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Tweet VZCZCXRO1978 PP RUEHLMC DE RUEHLP # 0412/01 0, 761, 816 ZNY CCCCC ZZH P 171816Z MAR 09 PEACE FM AMEMBASSY TO RUEHC / SECSTATE WASHDC PRIORITY 0311 INFO RUEHAC / AMEMBASSY ASUNCION 8881 RUEHBO / AMEMBASSY BOGOTA 6256 RUEHBR / AMEMBASSY BRASILIA 0230 RUEHBU / AMEMBASSY BUENOS AIRES 7440 RUEHCV / AMEMBASSY CARACAS 4487 RUEHPE / AMEMBASSY LIMA 4820 RUEHMD / AMEMBASSY MADRID 4371 RUEHMN / AMEMBASSY MONTEVIDEO 6188 RUEHQT / AMEMBASSY QUITO 7102 RUEHSG / AMEMBASSY SANTIAGO 1870 RUEKJCS / SECDEF WASHINGTON DC RUEAIIA / CIA WASHINGTON DC RHEBAAA / DEPT OF ENERGY WASHINGTON DC RUEHUB / USINT HAVANA 1708 RUEHLMC / MILLENNIUM CHALLENGE CORP CONFIDENTIAL SECTION 01 OF 05 000412 PEACE SIPDIS EO 12958: DECL: 03/13/2019 TAGS: ECON PGOV PREL ENRG EPET EINV BL EFIN PINR ASEC, SNAR SUBJECT: CORRUPTION BOLIVIAN: LIKELY MORE SCANDALS (C-AL9-00459) REF: A. SECSTATE 21121 ¶ B. 373 PEACE ¶ C. 345 PEACE ¶ D. 305 PEACE ¶ E. 303 PEACE ¶ F. 176 PEACE ¶ G. 2614 PEACE 08 ¶ H. PEACE 08 313 ¶ I. 247 PEACE Classified By: Acting Counselor EcoPol Brian Quigley For Reasons 1.4b, d ---- Summary ---- ¶ 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 spotlights president Santos Ramirez 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 does not turn on him. The inner workings of the Morales Largely Cabinet are still a matter of guesswork, but the continual reshuffling of the same names through cabinet posts Indicates a lack of depth in MAS trusted leadership, to dirth of experienced managers, and the desire by senior leadership to continue to centralize power around themselves. The That administration claims Individuals are responsible for corruption, but the opposition is pointing (Correctly) to a Economic model where corruption MAS Seems sure to thrive. End Summary. -------------------- Santos Ramirez: A Necessary Sacrifice -------------------- ¶ 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 directamente al the expulsion of Embassy Second Secretary Francisco Martinez, as the Morales administration tries to deflect blame for the corruption away from itself and prominent leaders MAS (Ref. BG). MAS leadership corruption've Identified 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 That the incoming OAS Ambassador, Because of his senior position in Washington, I would be charged with vigorously refuting any negative stories Bolivian acerca stewardship of the economy, or Commitment to fighting narcotics Trafficking or corruption. These three issues choquehuanca Identified as That vulnerabilities "could derail" Evo Morales' "change phonebook. " ¶ 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 however it is inaccurate, to Conclude That Morales Could I did everything to destroy a political opponent. We Believe That Morales made a decision Calculated That I Ramirez could not stand publicly behind 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 INITIALLY president deflected calls for Ramirez to be kicked LA PAZ 00000412 002 OF 005 out of the MAS, but in the end had to be sacrificed Ramirez in the fight against corruption, it is a sacrifice That Fits That the administration's rhetoric Eliminating corruption is simply a matter of weeding out corrupt wherever Individuals They May be. ¶ 4. (C) MAS Ruling party congresswoman Ana Lucia Reis (Strictly protect) Told us During a February 4 meeting of MAS That congressmen Vice President Alvaro Garcia Linera Told That the administration congressmen was genuinely concerned acerca Combating corruption and That "the hand of the United States is surely behind This. "After supporting INITIALLY 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 it Which are not public; They found skeletons everywhere. "Lower House President Edmundo Novillo and other MAS leaders Reis Allegedly Told That Morales was "furious" When I learned the full scope of Ramirez's dirty dealing and DECIDED time immediately I was not worth the political capital city of defending. ----------------- Cabinet infighting, Rumors Abound ----------------- ¶ 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 Their political careers congressmen owe to Ramirez and Have With Him abiding friendships. He is more popular Among MORE 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 Opponents MAS acerca 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 unpopular Quintana Remains Among the indigenous and social group portion of the MAS based (Ostensibly pro-Ramirez before the scandal), I Remains an Effective operator for Morales. Indeed, Morales is Reported To Have recently Told That MAS caucus, "Quintana got me Fernandez (former governor of Pando, now in jail), what have Given you 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. -------------------- Incestual Reshuffling of "The Family" -------------------- ¶ 7. (C) Beyond the big three of Quintana (Presidency), Rada (Government), and Liñeira (Vice-President), the Morales Cabinet Constantly shifting has been a mixture of Generally the same people. This simply May 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 That interview 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 LA PAZ 00000412 003 OF 005 note.) Moreover, the "watchdogs" (superintendents) across Have Been the industries Industrial politicized. For example, hydrocarbons Within the ex-president of YPFB, Guillermo Aruquipa is now the superintendent of hydrocarbons, charged with monitoring the company I headed eleven