Spanish Investment in
Latin America
Pablo Toral
Department of International Relations
Florida International University
University Park
Miami, FL 33199
USA
Phone # 305-3482556
Fax# 305-3482197
Email: [email protected]
[email protected]
Paper presented at the 2001 LASA Convention in Washington D.C., 6-8 September
Abstract. The large investments of Spanish companies in Latin America in the 1990s
were the result of a strategy designed by the Spanish firms to prevent their takeover by
larger European companies and the subsequent loss of “national” control over key
economic sectors. This article examines the economic and political motivations in Spain,
in the European Union, and in Latin America for these investments. It also explores the
communion of interests between the Spanish and the Latin American governments to
facilitate the investments in three sectors: banking, telecommunications, and energy.
1
Although the investments made by some Spanish companies in Latin America,
especially in the utilities sectors, seemed very risky to observers in the early 1990s, in
1998 Spain surpassed the United States as the leading single investor in the region, and in
1999 Spanish foreign direct investment (FDI) tripled US FDI, a feat never thought of by
Europeans after World War II.1 The presence in Latin America of multinational
enterprises (MNEs) headquartered in Spain gained importance for several reasons: the
great amount of money they invested, the strategic importance of some of the
investments, and the role of FDI in the economic policies adopted by most Latin
American governments as a strategy to stimulate their economies and move out of the
economic recession of the 1980s.
This article will explain why the amounts of Spanish FDI in Latin America in the
1990s were so substantial, and why they occurred at that particular time.2 It will argue
that these investments were the result of three variables that came together in the early
1990s: the degree of development achieved by Spain’s economy (many Spanish
companies benefited from a period of sustained growth of the Spanish economy and
accumulated enough resources to expand in new markets); the process of liberalization
undertaken by the European Union (EU), by which the European authorities set a
schedule for liberalization of several industries that up until the 1990s operated under
monopoly rule (a group of Spanish companies decided to expand outside of Spain, as a
defensive strategy to withstand competition in Spain, when liberalization was
implemented); and the new economic framework adopted by the Latin American
governments, which stressed macroeconomic stability and gave foreign companies the
same legal status as domestic companies, creating the conditions that many Spanish
companies considered appropriate to start their foreign expansion.
The article consists of four sections. The first section examines the development
of the Spanish economy and the growth of Spanish firms. It follows the model developed
by Dunning and Narula (1994) to explain the relationship between economic
development and FDI. The second section analyzes the process of liberalization
undertaken by the Spanish government after Francisco Franco’s death in 1975, and the
transition to democracy. The third section explores the developments in the 1990s within
Latin American countries that made their economies appealing to foreign investors,
especially to Spanish companies. It pays special attention to the new development
strategies applied by Latin American governments and the role of FDI in those models.
The last section explains how the appropriate factors needed for investment between
Spain and Latin America occurred simultaneously in the late 1980s and early 1990s, and
explores business and political incentives that led Spanish companies to invest in Latin
America, by scrutinizing the participation of Spanish firms in the privatization processes,
as well as the political motivations behind these investments.
ECONOMIC DEVELOPMENT IN SPAIN
J. H. Dunning and R. Narula (1994) provide a model to understand the
relationship between economic development and FDI. They divide countries up into five
categories based on the role their economies play with regard to FDI.3 In stage one, a
country’s location advantages are not important enough to attract FDI, except in mining
and exploitation of natural resources. Income per capita and domestic demand are low.
Less industrialised countries that have unqualified labor and poor transport and
2
telecommunications infrastructure are in this stage. FDI is small and concentrated in
commercial activities related to export. Spain went through this stage in the nineteenth
century and early twentieth century.
In stage two, the domestic market and the stock of capital in activities that
generate value added are higher. There are some capital-intensive industries, such as
those related to steel, shipyards, and a basic chemical industry. FDI is concentrated in the
manufacturing sector and in the exploitation of natural resources, and works as an
economic stimulus because it contributes to increase the productive capacity of those
industries. FDI may spread to emerging industries that require intermediate technology,
such as consumer goods, textiles, food, and basic electric goods. Public expenditures
emphasize investment in education (mainly secondary education), transport,
communications, and the provision of some public goods and services. The government
also develops basic infrastructure to facilitate productive activities and pursues economic
policies that promote macroeconomic stability. Spain went through this stage in the
1960s.
At stage three, the standard of living is high, the tertiary sector is large and
consumers and firms start to give priority to high quality goods. Product differentiation
plays an important role, along with investment in research and development (R&D).
Firms demand workers with university degrees. Wages are higher and no longer play a
role in the comparative advantage of firms. Salaries are not an incentive for investment
to reduce production costs. The degree of investment abroad for the companies of these
countries is considerably high, especially motivated by the search for lower production
costs (mainly cheaper labor). Spain came out of this stage in the late 1980s.
In stage four, the amount of inward FDI is equivalent to the amount of outward
FDI. The comparative advantages of the country are only created factors, rather than
given natural endowments. Domestic firms compete with foreign MNEs in the domestic
market, as well as in international markets. There is a high degree of intra-industry trade
and investment. Spain reached this stage in the mid-1990s. The fifth stage or
‘information economy’, is characterized by information-related activities such as
telecommunications, computer technologies and software. Only a few post-industrial
societies like the United States, Japan, Germany, France and Sweden have reached stage
five. Many of the economic transactions among these countries have been internalized
by MNEs. These economies are very integrated. There are a great number of
acquisitions and strategic alliances among firms in these countries, seeking higher rates
of efficiency.
LIBERALIZATION IN SPAIN
The Spanish government played an important role in the process of
internationalization of Spanish firms, by setting a deregulatory legal framework, and
pushing several publicly owned Spanish companies to make investments outside of
Spain. The first step was the reduction of the legal requirements that outward capital
flows had to go through. Until the mid-1970s, Spain had strong control mechanisms over
capital movements to prevent capital flight, and investments outside of the country had to
be approved by the Spanish Council of Ministers. Reforms were introduced in 1977,
1979, 1986, and 1992 to make Spanish legislation comply with the stipulations of the
3
European Union, which made the notification of the FDI for statistical purposes the only
requirement (with no need of approval).4
The incorporation of Spain to the European Union on 1 January 1986 was a
powerful stimulus for Spanish exports to the European Union and for FDI in Spain (by
companies from the European Union as well as from outside of it). Inward FDI in Spain
increased by 1,433 percent between 1985 and 1995, from $8,939 million to $128,859
million, making Spain the sixth recipient of FDI in the world.5 The gradual liberalization
of economic activities across the European Union, especially in the public utilities (set at
1997 for telecommunications and 2007 for electricity), contributed to push many Spanish
firms to Latin America. The Spanish government devised a defensive strategy to protect
Spain’s public utilities from European competition. Its goals were to push Spanish firms
to move into new markets outside of Spain, and to increase the competitiveness of the
firms by forcing them to participate in open markets, where competition with other
companies would compel them to raise efficiency. Latin America became the target.
