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50 | HUMBERTO VACAFLOR ENERGY AND BAD LUCK IN BOLIVIA | 51 Bolivia. It is, after all, located in the driest desert in the world. But Chile’s lead- ers decided to retain the territory, due to the presence of copper deposits, ulti- mately found to be some of the largest in the world. As a result, Bolivia lost all hope of recovering the territories and to this day, copper is still being exploited there. That territory was also Bolivia’s only connection to the sea. Raw materials or natural resources, when exploited correctly, do not neces- sarily spell bad luck for all countries. Yet it is unclear whether Chile, the coun- try that took control of Bolivian territory and its access to the sea, has handled this mineral trophy well. Today, sales of copper account for almost 60 percent of all Chilean export earnings.2 Is this a case of “Dutch disease?”* Is the copper still surrounded by bad luck? The second war, known as the Chaco War of 1932–35, was fought between Bolivia and Paraguay over the oil deposits in another area of desert, the south- east of Bolivia. As a result of that war, Paraguay kept the desert but Bolivia retained the oil deposits. Who really won the Chaco War? Bear in mind Wuxi. The political problems Bolivia has faced since 2003—the year in which the Bolivian government proposed to export liquefied natural gas through Chile— are in no small way related to the fact that there are large deposits of natural gas in the region it controlled after the Chaco war. The natural gas boom in this region of Bolivia turned into a political night- mare when a consortium of oil companies started to study a project to export liquefied natural gas to the United States. The project envisioned using a sea- port controlled by Chilean authorities, in the area seized by Chile in the War of the Pacific. When news of this scheme seeped out, Bolivians reacted with protests and riots. They believed Chile was about to benefit not only from the natural gas that would potentially go there to be liquefied, but also from billion dollar investments. Bolivians were furious about a project that would benefit the very neighbor responsible for the fact that Bolivia is a landlocked country. As popular anger triggered by that protest grew in the fall of 2003, President Gonzalo Sánchez de Lozada was deposed and forced to flee the country. I wrote at the time that this was the first example of an issue of international trade being decided in the streets. * “Dutch Disease” refers to the effect of natural resource wealth on a country’s economy, referring specifically to the deindustrialization that occurs as a result of high currency value and increased imports. The term was originally used to describe the phenome- na that took place in the Dutch economy after the discovery of natural gas in the North Sea. [Eds.] . NATIONALIZATION I Historically, contact with the oil industry was a shocking experience for Bolivians. The encounter first began when the Standard Oil Company split up into seven pieces in 1911. One of the pieces ended up in Bolivia, putting Bolivia for the first time on the oil industry’s world map. Standard Oil, however, had many faults. When it exported Bolivian oil to Argentina, it forgot to report its revenues to the Bolivian government. Many equated the birth of the oil industry in Bolivia with the exploitation of the country’s resources by a foreign company. During the Chaco War of 1932–35, the same company that forgot to pay taxes or inform Bolivian officials about oil exports to Argentina refused to sell gasoline to Bolivian warplanes. When the war came to an end, the Bolivian government decided to nationalize Standard Oil of New Jersey. The company that ignored its obligations to the Bolivian state and refused to supply gasoline to Bolivian war- planes received an indemnification of $1.7 million, a huge sum at the time. The nationalization resulted in the creation of a new state-owned oil company, Yacimientos Petrolíferos Fiscales Bolivianos, or YPFB. What followed was an ardu- ous legal case between the Bolivian state and Standard Oil of New Jersey. This legacy has influenced the Bolivian attitude towards the oil industry ever since. If the first nationalization of the oil industry in Bolivia came after an inter- national war (1937), the second one followed an internal guerrilla war (1967) involving the famous Che Guevara. In 1969, coincidentally two years after that guerrilla war, YPFB took control of the Bolivian Gulf Oil Company, paying $120 million for its assets. Shortly thereafter, in 1972, Bolivia began exporting natural gas through a long-term contract with Argentina that would last until 1992. Over this twen- ty year period, Argentina significantly increased its own capacity to produce and distribute natural gas domestically, severely reducing its need for Bolivian gas and thereby disrupting long-term agreements between the two nations. Even with YPFB’s discovery in 1990 of the San Alberto field, Bolivia’s most impor- tant natural gas deposit, Argentina initially showed no interest in renewing the twenty year agreement. When that original contract ended, and through 1999, short-term deals governed the flow of Bolivian natural gas to Argentina.3 Bolivians were at first disappointed with the news about YPFB’s discovery of new gas deposits because the company was supposed to be looking for oil. There appeared to be no market for an increased supply of natural gas in the region and Argentina had informed Bolivia that it would not renew its long-term nat- ural gas contract. 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