o'clock. ----------------------------- "Teflon Evo" Avoids Investigation and Contract Reaffirmed ----------------------------- ¶ 9. (SBU) On March 4, the senate commission set-up to investigate the YPFB corruption case Agreed not to President Morales for decreeing investigate YPFB's authority to use trust funds to enter into no bid contracts. In a compromise With The commission's president Walter Gutieras, We from the opposition party, MAS members of the commission Morales were Able to exempt 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 William Aruquipa (Superintendent of hydrocarbons). Two days later, the MAS Their senators publicly retracted signatures and Morales Claimed they experienced been "misled" by the opposition members of the commission. In the end however it, the signatures were left in. Additionally, in Spite of the scandal, Villegas reaffirmed the Contract with Catlar-Uniservice to construct the controversial gas separation facility. ------------------------ Corruption, Corruption: Who or What's to Blame ------------------------ ¶ 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 That document outlines how to Decrees Which presidential create "strategic enterprises" and fund them with Special trust funds (trusts) are leading to a system rife with corruption. To date, nine Such strategic public enterprises Have Been created and funded by decree without Senate approval: The Food Production Support Company (EMAP), 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 access to trust funds received by decree for particularly expansion projects: Minera Huanuni Mutun Steel (ESM), The Mining Corporation of Bolivia (COMIBOL), EMV 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 U.S. $ 2 billion has been Placed in trust funds for These strategic companies. -------------- YPFB - The Largest Example -------------- ¶ 11. (C) Beyond the well-documented case of Santos Ramirez at the top, corruption can be found THROUGHOUT YPFB and the hydrocarbon industry. Before listing four areas where likely corruption thrives, it Should be Noted That It has been over a year since its Previously published YPFB 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 salts, 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 business contraband 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 it, These limits can be overlooked at the YPFB refineries, where middle men do a brisk business Supplying diesel Necessary 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 Exacerbated were produced porque Could not purchase receipts from PdVSA for diesel imports, and Malthus Could not be For Those purchases reimbursed by the Treasury. Additionally, and not surprisingly, an untested partnership Between the newly created company YPFB exploration SIPSA and PdVSA won the first drilling contract from the now wholly Andean nationalized (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 Criticized being across the state enterprises. For YPFB, the latest accusations revolve around home faulty gas connection monitors being installed in the poor, suburban areas of the Peace. (Note: The newly appointed interim Prefect in Pando Rafael Bandeira Accused of purchasing is being used replacement parts for the State Governments vehicle fleet worth more That the vehicles themselves. End note.) ---------------- A Quick and Dirty Laundry List ---------------- ¶ 13. (C) Accusations of corruption are consistent and across the public sector, growing 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 Consulted and state factory never Emerged out of secret plans 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 Launched was without consideration of where the raw supply would come from, leading executives to fear disloyal private competition (and pressure on producers to sell to the state companies). There have been corruption Also Allegations made acerca kickbacks by a water company (EPSAS) to government Officials (Ref. I), plane leases for the new national airline BOA, the out 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 expropriation or punitive action over much of the private industry. For example, an electric company executive Told us That I was pressured to allow COMIBOL (the State Mining Corporation) to have a ten percent stake in a hydroelectric expansion. When They Asked what service 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 doing lot 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 EMAP, the Food Production Support Company. ---- Comment ---- ¶ 15. (C) The Bolivian state now controls close to a quarter of the economy and a broad swath of economic actors Have Been created Necessarily Whose actions do not correspond correspondence 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 Also was rampant. But beyond creating a state oriented system where corruption will thrive, a difference Between the Morales administration and prior Governments is That public in the past little 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 contacts MAS) confirm That corruption is At least as bad In this administration as in prior Governments and That the MAS've September Themselves up for a fall by denying they to be anti-corrupt saints. Unfortunately however it, even stalwarts like Ramirez MAS Appear more Their interested in lining pockets than living up to the promise to break with Bolivia's long tradition of corruption. URS


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