The strategy of the Spanish government comprised a set of specific policies: a
reform of the tax system, a number of public funds to subsidize or finance the direct
investments of Spanish firms abroad, a system of public insurance to protect the
investments from the risks of the host country, and bilateral and multilateral treaties for
protection of investments by the governments of the main host countries. A tax reform to
prevent double taxation of Spanish MNEs was implemented in 1990, in compliance with
EU directive 435. The Spanish legislature exempted Spanish firms from the payment of
taxes on the distributed dividends and deducted from the taxes to pay in Spain the amount
that their subsidiaries already paid in the host country, when this amount was lower than
that stipulated by Spanish law.6
Public financial aid for Spanish direct investment abroad was channelled through
four different types of credit, created by the Spanish government, as well as the EU
institutions. The Spanish Institute of Official Credit (Instituto de Crédito Oficial -ICO-)
created a fund of 20,000 million pesetas ($150 million), with the cooperation of the
Ministry of Trade and Tourism, and the Institute of Foreign Trade (Instituto de Comercio
Exterior –ICEX-), to finance Spanish FDI in the creation or improvement of commercial
networks and in production projects.7
The Spanish Company of Finance for
Development (Compañía Española de Financiación del Desarrollo -COFIDES-) was
created in 1988, with a fund of 2,500 million pesetas ($19 million) to finance Spanish
investment in developing countries. Its stockholders were ICEX and Argentaria
(Argentaria was a government-owned bank, fully privatized by the government in 1999).8
In 1994, COFIDES, the Ministry of Trade and Tourism, and ICEX created a new fund of
2,000 million pesetas ($15 million) to finance new projects and the expansion of existing
projects in LDCs.9 The government established the fourth fund in 1997, endowed with
80,000 million pesetas ($570 million), to finance FDI made by small- and medium-sized
Spanish firms. It was also managed by ICO.10
Within the EU framework, Spanish companies also had access to several
European funds for FDI outside of the European Union. The European Bank of
Investment had four different funds to finance investment in four regions of the world.
The Lomé Agreement comprised the creation of a fund of 12,000 million ECU for the
period 1991-2000, for investments in the ACP countries (Africa-Caribbean-Pacific).11
4
The European Development Fund had 280 million ECU to subsidize part of the former
loans, as well as 825 million ECU for risk-capital operations.12
Another fund was created in 1992, for investments in Latin America and Asia
(between February 1993 and February 1996 alone it disbursed 750 million ECU).13 The
European Community Investment Partners (ECIP) program promoted the creation of joint
ventures in developing countries of Asia, Latin America and the Mediterranean region, in
which at least one of the partners was from the European Union.14 Al-Invest was a fund
of 85 million ECU (half of it contributed by the European Union, the other half by the
private sector), created in 1994, to promote EU FDI in Latin America.15 Moreover, the
European Bank for Reconstruction and Development funded 33 percent of investment
projects involving private industrial firms.16
Outside of the European Union, there were several multilateral agencies from
which Spanish firms could obtain loans for FDI. The Spanish government was the third
largest contributor to the Multilateral Investment Fund for Latin America (MIFLA) and
the Inter-American Investment Corporation (IIC). Both of them were financial
instruments of the Inter-American Development Bank (IDB). Spain contributed $50
million to MIFLA, becoming the third largest partner after the United States and Japan,
and held 3.13 percent of IIC’s stocks.17 The International Financial Corporation, through
its Technical Assistance Trust Funds, financed surveys, adaptation of technology and
formation of labor in the early stages of investment in developing countries. Its
Caribbean and Central America Business Advisory Service promoted FDI in these
regions.18
The United Nations also had trust funds to promote industrial development in
developing countries, through its Center for Industrial Development, and the International
Financial Corporation of the World Bank.19 Between 1988 and 1993, Spanish firms took
part in 79 projects arranged through COFIDES. 33 percent of those were funded by some
of the Spanish financial institutions that participated in this program, providing a total of
1,400 million pesetas ($8.23 million). The remaining 46 projects were arranged through
COFIDES, but funded by the funds of the European Union, disbursing a total of 3.7
million Euros.20
Several mechanisms provided public and multilateral insurance of investments.
The Spanish Company of Credit Insurance for Exports (Compañía Española de Seguro de
Crédito a la Exportación -CESCE-), created in 1970 to insure credit for exports, began
insuring the FDI of Spanish companies in 1974. The philosophy of the Spanish
government was that a good coverage scheme for reduction of non-commercial risk
would stimulate private investment and reduce the need for institutional financing of FDI.
CESCE provided insurance for the creation of new companies, as well as for the total or
partial acquisition of existing foreign companies, and for protection against political risk
caused by the legislative or administrative action of the host country that implied a
change in the conditions and framework that originated the investment and prevented it
from completion.21
In 1994, all of the Latin American countries but Mexico were members of the
Multilateral Investment Guarantee Agreement (MIGA), created by the World Bank in
1988 to promote FDI in developing countries. Spain held 1.42 percent of its shares
($13.9 million) and had a representative in the Board of Directors. MIGA provided
guarantees to investors against losses derived from problems of currency convertibility,
5
expropriation, war, civil unrest and failure to fulfill the agreement by the authorities of
the host country.22
The “Bilateral Agreements for Reciprocal Promotion and Protection of
Investments” (BARPIs) sought to create a positive investment climate between Spain and
the host countries. Between 1990 and 1995, Spain subscribed a BARPI with most
Spanish speaking countries of the Western Hemisphere.23 Since 1986, the Spanish
government tried to strengthen economic relations between the European Union and
Latin America, in a similar fashion as France and the UK institutionalized relations
between the European Union and their former colonies, with the celebration of periodical
meetings. These efforts crystallized in 1995 in an economic agreement between the
European Union and the Common Market of the South (Mercado Común del Sur –
MERCOSUR-). The accord included provisions on investment signed by all EU
members and by the EU Commission and set out the intention of the parties to encourage
bilateral investment flows and to cooperate on intellectual property matters, to further
stimulate FDI flows.24
STRUCTURAL REFORMS IN LATIN AMERICA
The Economic Crisis of the 1980s
The roots of the debt crisis of the 1980s were partly in the policies implemented
by Latin American governments as a response to the effects of the “Great Depression” of
the 1930s. The Great Depression caused a drop in international commodity prices,
leaving Latin American economies with little export revenue. The response was a new
growth strategy, known as import substitution industrialization (ISI), to produce
substitutes for imported goods.25 This strategy received theoretical support from
‘development economics’, which in turn was inspired by the Keynesian theories
developed after the crisis of the 1930s, calling for an increase in government expenditures
to accelerate economic growth. Advocates of development economics believed that
orthodox economics could only be applied under conditions of full employment.
