Stop Telecom Italia

 Privatization, Bolivian style

In 1985, Bolivia became the poster child for economic shock treatment: a population traumatized by instability and hyperinflation was subjected to sweeping neoliberal reforms. Ten years later, a second generation of reforms was launched, to privatize public industries, placing key sectors of the economy under the control of foreign companies.

Supported by millions of dollars in World Bank loans and technical assistance, supporters of the privatizations – in particular then president Gonzalo Sanchez de Lozada – promised privatization would generate economic growth to replace lost state revenues, create jobs, and contribute to robust pension funds and capital markets. None of the promises were fulfilled: the economy languished, job growth stagnated, pensions entered a critical crisis, and state revenues fell.

Subsequently, IMF requirements to cut deficits, largely provoked by the privatizations, led to rioting and over 30 deaths in February 2003. Among the privatized industries was the public phone company, ENTEL. Along with the public gas and oil company YPFB, ENTEL had been a major contributor to state revenues, and was one of the best managed and second most profitable of the state industries.

STET of Italy, later absorbed by Telecom Italia in 1997, secured a controlling interest with 50% of the shares of ENTEL. Telecom Italia manages ENTEL through a series of shell companies based in the Netherlands; direct management in Bolivia operates through Euro Telecom International N.V. (“ETI”). Telecom Italia/ETI invested in ENTEL and enjoyed revenues that grew at double digits, though reported profits – the basis of the company’s contribution to state revenues and pension plans – remained modest. Telecom Italia benefited from the effective monopoly that the previous state company had, controlling 80% of long distance calls and 70% of the mobile phone market.

The contribution of this privatization to Bolivian development is, however, uncertain and highly debatable. Telecom Italia’s strategy seems to have been to invest just enough to consolidate ENTEL as the dominant player in Bolivian markets, and a revenue generator for Telecom Italia/ETI. Efforts then shifted to extracting profits from Bolivia. The company was accused of moving resources out of ENTEL and transferring them to wholly owned subsidiaries outside of Bolivia, a practice Bolivia had no ability to challenge. By law, the company was prohibited from shifting resources out of Bolivia until it had fulfilled its investment obligations under the 1995 privatization contract.

In May of 2005, the transitory government of President Carlos Mesa made a widely questioned move, giving his Minister of the Economic Development powers to certify that Telecom Italia had fulfilled its investment responsibilities to Bolivia under the privatization agreements – granting regulatory powers to the executive branch. Mesa was replaced on June 9, 2007 by another transitory president, Eduardo Rodriguez.

On August 12th, 2005, President Rodriguez’s Minister of Economic Development, Carlos Diaz, proceeded to “certify” that Telecom Italia/ETI had met its obligations, thus giving the company a free hand to shift resources out of the country. A legal challenge to the certification was taken all the way to the Constitutional Tribunal, which decided the measure was constitutional – just hours before newly elected President Evo Morales was sworn in. With this 11th hour, and highly questionable, “green light” in hand, the company promptly drew down capital, paying out hundreds of millions to its owners overseas – while in Bolivia telecommunications and information services were and are still woefully insufficient.

The privatization was touted as “capitalization” in 1995; by 2005 it had turned into a “decapitalization”. While in some measure less disastrous than privatizations carried out in other sectors (such as aviation, gas and oil, and water), it was clearly not a “capitalization” of an industry, nor a contribution to development in Bolivia, which to this day remains one of the hemisphere´s most impoverished countries, and where many citizens still lack access to telecommunications.