The mirage of FDI in Latin America

Louis Proyect lnp3 at
Sun Jun 17 07:19:32 MDT 2001

[Sometimes appearances--and statistics--can be very deceiving. In a useful
article in the July-August 1999 Monthly Review (Latin America at the End of
the Millenium), James Petras and Henry Veltmeyer report that throughout the
1990s, foreign direct investment [FDI] into Latin America increased by
600%, as opposed to an average of 223% worldwide. At first blush, this
would lead to the impression that factories were being built everywhere at
the behest of foreign investors. Granted, this might be viewed as
surrendering national prerogatives for sovereign economic development, but
at least people would be put to work. In the same issue of MR, Colin Leys
and John Saul complain that it is exactly the lack of FDI that explains
Africa's backwardness. Leaving aside the merit of this argument, it is
important to point out--as Petras and Veltmeyer go on to do--that "Most of
this FDI has been used to purchase the assets of privatized public
enterprises and financially troubled 'private' enterprises in the region,
with little capital formation involved." Such acquisitions account for up
to 75 percent of all FDI in the region, including Spain's piracy of
Argentina's airlines.]

NY Times, June 17, 2001 

Spain and Argentina Find Themselves in Tangle Over Airline


BUENOS AIRES, June 16 — Few countries in the world have closer
relationships than Argentina has with its motherland, Spain. 

But that did not stop the sparks from flying between Buenos Aires and
Madrid this week as a Spanish holding company that controls Aerolíneas
Argentinas threatened to ground the long struggling airline once and for all. 

Employees of Aerolíneas Argentinas obstructed passengers trying to take
Iberia flights at the Buenos Aires international airport in retaliation,
even rolling an aircraft across a runway and clashing with the police.
Scores of Iberia passengers, including a woman carrying 7-month-old twins,
were forced to hike a mile to get around one blockade. 

Members of Argentina's Congress took to the stump in nationalist outrage,
charging that Spain had stripped the formerly state-owned Argentine airline
of its assets in a throwback to colonial days. And a union confederation
began organizing a boycott of Spanish companies. 

The anger grew so fierce that senior Spanish officials publicly called for
calm. Prime Minister José María Aznar said he regretted that "there are
people stirring anti-Spanish sentiment." Mr. Aznar reminded Argentines that
Spain "has contributed in a very sympathetic way" to Argentina's well-being
over the last decade as Spanish companies invested more than $30 billion in
the economy. 

But as the deep recession in Argentina approaches its fourth year, popular
resentment over a decade of economic policies that have failed to expand
the middle class has enveloped Spain in a backlash. 

When Carlos Saúl Menem, Argentina's president at the time, sold off most of
the state's enterprises in the 1990's, Spanish companies bought the
flagship airline, banks, oil company and telephone company. Now many of the
former Argentine officials involved in those deals are facing allegations
that they took kickbacks, while the Spanish owners are blamed for the bad
service and high prices of their new Argentine operations. 

Aerolíneas Argentinas, a majority share of which was bought by Iberia in
1990 before the Spanish airline was itself privatized, is widely criticized
here and around South America for its high fares and indifferent service. 

Critics note that the airline owned 29 aircraft and had no debt a decade
ago; now it leases almost its entire fleet and loses an estimated $1
million a day. While the airline had the advantage of highly subsidized
fuel pumped by the state oil company before the two companies were
privatized, passengers look back at those days with nostalgia.

Aerolíneas Argentinas, which still paints its aircraft in the powder blue
and white colors of the Argentine flag, became a nationalist cause after
the Spanish holding company, Sepi, suspended routes to New York, Miami, Los
Angeles, Auckland, Sydney, São Paulo and Rio de Janeiro on June 7. Spanish
executives demanded that Aerolíneas Argentinas's seven unions agree to a
rescue plan that included wage cuts between 6 and 20 percent. Two of the
unions have refused to go along; in response Sepi said it could be forced
to end payments on the airline's $930 million debt. Nearly 7,000 jobs are
at stake at a time when 15 percent of the Argentine work force is unemployed.

In a television interview, the Spanish foreign minister, Josep Piqué,
criticized the Argentine unions for asking investors "to keep plowing in
money indefinitely" while they refused to adapt to new market conditions.
He said he hoped the struggle between the unions and the holding company
would not "end up clouding relations between the two countries." 

The Argentine government dispatched its infrastructure minister, Carlos
Bastos, to Madrid to find a way to keep the airline running long enough to
find another buyer, to save jobs and sustain the vital tourism industry.
Argentine officials spoke optimistically about the outcome of Mr. Bastos's
trip, and there were signs that Lan Chile, the profitable Chilean airline,
might consider snapping up much if not all of the operations of Aerolíneas

But Pedro Ferreras, the leader of Sepi, said his company might have to file
for protection from creditors, to avoid bankruptcy on the Aerolíneas
Argentinas debt as early as next Thursday, which means that the airline
could face a hard landing. 

Louis Proyect
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