Therefore, they claimed that the lack of capital in Latin America forced the state to play a
fundamental role in the promotion of economic development, giving the ‘big push’. This
paradigm justified the prominent role of the state in many economic activities, including
production.26
Nevertheless, ISI could not solve some of the main development problems of the
after-war years. Many Latin American governments pursued fast industrialization,
developing capital-intensive industries, which were unable to absorb the underemployed
labour. Because the government subsidised the losses of the public enterprises
(accumulating public deficits), state-owned companies lost the incentive to innovate,
causing a loss of competitiveness. Protectionism reduced the degree of competition
inside each country, thereby decreasing also the incentive to innovate and cut down
production costs. These factors contributed to lowering the competitiveness of Latin
American companies, hurting economic growth and lowering living standards. As a
result, many foreign investors took their money out of Latin America in the 1980s. This,
in turn, had a negative effect on growth rates.27
The magnitude of the crisis in the 1980s led to the search for new alternatives.
Two models were proposed: the neoliberal model (orthodox model or Washington
6
consensus), and the heterodox model, which evolved from development economics. Both
models differed on the causes of Latin America’s economic crisis, and in their policy
recommendations. According to the “orthodox model”, embraced by most economic
agencies based in Washington, such as the World Bank, the International Monetary Fund
(IMF), and the economic agencies of the US government, the economic crisis was caused
by excessive state intervention (manifested in protectionist policies, excessive regulation
of economic activities, and a large public sector) and the relaxation of fiscal policies.
The solution proposed was a package of ten policies to increase the role of the
market forces: fiscal discipline, use of public expenditures mainly for education and
health care, to improve the efficiency of the tax system by increasing the tax base and
moderating marginal taxes, to adjust taxes to the needs of the market, to liberalize
external trade, to lift restrictions to FDI, to privatize public enterprises, to deregulate
economic activities, and to protect property rights. In short, stabilization through
orthodox policies and reduction of the role of the state in the economy.28
The heterodox or pragmatic model was based on the belief that the fiscal crisis
was not a temporary problem, but a structural one. It originated from the inability of the
Latin American governments to change the ISI strategy into one based on outward
growth, through the promotion of exports. Proponents of this model blamed the military
regimes of the 1970s for the accumulation of large public deficits, caused mainly by the
low tax rates. Although this model recognised the need to achieve macroeconomic
stability and to reduce the role of the state in economic activities (by means of
privatization of some state-owned companies, trade liberalization, and deregulation), it
emphasized that these policies per se would not generate sustained rates of economic
growth. The heterodox model regarded the economic role of the state as fundamental for
the definition of a clear strategy of economic growth. It defended the need to improve
the tax system to eliminate the public deficits first, and to use the public savings to attract
private investment in strategic industries, such as technology, to avoid environmental
degradation, and to improve the quality of higher education and the health system.29
The New Economic Model
The policies designed by Latin American governments after the crisis tried to
achieve macroeconomic stability, to liberalize capital markets, to promote FDI, to open
up trade to foreign competition, to reduce the role of the state in the productive processes
by privatizing state-owned companies, to deregulate economic activities, and to devise
poverty alleviation programs. Latin American governments reduced tax evasion to lower
the fiscal deficit and thus achieve macroeconomic stability, raised the price of public
services above costs, tightened the monetary policy to pay public debts, and established a
fixed exchange rate to avoid inflation and currency devaluations.30
The liberalization of trade put an end to four decades of ISI. Governments
eliminated non-tariff barriers (including quotas and prohibitions) and export taxes, and
simplified tariffs, to promote exports and increase factor productivity. The creation of
MERCOSUR, and the revitalization of other existing regional economic blocs (Andean
Community, Central American Common Market –CACM-, Caribbean Common Market
-CARICOM-) followed these principles. Between 1985 and 1992, over 2,000 stateowned firms were privatised in Latin America to generate public revenue, to reduce the
7
degree of state involvement in the economy, and to increase the overall efficiency of
domestic firms.31
Several policies were adopted to deregulate capital markets and generate higher
rates of domestic savings and private investment, including the deregulation of capital
markets, deregulation of interest rates, elimination of the rules to establish direct credit,
reduction and harmonization of deposit requirements for commercial banking, reduction
of entry barriers, development of capital markets, and implementation of legislation
based on the needs of the market. Previous administrations had set ceilings on interest
rates, and channelled investment to certain sectors, based on social and political interests,
rather than on the estimates of returns on investment. The role of the state was now
reduced to legislation and supervision tasks.32
FDI was very important in the post-crisis strategies. Foreign firms would bring
into Latin America new techniques and managerial styles, new technologies and
innovations, and force domestic firms to increase productivity. Chile and Argentina
adopted these policies in the 1970s, Mexico in the mid-1980s, Peru, Colombia, and
Venezuela in the early 1990s, and Brazil in the mid-1990s. Every country gave foreign
firms treatment equal to that of domestic companies (but did not allow FDI in some
“strategic” sectors), flat incentive policies (except in export sectors and investment in
research and development), and allowed unlimited repatriation of capital and profits. The
investments of Spanish firms in Latin America in the 1990s concentrated in three sectors:
telecommunications, banking, and energy.33
TELECOMMUNICATIONS SECTOR
Telefónica became one of the most prominent Spanish MNEs in Latin America,
not only for its presence in most countries in the region, but also for the large amounts of
money it paid in the privatization of some of the national telephone companies ($2,000
million for the purchase of the Peruvian telephone company in 1992). Telefónica’s
investments were motivated by a series of economic, political and sectoral factors: the
liberalization of the telecommunications sector in Spain on 1 December 1997; the
culmination of Telefónica’s process of privatization, which started in the 1970s and
ended in 1997 with the sale by the state of the last stocks it held in Telefónica’s
subsidiary Telefónica Internacional Sociedad Anónima (TISA); and the evolution of the
telecommunications sector in the world, which favored the creation of large multinational
telecommunications groups, integrated by some of the largest companies.
Privatization of telephone monopolies
The process of economic globalization and the growth of economic
interdependence raised doubts in the 1980s about the desirability for governments to
maintain telecommunications services under conditions of ‘natural monopoly’. This
approach was based on the belief that telecommunications constituted a ‘strategic public
service’, which the market did not price correctly. Based on this philosophy, many Latin
American governments nationalized their telephone companies: Argentina in 1945, Brazil
in 1962, Peru in 1970, Chile in 1971, and Venezuela in 1976.34 The Spanish government
also nationalized Telefónica (created in 1926 by ITT) in 1944, under national security
concerns.35
8
Economic integration in the 1980s increased the need of firms to have access to
good and efficient telecommunications services. Technological innovations such as
digitalization, optical fibers, mobile telecommunications, and satellite communication
increased the variety and quality of telecommunications services that operators could
provide, as well as their reach. These advancements raised the technological demands of
customers, but the national operators of traditional telephone services were unable to
provide them. They had outdated technology, inefficient systems, and, in general, they
could not upgrade their technology and infrastructure to satisfy the growing demands of
the population and the business sector, hampering the internationalization and efficiency
of the most advanced domestic businesses.
