Latin American Nationalization Trend Seen Hindering Progress
Washington -- Attempts to roll back market reforms in some Latin American countries bode ill for those economies and are not the answer to Latin American problems, according to U.S. experts.
(Media-Newswire.com) - Analysts concerned about anti-market moves in some Latin American countries
By Jaroslaw Anders USINFO Staff Writer
Venezuelan President Hugo Chavez recently announced plans to nationalize the country’s telecommunications and electric energy sectors. The day after the January 8 announcement, the value of the Caracas Stock Exchange general index fell a record 19 percent and had fallen by nearly 30 percent by midday January 16.
The two largest utility companies in the targeted industries -- CA Nacional Telefonos de Venezuela ( 28.5 percent owned by the U.S.-based Verizon Communications ) and CA Electricidad de Caracas ( EDC, owned and operated by another U.S. company, AES ) also experienced sharp drops in value, and trading in their stocks had to be suspended temporarily. The value of EDC shares plunged 15 percent January 16 to a 10-month low one day after the government announced detailed nationalization plans for the utility.
In 2006, energy markets in Latin America were shaken by plans for de facto nationalization in Bolivia's natural gas industries. The government announced plans to increase state taxes and royalties on gas production from 50 percent to 82 percent, forcing a series of complex negotiations with Bolivia’s neighbors. The most affected countries were Brazil and Argentina, both with large holdings in Bolivia’s energy sector and both heavily dependent on Bolivian gas supplies. Argentina is now paying steeply higher prices for Bolivian gas, and Brazil may soon do so.
“Nationalization has a long and inglorious history of failure around the world,” said White House press secretary Tony Snow. “We support the Venezuelan people and think this is an unhappy day for them.” State Department spokesman Sean McCormack called nationalization “a well-worn path that history has shown doesn’t usually benefit the population.”
Private sector experts agree that even the best-executed nationalization plans carry risks. Lowell R. Fleischer of the Center for Strategic and International Studies in Washington told USINFO Chavez is trying to score political points by promoting his “socialism for the 21st century” agenda. But in the long run, he said, the move will have mostly negative consequences for Venezuela, which, despite its huge oil revenues, needs foreign investment to maintain and develop its oil sector.
“And if you start nationalizing,” Fleischer said, “this just scares off foreign investment,” which already has diminished during Chavez’s rule. “Further down the line, I think it means a deteriorating economic situation. Inflation is going to continue to rise and I think the first people to be hit by that will be the poorest people in Venezuela, the ones that are the backbone of Chavez’s support now.”
Jeffrey J. Schott, a senior fellow at the Washington-based Peterson Institute of International Economics, says the risks of nationalization are higher today than in the past. “In the past there wasn’t the level of integration in the global economy that is so important for these countries in terms of access to markets for trade in goods and services and probably equally, if not more importantly, for investment,” he told USINFO.
Latin American leaders like Chavez and Bolivia’s Evo Morales say they are responding to the failure of 1990s “neoliberal” market reforms. Experts admit in some cases the reforms failed to address Latin America’s most persistent problems: poverty, income disparity, unemployment and corruption.
But they say it is wrong to put all the blame on the “Washington Consensus” -- the package of reforms for struggling economies promoted in the 1990s by the International Monetary Fund, the World Bank and the U.S. Treasury Department. Those reforms stressed fiscal discipline, austerity, lower taxes, deregulation and privatization of state-owned enterprises.
Analysts say the consensus also postulated increased investment in education, health and infrastructure, as well as transparency and strict rule of law. In these areas, they say, reforms often were lagging and incomplete. “The Washington Consensus … was a foundation of macroeconomic stability in which other policies needed to be included,” said Schott.
Jerry Haar, a professor of international business at Florida International University, told USINFO that in several Latin American countries, local elites gave market reforms a bad name by using privatization as a cover for corrupt “crony capitalism.”
“There is nothing in democratic capitalism that says you cannot have social safety nets, there is nothing that says you cannot have sound bankruptcy laws, flexible labor rules, competent tax systems, good public sector, transparent and honest courts,” said Haar.
Experts also point out only a few Latin American countries seem to have moved away from the market model.
“The extent of the drift in Latin America has been exaggerated,” said Schott. “Look at Brazil: [President] Lula da Silva had essentially followed the economic policies of his predecessor, Fernando Enrique Cardoso. In Uruguay, you have a leftist leader who has been pushing for a free-trade agreement with the United States.”
Haar also pointed to economic progress and institutional development in Chile, Costa Rica and Panama. “The cure is not Marxism,” he says. “The cure is not socialism. It is democratic capitalism. … The key element here is leadership; if people who run for office are honest, committed,” he says.
( USINFO is produced by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov )
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This story was released on 2007-01-17. Please make sure to visit the official company or organization web site to learn more about the original release date. See our disclaimer for additional information.