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OPINION: The price of deregulation

August 22, 2007

Compared to the 1990s, when a number of Latin American countries opened their economies to foreign investment through deregulation and privatization schemes, one may ask why some countries have given such a policy the thumbs down.

Certainly one of the biggest factors has been political changes in countries like Venezuela and Bolivia, both with the biggest oil and gas reserves in Latin America. Even Argentina, which was praised in the last decade by the IMF as “an example,” the government of Néstor Kirchner has opted for strong state intervention in the energy sector.

Even Brazil, which possibly has the most pragmatic approach to energy policy in the region, is in no rush to undermine Petrobras’ and Eletrobras’ dominant role in the energy sector.

There are countries like Colombia, Peru and Chile where foreign companies enjoy a certain amount of stability and have guarantees. But the situation could change rapidly in nations like Colombia and especially Peru, where pro-Chávez nationalist Ollanta Humala lost to Alan García in the 2006 presidential elections.

The mistakes of the 1990s should be shared equally by governments and companies alike. Even so, one of the biggest blunders being made today by some governments is scaring away future foreign investment from the region.

Latin America’s investment needs to develop its energy sector and modernize its infrastructure are Herculean. It’s wishful thinking to believe that such challenges will be met alone by the state — or solely by foreign companies.

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