The Latin American governments realized in the 1980s and eliminated the
consideration of ‘natural monopoly’. This decision was based on their assessment of the
performance of the domestic operators (long waiting lists for the installation of new lines,
outdated technology, poor service, artificially maintained low prices, and the power of
the workers’ unions to influence the decisions of the companies).36 They believed that
privatization would be the best solution to upgrade the quality of the telecommunications
services. It would also help to end the state’s fiscal balance of payments crises, and to
send a signal to private investors that the change of approach was real. This aspect was
very important, because in the new economic paradigm based on the Washington
consensus FDI played a prominent role. The importance of the telecommunications
sector was high, given the zeal with which governments had protected it from private
(possibly foreign) capital.
Telecommunications companies were privatized first to let investors know that
the reforms started by the new administrations were serious. The strategic importance of
the telephone company would make governments appear as truly committed to their
structural reform program. By privatizing a ‘plum’ rather than a ‘lemon’, governments
hoped to regain the interest of foreign investors.37 Telecommunications companies were
the ‘jewel of the crown’ of each government, because they provided universal coverage
and because the perspectives of growth in the sector were large. Thus, the reform
proposals of the governments were more credible and attractive. Telecommunications
companies from the industrialized countries were ready to take part in the privatization of
these Latin American state-owned enterprises. On the one hand, they had the proper
technology needed to upgrade the system. On the other, they were compelled to grow
beyond their national borders, because they had made very large investments to upgrade
their technology in the 1980s and they needed to increase their sales to make those
investments profitable.
Telefónica’s Expansion in Latin America
Telefónica had no foreign ventures when it submitted its bid in the process of
privatization of the telephone companies of Chile in 1987, Argentina in 1988, and
Mexico in 1989. The liberalization prospects of the European market (the European
Union set 1997 as the deadline for governments to end national monopolies in the
telephone sector) led Telefónica’s executives (the state was the largest stockholder at that
point) to seek investment opportunities abroad. Their goal was to expand Telefónica’s
businesses overseas to compensate for the potential loss of a share of its domestic market
after the end of its national monopoly. Latin America offered Telefónica a very
9
appealing market. To attract foreign investors, each Latin American government gave a
period of monopoly to the highest bidder in the privatization of the state-owned telephone
companies.
Telefónica had several comparative advantages, vis-à-vis its North American,
European, and Asian competitors. A common language was one. Latin America
provided Telefónica the opportunity to offer its services and to conduct business in
Spanish. A crucial advantage, however, was the similarity of political conditions in Latin
America with regard to Spain. All of the Latin American countries that Telefónica was
interested in were nascent democracies. The communion of political interests between
Spain and Latin America created a sense of political complicity between the government
of Spain on the one hand, and some of the governments of Latin America, on the other.
This aspect facilitated political understanding among them, favoring all kinds of cultural,
political, educational, commercial, and economic exchanges.
This complicity
materialized in several investment treaties, as well as accords of political and cultural
exchange, signed between Spain and Latin American states, many of which were
channelled through the Iberian-American summits that brought together the heads of state
and prime ministers of Spain and Portugal and Portuguese- and Spanish-speaking Latin
America.38
Telefónica’s first attempt to expand in Latin America occurred in 1987, with the
privatization of Compañía Telefónica de Chile (CTC), but the Chilean authorities decided
to sell CTC to an Australian group, the Bond Corporation, whose bid included important
capital investments, whereas Telefónica’s emphasized debt-to-equity swaps.39 In 1990,
Telefónica participated in the process of privatization of the Mexican telephone operator,
in an alliance with GTE of the United States. The Mexican authorities believed that the
Spanish company did not offer as many technological guarantees as other North
American and European firms. Moreover, Telefónica’s bid was lower than that of the
winner, a consortium led by France Cable et Radio ($1,687 million vs. $1,760 million).40
The Argentinean authorities disliked Telefónica for the same reasons, and tried to
attract a US company. The design of the privatization process in Argentina followed US
legal guidelines to attract Bell Atlantic.41 The Argentinean government split the national
telephone company, Entel, into two different firms, prior to its sale in 1990. One would
be granted a monopoly over the Northern part of the country, and the other over the
Southern part. Telefónica submitted the highest bid for both areas, and chose to take the
Southern part, which comprised Buenos Aires. Its offer was $2,720 million. Bell South
was the second largest bidder for the Northern area, but it had to back out because its
financial partner, Manufacturers Hanover, could not purchase the required amount of
Argentinean debt, and the third bidder, a consortium led by Italy’s Stet (Telecom Italia),
and France Télécom, was awarded the concession for $2,308 million.42
In 1990, the Bond Corporation faced financial difficulties to raise cash to meet
creditor demands and sold all stock in CTC (42.8 percent) to Telefónica in April, for
$392 million (the Bond Group had paid $130 million in 1988).43 In 1992, Telefónica’s
$2,000 million bid in cash and investment for a 35 percent stake in the Peruvian
telephone company more than doubled that of GTE Corporation and Southern Bell
Corporation of the United States.44 In 1996, Telefónica bought Companhia Riograndense
de Telecomunições (CRT) in Brazil. Its main purchase in the 1990s took place on 29
July 1998, through the privatization of the Brazilian national telephone company,
10
Telebras. Telefónica paid $4,965 million for Telebras’s largest regional subsidiary,
Telesp, which operates in São Paulo, and $1,174 million for Tele Sudeste Celular, a
cellular telephone company that operates in Rio do Janeiro and Espírito Santo.
Telefónica’s ally, Iberdrola (a Spanish electricity generator and distributor with
investments in Brazil and other Latin American countries), paid $366.45 million for Tele
Leste Celular, the cellular telephone company that operates in Bahia and Sergipe.
Portugal Telecom acquired São Paulo’s cellular telephone company, Telesp Celular, for
$3,099 million, and MCI acquired Embratel, Brazil’s sole long distance operator, for
$2,245 million.45 (See table 1)
Telefónica’s medium-term objective was to develop a network of optical fiber
linking all of its Latin American subsidiaries, and achieve synergy derived from the
integration of all of their activities. To gather sufficient funds for this venture, in March
1998 Telefónica created an alliance with WorldCom-MCI and with Portugal Telecom.
The goal of the alliance with WorldCom-MCI was to pool resources among the three in
the markets of Europe, North America and South America.46 With Portugal Telecom,
Telefónica also planned to expand in Africa and Brazil. Portugal Telecom already had
investments in several African and Asian countries. Moreover, by 1998, Portugal
Telecom was developing a network of optical fibers linking Brazil and Portugal, thanks
to a concession of the Brazilian government.
Telefónica expanded in Latin America to gain new markets, to compensate for the
potential loss of customers in the Spanish market after the European authorities
implemented the liberalization of telecommunications, and to prevent its takeover by
larger companies. By growing in Latin America, it increased the value of its assets,
making an acquisition more difficult. The fear of losing market share to foreign
competitors in Spain made it overcome its initial failures in Latin America by increasing
the amount of money included in its bids in subsequent privatizations. Latin American
states obtained large amounts of capital from Telefónica, through the privatization of the
national telephone services, and brought into the economy an international firm with
sufficient technological capabilities to supply the goods and services that the market
demanded.
