3. Legal Regime
Transparency of the Regulatory System
Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis. However, Article 66 of the Commercial Code (Law 14379, 1977) states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.
Regulatory authority regarding investment exists at the national level in Bolivia. There are no informal regulatory procedures.
The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency. However, there is a large informal sector that does not follow these practices. Most accounting regulations follow international principles, but the regulations do not always conform to international standards. Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.
Formal bureaucratic procedures have been reported to be lengthy, difficult to manage and navigate, and sometimes debilitating. Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia. Once a company submits all documents required to the FUNDEMPRESA, the process usually takes less than one week.
There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees. However, the government generally — but not always — discusses proposed laws with the relevant sector. The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced, and thus an uncertain investment climate. Draft text or summaries are usually published on the National Assembly’s website.
Online regulatory disclosures by the Bolivian Government can be found in the “Gaceta Judicial” at: http://www.gacetaoficialdebolivia.gob.bo/
Supreme Decree 71 in 2009 created a Business Auditing Authority (AEMP), which is tasked with regulating the business activities of public, private, mixed, or cooperative entities across all business sectors. AEMP’s decisions are legally reviewable through appeal. However, should an entity wish to file a second appeal, the ultimate decision-making responsibility rests with the Bolivian Government ministry with jurisdiction over the economic sector in question. This has led to a perception that enforcement mechanisms are neither transparent nor independent.
Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local and indigenous communities. This has affected projects related to the exploitation of natural resources, both renewable and nonrenewable, as well as public works projects. Issuance of environmental licenses has been slow and subject to political influence and corruption.
In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.
International Regulatory Considerations
Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru. Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member. The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries. The government does notify the WTO Committee on Technical Barriers to Trade regarding draft technical regulations.
Legal System and Judicial Independence
Property and contractual rights are enforced in Bolivian courts under a civil law system, but some have complained that the legal process is time consuming and has been subject to political influence and corruption. Although many of its provisions have been modified and supplanted by more specific legislation, Bolivia’s Commercial Code continues to provide general guidance for commercial activities. The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50). There have been allegations of corruption within the judiciary in high profile cases. Regulatory and enforcement actions are appealable.
Laws and Regulations on Foreign Direct Investment
No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year. There is no primary central point-of-contact for investment that provides all the relevant information to investors.
Competition and Anti-Trust Laws
Bolivia does not have a competition law, but cases related to unfair competition can be presented to AEMP. Article 314 of the 2009 Constitution prohibits private monopolies. Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/ ). Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.
Expropriation and Compensation
The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57). In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.” In all other cases where this article has been applied, the Bolivian Government has no official definition of “collective interest” and makes decisions on a case-by-case basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401). In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building roads or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases. However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.
The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54). The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.
Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s. The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (including mines and a tin smelting plant), and a cement plant. To take control of these companies, the government forced private entities to sell shares to the government, often at below market prices. Some of the affected companies have cases pending with international arbitration bodies. All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).
There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies. The first non-former state company was nationalized in December of 2012. Government nationalizations have not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile. In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.
ICSID Convention and New York Convention
In November 2007, Bolivia became the first country ever to withdraw from ICSID. In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept ICSID rulings in the cases brought against them by the Chilean company Quiborax and Italian company Euro Telcom. However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010. Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million. In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project. The Bolivian Government has appealed that award.
In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company. The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights. The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made. They also retained responsibility for future liabilities.
Investor-State Dispute Settlement
Conflicting Bolivian law has made international arbitration in some cases effectively impossible. Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as the ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored. However, the government claims these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government. The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution. The Investment Law of 2014 was enacted in late 2015. Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.
A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014. In 2014, President Morales announced there would be no more nationalizations. The same year, one Brazilian company was nationalized, but that had been previously agreed to with the owner under the previous nationalization policy.
International Commercial Arbitration and Foreign Courts
In Bolivia, two institutions have arbitration bodies, including the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO). In order to utilize these domestic arbitration bodies, the private parties must include arbitration within their contracts. Depending on the contract between the parties, UNCITRAL or Bolivia’s Arbitration Law (No. 708) may be used. Local courts recognize and enforce foreign arbitral awards and judgments. There are no statistics available regarding SOE involvement in investment disputes.
Bolivia ranks above regional averages for resolving insolvency according to the World Bank’s Doing Business Report. The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months. The Bolivian Commercial Code includes (Article 1654) three different categories of bankruptcy:
- No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
- At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
- Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.
In general, the application of laws related to commercial disputes and bankruptcy has been perceived as inconsistent, and charges of corruption are common. Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones. If a company declares bankruptcy, the company must pay employee benefits before other obligations. Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.
No credit bureaus or credit monitoring authorities serve the Bolivian market.
In 2018, the Bolivian Government enacted a new law (No. 1055) called the Creation of Social Enterprises. The law allows for employees of a company to assert ownership rights over companies under financial distress heading into bankruptcy. Passage of the law was controversial, with numerous business chambers asserting that the law could incentivize employees and labor unions to undermine the performance of companies in order to force bankruptcy and gain control of company assets.