It's springtime in Buenos Aires

Louis Proyect lnp3 at panix.com
Sun Dec 23 09:28:24 MST 2001


Business Week, October 21, 1991

CAN LATIN AMERICA 'MOVE FROM THE THIRD WORLD TO THE FIRST'?

BYLINE: Stephen Baker in Buenos Aires, with Elizabeth Weiner in New
York, Mike Zellner in Mexico City, and bureau reports

Investors are pouring in billions of dollars as a wave of
privatizations sweeps the continent

It's springtime in Buenos Aires, a season for housecleaning and yard
sales. And this year, it's the biggest cleanup ever in the Argentine
capital. The government is selling everything in sight. Huge
billboards announce auctions of office buildings on the chic Calle
Florida and waterfront acreage down by the docks. Army regiments are
being booted out of Buenos Aires so that prime real estate can go on
the block. Even the giraffes, ostriches, and a 48-year-old Indian
elephant named Norma now have a private owner, after the city fathers
sold the zoo.

The privatization process stretches far beyond the city. For the
first time ever, the government is opening oil fields to private
investors. Astra, a small oil company, has spent $ 60 million so far
and plans to spend much more, from frozen Tierra del Fuego at the tip
of South America to the deserts up north.

In Latin America, the question of privatization is no longer ''if''
but ''when.'' What began six years ago as a debt-reduction experiment
in Chile -- later moving north to Mexico -- is now a privatization
fever gripping much of the continent. If a Latin government owns it,
chances are it's for sale -- from phone companies and airlines to
docks and sewage-treatment plants. The cash infusion is ending the
decade-old debt crisis in much of the region. ''In a few months, it
will be ancient history,'' boasts Domingo Cavallo, Argentina's
economic minister. As a result, investors are now flocking to Latin
America, pouring money into a region that was virtually off-limits in
the debt-depressed 1980s. And the deals are drawing back billions in
flight capital. ''The amount of money available in Latin America has
been astounding,'' says Neil A. Allen, managing director of Bankers
Trust Co.'s Latin America merchant banking group.

The change in the past three years amounts to nothing less than
economic revolution. At the center of it is privatization. While
communism collapsed noisily in Europe, Latin America's old orthodoxy,
centering on state-run strategic industries, crumbled quietly. Now,
the Latins, like the Eastern Europeans, are bowing to the private
market and racing for investments to revive their bedraggled
economies. The change means megabusiness for First World bankers, who
are introducing a continent to the financing and
merger-and-acquisition tricks from up north -- and collecting hefty
commissions for the help. The open doors in Latin America also allow
foreign companies back into the silver mines and oil fields that were
nationalized over the past half-century. Foreign suppliers and
consultants, too, will be making millions as new owners invest to
retool hundreds of companies. Already, Latin countries are lifting
imports to levels last seen in the 1970s boom. Recalling the dawn of
the debt crisis, when credit to Latin America dried up, Thomas W.
Keesee, director of First Boston International Ltd., says: ''It's
1982 in reverse.''

Beyond the immediate payoff, Latin American privatization counts
strategically. As the world flirts with regional trading blocs,
President Bush is pushing for a single market from Alaska to
Argentine Antarctica. Through Latin privatization and investment
openings, Bush's dream could come true. Indeed, Latin leaders,
starting with Mexican President Carlos Salinas de Gortari, are
hitching their countries to the U. S. economy, promising great
rewards to their people. ''We want to move from the Third World to
the First,'' declares Salinas. Latins have echoed such hopes for
hundreds of years. But now, more than ever, the hemisphere is moving
in sync, and the success or failure of Latin America's new
privatizers will determine, in large part, whether it moves toward
prosperity or poverty.