BANKING SECTOR
Banks were the leading Spanish investors in Latin America in the 1990s.
Between 1995 and 1997 alone, they invested $6,000 million (over 50 percent of the total
amount invested by Spanish firms in Latin America), accumulating a stock of $5,300
million, and in 1997 they had assets to the value of $62,900 million. In Chile, Colombia,
Peru, Venezuela, and Puerto Rico, Spanish banks Banco Bilbao Vizcaya (BBV), Banco
Central Hispano (BCH), and Banco de Santander (BS) controlled more than 20 percent of
the domestic bank deposits, and BBV and BS controlled 14 percent of the Argentinean
market.47
Their decision to invest in Latin America was based on the general aspects
already explained, on the high competition in the Spanish banking system, and margin
compression (the relation between the interest earned from loans and the interest paid on
deposits). When banks give out a high number of loans, they may increase their income
greatly, if their borrowers repay those loans in periodic installments, with interest. When
the ratio of loans falls, relative to the ratio of deposits, the income of banks may fall, if
11
banks cannot find profitable activities for the investment of the deposits. The difference
between loans and deposits in Spain fell from 7.39 percent in 1991 to 4.38 percent in
1995.48 In the first half of the 1990s, Spanish banks faced a contradictory panorama, with
growing liquidity and falling profits. They had to devise new ways of investing their
money profitably. Their solution was to seek new markets to invest part of those profits
(Latin America), and to invest in new areas of economic activity with greater prospects of
economic growth (mainly the energy sector and telecommunications).
The expansion of Spanish banks in Latin America was facilitated by the process
of financial and banking liberalization implemented by the Latin American governments
in the 1990s, similar to that undertaken in the Spanish market in the previous decade. In
the 1980s, Spanish banks developed new products and services, such as investment
funds, pension funds, public bonds, equities markets, and corporate bonds, to adapt to the
new needs of their market. The introduction of these products and services into Spain
expanded the previous narrow role of the banks as deposit havens. New financial
institutions (other than banks) soon appeared, taking advantage of the new banking
market. Banks now had to develop these products and services, in order not to lose
customers, reinvesting their funds with higher rates of return.
A similar process of disintermediation occurred in Latin America in the 1990s,
forcing domestic banks to adopt the new financial services. Spanish banks had already
developed these products in the 1980s for the Spanish market and found a competitive
advantage vis-à-vis domestic Latin American banks. They believed their financial
products would be easily adapted to Latin America. Latin American banks, on the other
hand, were compelled to develop these new services overnight. Moreover, the deep
financial crisis of the 1980s had severely reduced the number of banks in good economic
conditions, and governments tried to attract new foreign banking and financial
institutions to strengthen that sector, to help rebuild the banking system, and to improve
the quality of services and banking loans.
The Banking Crisis in Latin America
Public policies were in part responsible for the weakness of the Latin American
financial systems when the crisis erupted. Most governments restricted the creation of
new financial institutions, set ceilings on interest rates, even below inflation rates (thus
generating negative interest rates and stimulating capital flight), and established concrete
conditions to give credit based on non-economic nor productive criteria. Banks had a
high degree of liquidity (the relation of liquid assets over deposits was high, and the
relation of credit over assets was low). High liquidity eliminated their incentive to set
strict criteria for the concession of loans, thereby giving loans to many unproductive
projects.49 In Argentina, Mexico, and Peru, the total of non-performing loans exceeded
20 percent.50 The large number of non-performing loans decreased banking revenue,
triggering a serious banking crisis. Governments tried to solve the crisis by extending
credit to the state financial institutions. These institutions translated the funds to the
troubled banks, which, in turn, extended them to their clients. Finally, their clients
invested the new credits in the same old unprofitable projects. The result was a drainage
of state and banking funds, and the deepening of the banking crisis, when the resources of
the state financial institutions dried out.
12
Things were a little better in Chile and Colombia, because the strict requirements
of their central banks lowered the liquidity rate of the commercial banks. In 1982,
Colombian and Chilean banks had relatively low ratios of cash assets to deposits and high
ratios of loans to assets.51 At the outbreak of the crisis, foreign loans ceased, and the
central banks became the major provider of credit to commercial banks. Thus, the central
banks used this conjecture to promote ‘credit discipline’, by restricting lending to those
commercial banks that gave credit only for profitable investments.
Elsewhere in Latin America, the consequences of the banking crisis were very
serious. In Argentina, the largest private commercial bank and forty-two small- and
medium-size financial institutions had to be liquidated between 1980 and 1982. In Chile,
between 1981 and 1982, eleven financial institutions (whose portfolios represented
almost 15 percent of total loans) were also liquidated, and in 1983 seven banks were
taken over by the government (two of them were finally liquidated and five were
rehabilitated).52 Moreover, excessive credit increased inflation and devalued national
currencies. The crisis could not be overcome until governments tightened up credit, by
conditioning credit to banks that conducted a realistic appraisal of the possibility of their
borrowers of returning to solvency, (lowering the ratio of cash assets to deposits and
increasing the ratio of loans to assets) and liberalized the banking sector.53
This change of approach facilitated the investments of Spanish banks in Latin
America. Their universal character gave Spanish banks an advantage, derived from their
experience in the provision of a large array of banking and financial services, ranging
from traditional bank accounts to pension and investment funds, corporate lending,
mortgages, and insurance. Like in Germany, banks in Spain provided all kinds of
financial services, as opposed to the English model, where banks were originally barred
from some of those services.
The Expansion of Spanish Banks in Latin America
Until 1997, BS had invested $3,500 million in Latin America ($1,000 million in
Chile alone), accumulated assets of $45,000 million, and had 57.6 percent of its
employees in Latin America. In 1996, BS controlled more than ten percent of bank
deposits in Argentina, Brazil, Colombia, Mexico, Peru, Puerto Rico, Uruguay, and
Venezuela54, and 47 percent of its profits in 1997 came from its Latin American
subsidiaries.55 Also by 1997, BBV had invested $1,700 million in Latin America56, its
assets were worth $25,700 million57, and 27 percent of its income came from its Latin
American subsidiaries.58 BCH had invested $487 million, mainly through its Chilean
subsidiary O’Higgins Central Hispano, S.A. BS and BBV ranked third and fourth in
assets in the whole Spanish-speaking Latin America, after Mexico’s Banamex and
Bancomer groups.59 (See table 2)
The expansion strategy of each of these banks was different. BBV sought a
strong local partner, to which it bought between 30 percent and 40 percent of its stocks.
BS sought majority ownership of its Latin American subsidiaries, sometimes 100 percent.
BCH expanded in Latin America through its Chilean subsidiary, O’Higgins Central
Hispano, and always sought a powerful local partner in each country.
