The Bolivian Pickle

The Millennium Challenge Corporation faces a complicated quandary in the case of Bolivia. Bolivia was deemed eligible for MCC funding in FY04, 05 and 06, passing the indicators test all three years, and submitted a $600 million compact proposal on December 1, 2005. But that was before Evo Morales' left-wing government was elected into office. and began taking decisions like nationalizing the hydrocarbons industry. What should the MCC do when it runs a program aimed at being apolitical -- relying primarily on quantifiable performance indicators to base its funding decisions -- and Bolivia is on the other side of the table? It will be very interesting to see how Bolivia fares in the next indicator run (typically done in October each year) but it may be that the policy decisions being made by the Morales government do not significantly affect the MCA performance indicators.Let's start a conversation here. What do folks think about the dilemma facing the MCC? To start the conversation, Milan Vaishnav, former CGD research assistant and current Columbia PhD candidate, reflects on what he experienced in his recent trip to Bolivia:From Milan: "Having arrived in La Paz over the weekend, it is clear that there is plenty of confusion within the Bolivian government not to mention conflicting points of view within the US government itself. On the one hand, Bolivia desperately wants the nearly $600 of foreign assistance requested under the proposal which would largely go toward financing roads connecting northern and southern Bolivia and the main metropolitan centers of La Paz, Cochabamba, and Santa Cruz. Bolivia also proposes to use some of the MCA money for financing and credit for small and medium enterprises.From the perspective of the United States, opinion is mixed. Some believe that finalizing the Bolivian compact would go a long ways toward enhancing democratic stability in a country that has seen four presidents in as many years. Jobs are a big issue in this country, especially in the impoverished city of El Alto which towers over La Paz and whose activist leaders are renown for their ability to bring the country to a halt (not to mention force democratically elected presidents out of office). According to this line of argument, MCC funds would not only help create jobs, but would also complement US efforts to encourage farmers to shun coca in favor of alternative crops by easing access to markets via rural roads and highways.On the other hand, some within the US government cannot possibly fathom writing a $600 million check to a government led by a former cocalero who lambastes the United States at every opportunity afforded him. These officials believe that withholding MCC funds would teach Evo Morales why he needs the US much more than the US needs Bolivia.After speaking with several US government officials in La Paz and in Washington, I have received conflicting reports on the fate of Bolivia´s MCC proposal. Some argue that it is very much alive¨and that the US government has not changed its policy—it will curb flows only when Bolivia signals its lack of commitment, will, or desire. Others say they would be surprised if the compact proposal "ever left the dusty shelf in the offices of the MCC." One international donor official familiar with the Bolivian proposal said the compact "is in the freezer.'One thing is clear. The fate of Bolivia´s MCA proposal represents a critical juncture for the MCC. One of the motivating ideas behind MCA assistance was that it was supposed to be apolitical and run strictly by the numbers (in this case, the 16 MCA indicators). If Bolivia successfully passed the MCA criteria, would it be a refutation of the MCC´s modus operandi to permanently shelve the compact? Or perhaps does the MCA have good reason to believe that Bolivia´s indicators have significantly changed since their eligibility was determined—on the heels of the nationalization of the hydrocarbons industry and Morales´ alleged anti-democratic machinations? Some have speculated that the MCC is prepared to finalize Bolivia´s compact but is wary of Congressional backlash against the agency."