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May 24, 2005

GSB hosts Latin American business talk

The Graduate School of Business hosted its second Latin American Business Conference, "Investing in Latin America: Insider's Perspective," on Saturday, May 21, at the Gleacher Center. The conference, which was organized by students, featured keynote speakers and panels that discussed current and future opportunities for investment in Latin America.

Gonzalo Sanchez de Lozada, alumnus and twice-president of Bolivia delivered the first keynote address. He spoke of Bolivia's future opportunities with a mix of optimism and concern. "Right now, there is a boom in raw materials," he said, citing the high market prices for natural gas. "But this leads to mono-production, an economic path that has been detrimental in the past," he said. The larger problem, according to Sanchez de Lozada, is that Bolivia cannot find buyers for its gas.

Sanchez de Lozada, who was forced to resign the presidency in October 2003 by citizens protesting his intention to build a gas pipeline through Chile, openly showed his frustration with the current situation: "We are sitting on mega reserves of natural gas. Brazil needs it—they deny it but they need it. Argentina needs it. Chile needs it. We have the reserves to solve our budget deficit. But radical forces are trying to close down this immense potential."

Sanchez de Lozada also touched on other problems Bolivia faces, including drugs, terrorist groups, and ecological destruction. Despite his country's progress in modernizing its economy, Sanchez de Lozada emphasized that "Bolivia, like Mexico, is only 50 percent of what is was [before implementing free market reforms]."

Jose Gabrielli, CFO of Petrobras, Latin America's largest oil company, spoke next, explaining economic trends in the oil industry. Gabrielli pointed out two major constraints in the oil sector: the supply constraint on crude oil, and the relatively low level of investment in refining.

Following a period of high oil prices, both investment and production in the industry should increase, according to Gabrielli. By contrast, he noted that the last 36 months have featured high oil prices; during this period, investment has not climbed as it should, which will impede production in the near future, keeping prices high. "We will probably see a recovery in production three to four years from now, but until then the price of oil is likely to remain high," Gabrielli said. He identified political uncertainties as partly responsible for the low level of investment in the oil industry.

Gary Becker, Nobel laureate in economics and professor in the University, moderated a panel discussing the Southern hemisphere's economic performance and future prospects.

Becker began by asking each panelist what letter grade he would give Latin America for economic performance in the last decade.

José Barrionuevo, director of Emerging Market Strategy and Economics at Barclays Capital spoke first. He awarded the region an A, notably for improvements in monetary policy and for controlling inflation across the board. He acknowledged that there was still much to be done, and expressed concern over the "deterioration" of Venezuela's economic policy.

The other panelists were less optimistic: Carlos Hurtado, Mexico's under secretary of budget, gave the region a B or a C; Leopoldo López, a mayor in Caracas, Venezuela, gave it a C- or D; and Sanchez de Lozada, who also participated on the panel, declined to give a grade, but expressed concern that some regional economies might fail.

In his comments, Hurtado said that economic growth has been disappointing in recent years. "Reforms have not really taken place that much," he said. "Latin Americans have become disenchanted with reforms."

Citing Venezuela's accumulated growth rate of -1 percent in the last 25 years, López said he would give his country an F. He argued that even beyond Venezuela, "there is a clear tendency towards more populism and authoritarianism," also affecting Bolivia, Argentina, and Chile.

Sanchez de Lozada raised the issue of governability, stressing the difficulty of controlling a country's budget in a democratic government without a majority in Congress.

Becker asked the panelists what they thought of future prospects for economic reforms. The various responses were largely pessimistic. Hurtado argued that democracy makes it more difficult to carry out reforms, citing Chile under Pinochet as the country whose reforms were the "deepest and most fruitful."

Sanchez de Lozada spoke of opportunities to reform as "space windows," which must be taken advantage of before they close down. "Reforms cost money," he said, "and they are difficult to pull off when people believe that the reforms are the cause of their poverty."

López was still more pessimistic. "Reform is coming, but not the Chicago kind," he said, speaking of a backlash against free market reforms. "The state is taking a more active role in Venezuela and other Latin American economies, to the point where the guarantee of private property is being questioned."

A later panel moderated by Steven Kaplan, the Neubauer Family Professor of Entrepreneurship and Finance in the University, analyzed various facets of investment in Latin America and how Latin American companies conducted their business.

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