The expansion strategy of banks in Latin America played an important role also in
the expansion of the Spanish energy companies, because the acquisition of energy
producers and distributors became the second part of the diversification strategies of
13
Spanish banks. The result was the creation of two main groups of companies, involving
one or two of the main banks, and several energy firms. In 1998, BBV, along with
Barcelona’s La Caixa, had important stocks in Telefónica, Repsol, Iberdrola, and Gas
Natural. BCH was a major stockholder of Endesa, Unión Fenosa (BS was also one of its
main stockholders), Fomento de Construcciones y Contratas (FCC), and Dragados y
Construcciones. BS, however, did not own significant packages of stocks in any of these
companies and it did not intend to develop a similar policy of diversification of
investments.
The fear of competition in Spain was not one of the factors that pushed Spanish
banks to invest in Latin America, like in Telefónica’s case. In fact, the Spanish banking
market opened to foreign competition in the 1980s. Only pull factors operated in this
sector. Spanish banks invested in Latin America because they saw great business
opportunities. The banking crisis severely hit many of the local banks, and some of the
foreign banks that had investments in the region when the crisis ensued. The fear of
instability in the Latin American banking sector kept many foreign companies away after
the crisis, paving the way for the Spanish banks, which thus faced very little competition
from other large international banking groups. Given the seriousness of the Latin
American banking crisis, the investments of Spanish banks were especially important for
the regeneration of the banking infrastructure in many countries. They provided new
credit for these cash-starved economies, developed new financial products, and helped
propagate a new banking and financial culture.
Energy Sector
The liberalization of the energy sector occurred simultaneously in Spain and Latin
America. In Latin America, it was the response to expectations of economic growth and
to the growing demand for energy that economic growth was expected to trigger. The
World Bank estimated in 1995 that, between 1994 and 2000, an additional generating
capacity of 70,000 megawatts would be needed in Latin America and the Caribbean
alone. Meeting this demand would require additional investments of $20,000-25,000
million dollars.60 In the midst of adjustment and debt-reduction schemes, many
governments realized that the energy state-owned companies would be unable to meet the
investment and production requirements and decided to privatize many of them, thereby
relying on private companies, either domestic or foreign.
Based on the growth potential of the energy sector, foreign companies became
anxious to operate in Latin America. Whereas demand for electricity was expected to
grow by 1.9 percent annually in the United States between 1995 and 2000, with returns
on investment of eight to ten percent, the growth of demand in Latin America was
expected to be 5.5 percent, with investment returns of 20 to 25 percent.61 Besides the
greater growth expectation in Latin America, Spanish companies were concerned about
the liberalization schedule set by the European Union for the energy sector (in 2007
European governments should allow free competition in the energy sector). Once
liberalization was implemented, companies from other European countries would be free
to expand in Spain. With liberalization in mind, the Spanish energy sector experienced
major transformations in the 1990s. Inside of Spain, competition led to major takeovers
and mergers, reducing the number of operators to four: Endesa, Hidroeléctrica del
Cantábrico (HC), Iberdrola, and Unión Fenosa. To maximize growth, Spanish operators
14
also moved outside of Spain, many of them into Latin America, where liberalization was
under way.
Spanish energy companies culminated a process of improvement of their
infrastructure and technology to increase their productive capacity in the early 1990s.
The fast rates of economic growth in Spain in the 1980s forced Spanish firms to increase
their generation capacity, to keep up with market demands. Significant investments in
technology increased their capacity beyond the energy needs of the Spanish market. The
fast growth of the energy sector in the 1980s increased their revenue and profits. Since
the expansion of productive capacity in the 1980s guaranteed their ability to satisfy
energy demand in Spain, they decided to invest those profits in Latin America, where the
growth potential was great.
The Expansion of Spanish Energy Firms in Latin America
Endesa was Spain’s largest energy company in the mid- and late-1990s and the
one with the largest investments in Latin America. When Endesa moved into Latin
America, the Spanish state still owned 41.1 percent of its stocks, until its final
privatization in June 1998.62 Endesa’s first investments in Latin America occurred in
1995, with the acquisition of two power generation plants from Electroperú. Endesa
acquired 60 percent of Etevensa and 60 percent of Empresa Eléctrica de Piura’s (EEP)
gas-fired generating plant. Both Etevensa and EEP operated in the North of Peru. In
1996, Endesa acquired 60 percent of Edelnor for $170 million (through a consortium
integrated by Enersis and Chilectra, from Chile, as well as other local firms, including
Banco de Crédito and Cosapi). Edelnor was one of the two distribution enterprises that
provided energy to Lima. Endesa’s objective in Peru was to supply electricity to the
Central-North Interconnected System, which run parallel to the Peruvian coast.63
Endesa’s main purchase in Latin America was Chile’s Enersis, in August 1997
(Endesa and Enersis had been allied in Peru prior to this operation). A month later,
Endesa included Enersis in a consortium that submitted the winning bid in the
privatization of Colombia’s energy producer Emgesa and distributor Codensa.64 In March
1998, both Endesa and Enersis reached an agreement to participate together in the
privatization of several state-owned energy companies in Latin America, between 1998
and 2003.65 They bought 51 percent of Brazil’s Coelce in April, with an investment of
$873.4 million.66 (See table 3)
Endesa engaged in a particular competition for the acquisition of a large number
of electricity enterprises in Latin America with another Spanish energy firm, Iberdrola.
Endesa bought Coelce in Brazil, beating Iberdrola, which submitted the second highest
bid. In the mid- and late-1990s, Iberdrola was the second largest electricity company in
Spain. It was headquartered in the Basque Country and the large Basque bank, BBV, was
one of its main stockholders and investment partners. It began its operations in Latin
America in 1992. In its particular race against Endesa, Iberdrola acquired 65.64 percent
of Coelba, in Northwestern Brazil, in July 1997, and in December of that year it paid
$500 million for Companhia Energética do Rio Grande do Norte (Cosern), also in
Northwestern Brazil.67
In July 1998, Iberdrola and BBV participated in a consortium led by Telefónica
that bought five of the twelve subsidiaries of Telebras privatized by the Brazilian
government.68 Iberdrola, along with Powerfin of Belgium and Enagas of Chile, bought 51
15
percent of a thermal power station in Chile, Central Termoeléctrica Tocopilla, for $178
million in 1996.69 Iberdrola also developed a joint venture in Latin America with another
Spanish company, Gas Natural, to integrate the production and distribution of electricity
and gas.70
Another Spanish company with investments in Latin America was Unión Fenosa.
