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Oil and Gas

Morales to firm state grip, exploit Bolivia lithium

* Morales vows to develop lithium, iron reserves

* Morales reaches out to foreign investors

* Vows to deepen rights for ethnic Indian poor

LA PAZ, Bolivia, Jan 22 (Reuters) - Bolivian President Evo Morales began his second term on Friday vowing to further tighten state control over South America’s poorest economy and develop some of the world’s largest lithium reserves.

Morales, an Aymara Indian and Bolivia’s first indigenous president, won a sweeping re-election victory in December on the back of broad support from the poor Indian majority.

In a speech to inaugurate his second term, Morales promised to launch state-run paper, cement, dairy and drug companies and develop iron and lithium industries to help Bolivia export value-added products instead of raw materials. (For details, see [ID:nN22234310])

He also reached out to foreign investors, wary after his energy industry nationalizations in 2006 and similar moves by Venezuela’s firebrand socialist President Hugo Chavez.

“We need a lot of money to industrialize lithium ... we’re ready to negotiate (with foreign investors) to guarantee investments,” Morales said in La Paz, his inauguration attended by several South American presidents, including leftist allies Chavez and Ecuador’s Rafael Correa.

Morales, 50, said Bolivia needed “partners but not patrons.”

Bolivia has huge deposits of lithium but unlike neighboring Argentina and Chile it does not exploit the metal.

Lithium is used in the rechargeable batteries that power laptop computers and cell phones, and demand for the metal is expected to skyrocket once car makers start producing electric cars on a large scale.

After nationalizing energy, mining and telecommunication companies the Bolivian state now controls 28 percent of the economy, up from about 8 percent before Morales took office. The government is targeting 40 percent state control over the economy, chiefly by launching more state companies.

INVESTORS WARY

Critics say that Morales' nationalization of the energy industry in 2006, which increased taxes on foreign companies including Spain's Repsol REP.MC and Brazil's Petrobras PETR4.SAPBR.N, scared away crucial foreign investment.

Bolivia is South America’s top exporter of natural gas, but Morales has failed to attract investment to increase output and corruption has hampered efforts by the state-run energy company to develop projects to produce natural-gas derivatives.

However, the nationalization of the natural gas industry brought a windfall that Morales tapped to fund social programs, which reach a quarter of Bolivia’s 10 million people a year.

His foes say cash subsidies to school children, young women and the elderly are aimed at buying support, and have slammed Morales’ constitutional overhaul last year allowing his re-election, saying it was a bid to extend his time in power.

Morales also vowed to continue to deepen rights for Bolivia’s Indian poor.

“Comrades, democracy has been consolidated ... the colonial state has died and the multicultural state has been born,” he said.

Bolivian Indians make up around 60 percent of the population and have long complained of discrimination by a mixed-raced minority that had a stronghold on politics until Morales first became president in January 2006.

After winning a majority in both houses of Congress, the ruling party can now call for referendums to amend the constitution, and will control judicial appointments, which leaves right-wing parties with little power to oppose Morales.

Critics say Morales could use all this power to install a one party-regime in the landlocked nation, but Morales, who describes his style of politics as a “democratic revolution,” has vowed to respect democratic values. (Additional reporting by Carlos Quiroga, Diego Ore and Magdalena Morales; Editing by Simon Gardner and Vicki Allen)

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