After years of economic reforms that have brought a measure of stability to Latin American nations that had previously suffered from extreme bouts of hyperinflation, economic contraction, and insidious trade disparities, international investors remain cautious about prospective investment in Latin America, as numerous states appear prepared to shift economic and political policies dramatically to the left. Apprehensive investors voiced their concerns during the 47th Annual Board of Governors of the Inter-American Development Bank (IDB) meeting held in Belo Horizonte, Brazil from April 3-5. During three days of sessions, the Bank’s 47 governors?comprised mainly of national finance ministers, presidents of central banks, and ministers of international cooperation?made numerous presentations on developments in the world economy and how they are affecting the development of Latin America and the Caribbean economies. Policy agenda included topics such as: supporting and strengthening the region’s private sector; creating more effective public institutions; building infrastructure; and narrowing wealth disparities. However, unsurprisingly international investors were forced to confront the threat?real or imagined?of leftist governments winning several of the seven presidential races that are scheduled to occur throughout Latin America this year.
William R. Rhodes , President and Chief Executive Officer of Citigroup Inc.’s Citibank NA banking unit, forewarned fellow investors that elections scheduled this year in Brazil, Colombia , Ecuador , Mexico , Nicaragua , Peru , and Venezuela could dramatically alter the economic, political, and social environment throughout Latin American. Citing “caution” as the watchword of 2006 and 2007, Rhodes and fellow investors have urged a “wait and see” approach to investment in six economies. In Colombia, President Alvaro Uribe appears safely ensured to secure a second term and has demonstrated his commitment to neo-liberal reforms and to ending the 40-year long war that has deterred investors.
Riding the wave of leftist enthusiasm that has swept through the impoverished populations of Latin American, leftist candidates such as Ollanta Humala in Peru and Daniel Ortega in Nicaragua champion leftist Latin America dogma that is associated with current leftist-populists leaders such as Hugo Chavez and Evo Morales : nationalization, anti-FTAA, coca legalization, and condemnation of perceived US “imperialism” in Latin America.
As of this writing, polls have closed in Peru, though no definitive winner(s) have been announced; however, any runoff will undoubtedly include Humala. Peru, the embodiment of Latin American states, is experiencing its longest economic expansion in modern history?57 months?while lowering inflation to a remarkable one percent is simultaneously plagued by rampant economic deprivation among half of the population that continues to reside on less than $2 a day. IDB participants are, thus, confronted with the grim reality that economic successes have not translated adequately into increased living standards among the general populace.
However, Roberto Sertubal, chairman of Brazil’s Banco Itau SA, wishing to quell investor apprehension, assured his fellow participants that Brazilian President Luiz Inacio Lula da Silva was also labeled a leftist and provoked considerable fear among foreign investors when he took office in 2002. Since then, da Silva has become a Wall Street favorite by continuing to lower debt and inflation and by dramatically improving the state of public institutions within Brazil, a point well highlighted during several of the IDB’s sessions.
International observers believe that if Humala is victorious in the runoff election in May, he may follow the same path as President da Silva. These beliefs are reinforced by Humala’s statements in boardrooms and meetings with Peruvian and international businessmen in which he promises to respect private property, battle drug trafficking, and push for a more equitable trade pact with the United States . However, uncertainty breeds fear among foreign investors. Uncertainty combined with rising interest rates in the US and Europe will gradually lure investors away from Latin American markets and into a more stable and reliable investment market elsewhere. 2006 will be a crucial year for Latin American nations and the international investment market.