In 1997, it acquired 26 percent of Bolivia’s Transportadora de Electricidad. Its allied,
BCH, acquired another 10 percent of the same company.71 In 1998, Unión Fenosa
purchased the two subsidiaries of the Panamanian Institute of Hydraulic Resources and
Electrification. It paid $211 million for Metro-Oeste S.A. and Chiriquí S. A.72 The fourth
Spanish electricity company, HC, invested in Mexico in 1998. Its allied, Texas Utilities
Corporation, won a concession to distribute gas in Mexico City in November 1998, and
in December it invited HC to participate in this project, by buying 15 percent of it. HC
invested $100 million.73
The investments of the Spanish electricity companies in Latin America, like those
of Telefónica, were in part motivated by the fear of competition in their domestic Spanish
market. The elimination of geographic restrictions to the operations of electricity
providers within Spain originated a process of concentration in the Spanish market. This
was the first phase of a strategy designed by the Spanish government to implement full
liberalization in the energy sector by 2007. The second phase comprises the complete
elimination of national limits to EU firms. This liberalization deadline led the Spanish
firms to expand abroad, to grow in size and thus be better qualified to withstand
European competition after 2007. The growth potential of the Latin American economies
in the 1990s made them prime targets for the Spanish electricity firms, wanting to profit
from business opportunities there.
The other large Spanish company with investments in the energy sector was
Repsol, an oil producer and distributor. Repsol was created in 1987 by the Spanish state
as part of a reorganization of an older state-owned company, Instituto Nacional de
Hidrocarburos. Repsol went through a slow privatization process that started in 1989 and
culminated in April 1997. It had a strategy of diversification in two fronts. The first part
of the strategy was to diversify its business operations away from oil distribution into oil
production. In its origins, Repsol was basically an oil distributor, and in 1996, refining
and marketing still generated 78 percent of the company’s revenue, while exploration and
production generated only 14.3 percent.74 Profit margins in refining and marketing were
very small in the 1990s. In 1997, Repsol only produced 25 percent of the oil it processed.
This reliance on external purchases of oil decreased its profit margins.75 Repsol decided
to expand its activities into exploration and expanded outside of its home country,
because there were no oil or gas fields in Spain.
The second part was to move into new markets. Latin America served Repsol’s
interests in both senses. It provided a new market for expansion of its distribution
business, and new oil fields for exploration and production. In 1996, Repsol purchased
47.5 percent of Astra in Argentina (which owned oil fields in Argentina and Venezuela),
for $488 million.76 In June 1997, Repsol paid $330 million to the Venezuelan
government in the privatization of Mene Grande oil field (Repsol more than doubled the
second bid submitted by a consortium led by Chevron-Statoil). Repsol expected to
increase production from 5,500 barrels daily in 1997, to 65,000 by 2002. The
Venezuelan government granted exploitation of the field to the Spanish company for a
16
period of twenty years and promised to pay for all investment costs, as well as to buy all
the oil extracted, for its commercialization.77 In 1997, Repsol also bought Solgás,
Limagás, and Energás in Peru, thus gaining control over 42 percent of the Peruvian
market for bottled gas. Through the acquisition of Corpetrol, Repsol also moved into oil
refining (refinery of La Pampilla) and distribution of gasoline in Peru.
Natural gas was Repsol’s major area of interest in the late 1990s. In Spain,
Repsol’s gas sales increased 28.3 percent between 1994 and 1996, but in 1997, the gas
division only generated 22.3 percent of Repsol’s total revenue. In 1997, Repsol
controlled over 95 percent of Spain’s market of bottled gas and 90 percent of the natural
gas market. The inauguration of the African-European gas pipeline between Algeria and
Spain in 1996, through the Straits of Gibraltar, indicated Repsol’s bet for natural gas for
the future.78 Repsol also developed its natural gas business in Latin America, but not
alone. It created a joint venture with Iberdrola and Gas Natural, called Gas Natural
Latinoamericana (GNL). GNL purchased 53 percent of Gas Natural ESP from Ecopetrol,
the Colombian state-owned oil company, for $148 million in June 1997. Repsol sold its
participation in GNL to its partners in February 1998.79 (See table 4)
The strategic alliances among Spanish companies were particularly important in
the energy sector. All of the companies in which BBV had a stake, cooperated among
themselves in their Latin American ventures: Gas Natural, Iberdrola, Repsol, and even
Telefónica. BCH also contributed resources to the Latin American expansion of the
companies in which it owned stock: Endesa, Unión Fenosa, and Cepsa. This shows the
importance of cross-sectoral alliances in the expansion strategies of Spanish companies,
to raise funds, to develop synergies, and to share know-how and risk.
CONCLUSIONS
The investments made by Spanish companies in Latin America in the 1990s were
not solely based on microeconomic calculations by Spanish firms, but also on broader
political and macroeconomic aspects. One of them was the fear of the Spanish
government to lose national control over a core of ‘Spanish’ companies, especially in the
public utility sectors. The eventual liberalization of markets in the European Union,
especially in telecommunications and energy sectors, made the Spanish government fear
the loss of ‘national control’ over the Spanish economy, if larger and more efficient
European firms took over key Spanish companies.
To prevent this loss of economic sovereignty, the Spanish authorities believed it
was necessary to make domestic firms grow in size and increase their productivity rates,
to make them more competitive. This would make a takeover by foreign firms more
difficult. Given the small size of the Spanish market, the government devised a series of
push and pull incentives to force Spanish firms to invest out of Spain. The push factors
were the liberalization deadlines set by the European Union, which the Spanish
government threatened to accelerate, and a series of economic incentives, such as
subsidies, credits, and insurance for FDI.
The main pull factor was the direct investments made by some companies that
were still totally or partially owned by the Spanish state, such as airline Iberia,
Telefónica, Argentaria, Endesa, Repsol, and others. The reforms implemented by Latin
American governments, and the relations between the Spanish government and the
governments of Latin America, also worked as powerful pull factors, overcoming the
17
anti-colonialist sentiment that existed among the people of some countries, mainly Peru
and Mexico. Latin America was the ‘appropriate’ region for the expansion of Spanish
firms, not only because of cultural and political similarities with Spain, but also because
the Latin American governments decided to open up the banking and public utilities
sectors to foreign investment. Liberalization was the main response of Latin American
governments to the crisis of the 1980s. FDI played a fundamental role in their strategy,
because, on the one hand, it brought capital into the cash-starved economies and, on the
other, it brought in foreign firms with new technologies, products, and services, with the
great potential to increase the overall productivity rates of the economies. While
providing the appropriate terrain for the expansion of Spanish firms, Latin America also
benefited from the investments of Spanish companies, which were concentrated in basic
infrastructure sectors that have an important influence on the overall performance of the
economy, like banking, energy, and telecommunications.
These sectors were the backbone of the economy, and their rejuvenation was
fundamental to resume economic growth. Spanish banks contributed to strengthen the
Latin American banking system. They introduced new credit (liquidity), and developed
new financial and banking products, increasing domestic savings and channeling
domestic investment into productive enterprises. The investments of Telefónica helped
to improve the quality of the telecommunications systems. Good telecommunications
were crucial for the efficient conduct of business on a daily basis. Finally, Spanish
energy firms contributed to satisfy the growing demand for energy triggered by the
acceleration of economic activities that followed the liberal reforms of the early 1990s.