Of course, Latin America has promised to come of age before. From the
first gold rush in the 16th century to the oil bonanza in the 1970s,
great hopes have soared -- and then crashed with a thud. This time,
it's different, say leaders. Privatization isn't so much a panacea as
a pillar of systematic economic reform. The test of the great state
sell-off will come when the itinerant moneymen finally leave. If
countries can develop stable economies, they'll pull through the
transition without a fall. ''We'll know if it all works by looking at
the local capital markets,'' says Bankers Trust's Allen.

WRENCHING DISLOCATION. Privatization isn't storming ahead everywhere,
however. In Brazil, political haggling and bureaucratic snafus have
held up President Fernando Collor de Mello's ambitious campaign. And
Peruvian President Alberto Fujimori is having trouble luring
investors to a land wracked by cholera, guerrillas, and drug
traffickers. Even where privatization is rolling, the process is
bringing wrenching dislocation. In Argentina, the government
announced the dismissal of 14,100 workers in September alone. The
military, a traditional haven for jobless young men, is also cutting
back. And with tariffs way down, imports are causing some private
factories to close.

Latin privatizers hope new investments, however, will lead to new
jobs. The entire region requires massive investments in roads, rails,
phone lines, and electric plants to bring it up to date -- all of
which should employ many. Yet even if job creation is slow, it's
clear that inflation is a bigger political threat in Latin
democracies than unemployment. A successful war against inflation
helped President Carlos Saul Menem's Peronists win a decisive
election in Argentina last month, even in the midst of massive
layoffs.

So Argentina is racing ahead. Menem has already sold the telephone
company and the flagship Aerolineas Argentinas. Much more is ahead.
By the end of 1992, vows Cavallo, the government will be out of all
productive enterprise.

Venezuelan President Carlos Andres Perez, who nationalized the oil
industry in the 1970s, is now on the privatization bandwagon. He
unloaded state airline VIASA last August, and the phone company CANTV
is on the block. Two giants, Petroleos de Venezuela and steel and
aluminum empire Corporacion Venezolana de Guayana, remain under state
control. For now, Perez will open doors for private investors only at
the fringes of the businesses. For other funds, Caracas is floating
bonds in international capital markets. It's the same strategy
Salinas is following with Petroleos Mexicanos.

While most of the attention is focused on Latin America's big four --
Brazil, Mexico, Argentina, and Venezuela -- plenty of other countries
are selling companies, too, hoping not to miss the last train out of
the Third World. Colombia is auctioning a big piece of the coal
business and opening up the phones to private competitors. Panama is
selling a wide assortment, from Air Panama International to a fruit
juice business. Paraguay is unloading a steel mill, a cement plant,
and a liquor distillery. Even beleaguered Peru, to the dismay of
environmentalists, is opening up virgin areas of the Amazon for
private oil exploration.

FLYING BLIND. Still, success can be dangerous, say some critics of
privatization. Eager for high prices and quick deals -- and entranced
by their new place in the market after decades of pariah status --
governments at times are shortsighted. In some cases, the new owners
aren't good operators. Aviacion Mexicana, for example, has floundered
since its privatization in 1989. Its new owners included no airline
operators. In other cases, juicy monopolies are transferred from
state to private hands without tough government regulation.
Especially with utilities, ''if we don't get lower rates and better
service, the privatization won't make any difference,'' says
Francisco Macri, chairman of Socma, an Argentine auto and
construction group.

Nevertheless, the money is pouring in. And from Mexico City to Buenos
Aires, people are in a hurry. With global alliances taking shape,
Latin leaders regard the 1990s as the make-it-or-break-it decade, one
last chance to pull themselves out of poverty. ''Either we turn
ourselves into a developed nation this decade, or we will be facing a
wall,'' says Roberto Lima Netto, who as president of Brazil's
Companhia Siderurgica Nacional is preparing the steel company for
privatization. Now more than ever, Latins see there's no future in
isolation. Governments are ditching statism for the markets, flinging
open doors to investors from the north. Moving fast now, Latins are
hoping to get on track for the long hard climb toward development.

--
Louis Proyect, lnp3 at panix.com on 12/23/2001

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