Significance

Congress' decision means that President Carlos Mesa should remain in power until the next presidential elections, scheduled for 2007.

Implications

Mesa's threatened resignation has been seen by many as a political tactic to strengthen his support, rather than a legitimate response to the political situation. Nevertheless, if it works it may lead to the omission of some of the more controversial proposals in the hydrocarbons bill currently under debate in Congress.

Outlook

Although Mesa's remaining in power will end the uncertainty of the last two days, the political situation in Bolivia, which is plagued by a multitude of ultimately conflicting and unattainable demands, will remain tense.

Congress Rejects President's Resignation

The Bolivian Congress voted unanimously yesterday to reject President Carlos Mesa's resignation, ending 48 hours of uncertainty provoked by the president's surprise announcement on Sunday (6 March 2005) that he would tender his resignation the following day.
Mesa's main demands in his resignation speech had been an end to road blockades and the approval of a 'viable' hydrocarbons reform. An agreement between the executive and the legislature, which includes a review of the controversial hydrocarbons bill currently in Congress, might help pave the way to a more investor-friendly bill, but the refusal of the second-largest party, the Movement Toward Socialism (MAS), to sign up to the agreement means that political tensions are likely to continue. In this light, bringing the street protests and blockades to an end is likely to prove difficult.

Although President Mesa had singled out MAS' leader Evo Morales, who was spearheading a blockade in the province of Cochabamba, and Abel Mamani, the head of the Fejuve federation, who was leading demonstrations against a water concession in the satellite city of El Alto, close to the capital La Paz, he also made reference to the autonomy protests in Santa Cruz department. The increased activism of indigenous people in El Alto and Cochabamba partly reflects the failure of the traditional political parties to articulate their demands, and the inability of the state to devise a model that allows the poor to feel the economic and social benefits of the exploitation of the country's natural resources. Moreover, frequent social mobilisation combined with weak political institutions can be a threat to governability and trigger political instability. Yet, by making Congress responsible for finding a way forward and blaming social mobilisations (whose stated intention was not the removal of Mesa) as the reason for his possible departure and the increased political instability that would undoubtedly follow - Mesa might help to strengthen Bolivia's democratic political institutions, especially if those involved make the most of the new spirit of congressional co-operation and approve the pending bills on hydrocarbons reform and the Constituent Assembly.

Nevertheless, any truce resulting from the agreement between legislators and the executive, as well as the planned discussions with social and business groups, may be short-lived, as Morales has threatened to hold further protests demanding royalties from has production be increased to 50%. Mesa has, in turn, called for people to hold a nationwide peaceful counter-demonstration to end the blockades, rather than use the police or the army to use force an end to the protests.

Hydrocarbons Reform at Centre of Crisis

The latest crisis followed the approval by deputies last Thursday (3 March 2005) of a proposal, suggested by the president of the chamber of deputies, that would leave royalties at 18% but would impose a direct 32% tax on gas production (rather than the proposal favoured by the Economic Development Commission and MAS, which called for royalties to be hiked to 50% in addition to existing taxes). MAS had contested the decision, claiming that there were voting irregularities. The government is reluctant to accept 50% royalties for fear that it will frighten away foreign investors who have already invested heavily in the country's gas sector, and on whom it relies to finance new projects. It is also worried that a hike in royalties might lead to a surge in complaints against the government in an international arbitration court and complicate negotiations over a free-trade agreement with the US. Furthermore, the government is concerned about other aspects of the bill, such as a proposal to make contract changes obligatory, rather than voluntary, and the recent approval of an article that would give indigenous communities the right to veto hydrocarbons projects on their lands. These concerns were all raised during talks between the Presidency Minister José Galindo, the presidents of the Senate and chamber of deputies, and party leaders in order to set out the conditions for Mesa's remaining in office. The outcome of these talks was a national agreement, which included a commitment to approve a hydrocarbons bill as soon as possible that respects the framework set out by the July 2004 referendum and guarantees the maximum benefits for the country but which, at the same time, seeks to maintain investments in the sector.

Towards a National Pact

Following their rejection of Mesa's resignation, legislators from six out of the eight political parties in Bolivia's Congress agreed to back a national social pact that has three other points in addition to the approval of a hydrocarbons bill, namely: the election of governors; a referendum on greater autonomy for provinces such as Santa Cruz and Tarija; and the creation of a Constituent
Assembly.

However, the refusal of MAS (which had also opposed Mesa's resignation) and the indigenous Pachakuti Indian Movement (MIP) to sign up to the agreement means that it is still unclear as to whether the political outlook will improve
significantly.

Outlook and Implications

President Mesa came to power 17 months ago after the weight of public opposition to a project to export gas via Chile, Bolivia's age-old rival, forced his predecessor Gonzalo Sánchez de Lozada to resign in October 2003. Mesa was Sánchez de Lozada's vice-president. As Mesa did not assume the presidency via direct elections, Congress' decision to reject his resignation and the expressions of support he has received from different parts of the country will help to build political support and strengthen his mandate. It may also pave the way for broader discussions on a national social pact that includes social, regional and business interests as well as those of the nation's political actors.

That said, the national pact could isolate MAS, whose leader's presidential ambitions have been revived after his party gained ground in December 2004's local elections. An alliance with MAS had helped the government to secure a victory in the July 2004 referendum on gas but the subsequent breakdown of that alliance has made it more difficult for President Mesa to get legislation through a fractious Congress, where he lacks the support of the traditional parties.

The hydrocarbons bill, under debate since November 2004, and the creation of the proposed Constituent Assembly have been cases in point. In addition, to the slow legislative process, Mesa has faced frequent protests from various social and regional groups, making the business of governing more difficult. Of the three key promises made on taking office - a gas referendum, the creation of a Constituent Assembly and a new hydrocarbons law - he has only managed to achieve one so far. Congress's refusal to accept his resignation shows that there is a broad consensus that any alternative to Mesa would result in greater political instability. Nevertheless, his ability to govern effectively will continue to be constrained by the prospect of further social unrest and political tensions.