From a meeting with Stiglitz to tensions with the US: Luis Arce changes the course of lithium politics in Bolivia

The screenshots showing the president of Bolivia, Luis Arce, in a virtual room with economist Joseph Stiglitz feel like they are from a parallel reality. In 2021, a Bolivian professor at a university in the United States organized a meeting in which the three men discussed how Bolivia could industrialize its lithium reserves to boost development. Now, things have changed. The Bolivian government has clashed with the United States; such a meeting now seems impossible; and the Arce government denies having “any connection” with the Bolivian academic.

The break with Diego Von Vacano, a professor of political science at Texas A&M University, is seen as one of several signs that there has been a change in the politics relating to lithium, a mineral that is at the center of a renewed geopolitical and commercial struggle between the United States and China. The world has changed since Arce came to power in November 2020, with a war between Russia and Ukraine that has also made things difficult for the small South American country in its quest to exploit the world’s largest lithium reserves.

In Bolivia, the idea of allowing foreign companies to extract the mineral, essential for producing electric cars, has always been a polarizing issue and the inhabitants of the regions where the salt flats and extraction areas are located have historically been against it. Even Arce’s predecessor, Evo Morales, had to cancel an agreement with a German company, and his lithium plan was one of the focuses of the protests that forced him from power.

Even so, international investors had high expectations for Arce, who, in 2019, emerged as a candidate close enough to Morales to win the election, but with a more technocratic profile. An economist with a master’s degree from the University of Warwick, in the United Kingdom, in his election campaign Arce advocated an industrialization of lithium similar to Morales’ vision but with greater international openness. That was where Von Vacano came in.

“Although I had not studied the lithium issue in depth before, I began to delve into it at the end of 2019, when there was talk of the decline of natural gas and how lithium could replace it,” Von Vacano says by phone. “There was already a consensus that lithium was going to be the only way to activate the Bolivian economy,” he continues. From there the Bolivian American, born in La Paz and with a master’s degree in economic development from Harvard University, began to informally advise Arce.”

One of the many meetings that Von Vacano organized with Arce, between 2019 and 2021, was with the American Nobel laureate in Economics and professor at Columbia University, Joseph Stiglitz. “We discussed the development of lithium, with a central focus on how Bolivia could use these natural resource deposits to help industrialize, moving away from the old model where developed countries simply extract resources,” Stiglitz said in an email about the meeting. “Things seemed quite hopeful then.”

Two weeks after that virtual meeting, in April 2021, Arce hosted the international launch of the new direct lithium extraction policy (DLE), an unprecedented event in the country. Any company, foreign or domestic, could attend, being free to approach officials and listen to the government’s proposals. At a hotel in downtown La Paz, according to the event’s agenda, several officials and three executives from private companies spoke: one from a Chinese company, another from a Russian company, and one from an American company. The message was clear: Bolivia was seeking investors and was open to working with countries that compete with each other on the geopolitical stage.

Von Vacano was working as a consultant for various foreign companies, including ones from America and Russia, though he says he signed confidentiality agreements that do not allow him to reveal their names. The academic connected officials in Arce’s government with company executives. “It was a time when there were few who really wanted to get involved with Bolivia because of the political risk, so I saw it as an opportunity to try to convince them to invest in Bolivia, although I was not receiving money either from the companies or from the Bolivian government,” the academic states.

He also served as a link to American politicians. According to emails between Von Vacano and staff members of Democratic Senator Bernie Sanders, the American legislator held a call with Arce in June 2021. The geopolitical map changed abruptly in February 2022, when Russia began its military offensive in Ukraine. China, an ally of the Bolivian government during the Morales era, backed Russia.

In Latin America, China has been gaining significant economic and political ground in recent decades. In addition to granting Chinese companies contracts for lithium, Argentina recently announced that it would stop using the dollar, to be replaced with the yuan in its trade with China, one of its main partners. Last month, the president of Brazil expressed his desire to create a common currency among the BRICS countries (Brazil, Russia, India, China, and South Africa) as an alternative to the dollar. Furthermore, last month, the Chilean government announced that Chinese company BYD had been named as a qualified lithium producer and would build a plant worth $290 million. The U.S. is not winning the battle for Latin American lithium.

At the same time, the processing of lithium in Bolivia began to show signs of deterioration. The prospects for the industrialization of the mineral were adversely affected by layoffs of employees at the state-owned Yacimientos de Litio Boliviano (YLB, Bolivian Lithium Deposits), accusations of nepotism, and the still unclear role of President Arce’s son in dealings with foreign companies. In January, the Arce government announced that it had signed an agreement with China’s CATL, which dominates the global market for electric vehicles, to allow it to extract lithium. CATL was one of six companies chosen to compete; nothing has been said about the other five. That Bolivia reached an agreement with a Chinese company was expected, as both countries have been allies for decades. The question was whether it would also be willing to open the door to the Americans.

On 8 March, the head of the U.S. Army’s Southern Command, Laura Richardson, expressed concern about the Chinese presence in the so-called “lithium triangle” of South America, made up of Chile, Argentina, and Bolivia. “This region is full of resources, and I worry about the malign activity of our adversaries taking advantage of that, looking like they are investing when they are really extracting,” said the American. Arce, who has experienced internal struggles within his party and has even grown apart from Morales, responded to Richardson a few days later before the party faithful, stating that “the international and national right-wing is once again focusing on Bolivia”. Bolivian lithium, Arce said, is “threatened.”

The agreement with CATL is not a contract, because, right now, it is not possible to grant one. Arce has not approved a law that would go beyond the situation under Morales in order to create a legal framework for foreign companies that want to extract or industrialize lithium. Although it has several gaps, the current law requires companies to give royalties of 3% of what is extracted to the local governments in Oruro and Potosí, where most of the deposits are found. “This is not enough,” says Lissa Claros, an opposition congresswoman who represents the department of Potosí, on the phone.

The proposal from Claros’ party, which was passed by Congress and is awaiting the Executive’s approval, “establishes respect for nature, that royalties should be above 11%, and that civil society should participate directly,” explained the legislator. “That is the agreed-upon project that the government theoretically has committed to approving and to putting in place, but none of that is happening.”

Beyond that, Claros points out, the information about the agreement with CATL has not been made available. “Right now, an agreement is in place, an arrangement which has been signed with a Chinese company, but we do not have the details of the arrangement. We have submitted a written request for information to inform us about the scope, the level of profit, what work is to be done, and we have not yet received a report.” On three occasions the energy minister has canceled an appearance to provide an oral report on the subject, says Claros. “The government does not want to make this information available or for the lawmakers, let alone the citizens, to have clear information to be able to speak with knowledge of the facts.”

This is what has been lost regarding lithium in Bolivia, agrees Von Vacano, who published an opinion column in a national media outlet asking for transparency, which was criticized by the Arce government. A spokesperson told reporters: “On the part of the government, we have no connection” with Von Vacano. In addition, a legislator from Arce’s party demanded an investigation be opened into the professor.

In response, Von Vacano says: “Bolivia is still a very poor country, and instead of doing things in a transparent way with lithium, it has gotten itself into a murky predicament, covered up at the highest level of the government, and backed by opportunistic people.”

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