central Bank, in 1988 the government offered a 5 percent bonus over the international price of gold on local sales to the Central Bank. Gold was mined almost exclusively by over 300 cooperatives throughout the country, along with about 10,000 prospectors. "

Mining cooperatives ended up requesting additional land from the government, in order to explore prospects. It was said that, "Government policy favored augmenting gold reserves as a means of leveraging more external finance for development projects. "

However, at the moment, government policy tows a different party line as it sets a course for redistributing the wealth of a nation. This trend in post-colonial societies who have the political means of staving off outside influence, is see other places in the world such as Zimbabwe, where the government has set out to reallocate control over its land, making a point of shirking off a history of British rule. What this often means however, is that countries in the midst of implementing this kind of change, face a high price as trading partners begin to diminish and the country is left with little in the bank, in terms of foreign currency.

What's next for Bolivia? How will Spain and Brazil react to the news of the country's reforms? Only time will tell.


agcl2 said...

is the author related to John Lee?

agcl2 said...
This comment has been removed by a blog administrator.
Investor Ideas said...

No, sorry, no relation to John Lee.