Moreover, the competition that existed among Spanish firms to expand in Latin
America, especially in the energy (Endesa vs. Iberdrola) and banking (BBV vs. BCH vs.
BS) sectors, helped introduce a new business culture in Latin America. Economic profit
was now to be based on productivity gains and in the improvement of products and
services, rather than on the concession of state privileges, such as limits to competition
and the subsidy of losses. In this regard, some Spanish companies were forced to
compete openly in some Latin American economies, while they were still shielded from
foreign competition in their domestic market in Spain. This was the case of the energy
firms, such as Endesa, Iberdrola, Unión Fenosa, and HC, and Telefónica before 1997.
The expansion of Spanish firms in Latin America was also facilitated by the
conditions of operation. The needs of the Latin American economies were basic: the
development of basic infrastructure in all sectors, such as banking, telecommunications,
and energy. These were the needs of the fast-growing Spanish economy in the 1970s and
1980s. In other words, Spanish firms brought to Latin America the same expertise,
technology, products and services that they had developed in previous years for the
Spanish economy, to satisfy similar needs. This similarity gave them a competitive
advantage, vis-à-vis the companies from other developed countries. Spanish firms knew
what was needed in the market and they had the means to satisfy those needs. Their
appreciation of the potential profits to be gained in these markets led them to offer more
money than other European and North American competitors in the privatization of many
of the Latin American banks and utilities.
Finally, to strengthen their position in Latin America and to increase their capital
resources for expansion, some Spanish firms developed cross-sector alliances, in part
thanks to their cross-investments. Two main groups of Spanish firms were created,
18
around each one of the major Spanish banks. On the one hand, BBV, with its large
investments in Telefónica, Repsol, Iberdrola, and Gas Natural, facilitated the
development of joint ventures among these companies, wherever they needed to pool
resources and share expertise. The other group evolved around BCH, thanks to its
investments in Endesa, Unión Fenosa, FCC and Dragados y Construcciones.
The internationalization of Spanish firms and their investments in Latin America
were also a result of a broader trend toward globalization of international businesses.
The process of liberalization, implemented by both the European Union and the Latin
American authorities, responded to the liberal economic paradigm that became dominant
in the 1990s on both sides of the Atlantic Ocean. Efficiency and productivity were then
the major goals of economic planners, who tried to open up their economies to attract the
most competitive firms, and to force domestic companies to become more competitive.
The result was the migration of Spanish MNEs to Latin America, searching for new
business opportunities and for a shield against European competitors.
The concentration that resulted in Spain and in Latin America, where Spanish
firms gained large market shares, is an episode in a process of further concentration. One
of the results of this course is a new form of competition involving only a select group of
producers that compete with each other in several markets of the world, and against a few
domestic firms. The trend toward market concentration may accelerate in the future,
putting more pressure on the anti-monopoly authorities of Latin America to prevent
companies from obtaining monopolistic or quasi-monopolistic control over their markets.
In other words, only political decisions will set the limits of globalization and
concentration of business activities.
19
Table 1.Telefónica’s Direct Investments Outside of Spain in August 1998.
Country
Subsidiary
Argentina
Argentina
Sintelar
Telefónica
de Argentina
CRT
Embratel
Tele Leste
Celular
Telesp
Yes
Yes
Yes
65
Yes
38
Yes
75
Chile
Chile
Telesp
Celular
Tele Sudeste
Celular
CTC
Publiguías
No
Yes
43.6
51
Colombia
Codelco
Yes
31
El Salvador
Guatemala
INTEL
Telefónica de
Guatemala
CPT
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Peru
Peru
Portugal
Puerto Rico
Romania
Venezuela
Consortium
Yes
Yes
% Held by
Telefónica
25
19.38
35
20
Main Partners
Year of
Acquisition
Sintel
Citicorp, Technint, Banco
Río de la Plata, BCH
1990
1990
MCI
Iberdrola
1996
1998
1998
BBV, Iberdrola, Portugal
Telecom, RBS
Portugal Telecom
1998
Itochu, NTT
1998
Chilean pension funds
CTC, Publicar, Ed. Lord
Cochrane
Grupo Sarmiento, Ardilla Lule,
CTC Celular
1990
1990
1998
51
1998
1999
Yes
35
ENTEL
Perú
Contactel
TLD
Telefonica de
Romania
CANTV
Yes
35
Yes
No
Yes
15
79
60
Graña y Montero, Banco Wiese, 1992
State of Peru
Graña y Montero, Banco Wiese, 1992
State of Peru
Marconi
Autoridad de Teléfonos de P.R.
Romtelecom, Radio-Communicatil
Yes
6.4
Infonet
Yes
7.29
FNA
Yes
JNI
Yes
Unisource
Yes
25
GTE, Electricidad de Caracas,
AT&T
DBT, FT, KDD, Swiss PTT,
PTT Netherland, Telecom
Singapore, RTT
MCI, Mercury, France Télécom,
DBT, others
AT&T, BT, KDD, France
Télécom
Telia, PTT Netherland,
Swiss PTT
1991
1995
Source: Telefónica, and Juan José Durán Herrera and Fernando Gallardo Olmedo,
“La Estrategia de Internacionalización de las Operadoras de Telecomunicaciones”,
Información Comercial Española (Madrid), no. 735 (November 1994), p. 97.
20
Table 2.Main Subsidiaries of Spanish Banks in Latin America in September 1998.
Bank
Argentaria
Country
Subsidiary
Percent Ownership
Argentina
Siembra AFJP, Sur Seguros de Retiro
Sur Seguros de Vida
Fondo de Pensiones Argentaria
Bolivia
Brazil
Colombia
Colfondos
Mexico
Central America Banco Exterior de España
South America Banco Exterior de España
Banco BilbaoVizcaya
Argentina
Uruguay
Venezuela
Banco Francés del Río de la Plata-Banco
de Crédito Argentino
AFP Previsión BBV
Banco Excel Económico
Banco Ganadero
Banca Cremi, Banco Oriente,
Banco Probursa
BBV Panamá
Banco Continental
BBV Puerto Rico,
Banco de Ponce
Banco Francés Uruguay
Banco Provincial
Argentina
Bolivia
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Tornquist
Banco del Sur
O’Higgins-Santiago-BCH
Banco de Colombia
Banco Bital
Banco Asunción
Banco del Sur
Banco Centra Hispano
100
98.42
50.03
35
8
77.7
98.42
100
Argentina
Brazil
Banco Río de la Plata-Banco Santander Argentina
Banco Geral do Comercio
Banco Noroeste
Banco Santander Chile
Pensiones Chile
Banco Comercial Antioqueño (Bancoquia)
Banco Santander Mexicano
Banco Santander de Negocios de México
Banco Santander Perú
(Banco Mercantil + Banco Interandino)
Banco Santander Puerto Rico
Leasing Puerto Rico
Banco Santander Uruguay
Banco de Venezuela
41.2
50
25
65.15
Majority
55
68.5
100
100
Bolivia
Brazil
Colombia
Mexico
Panama
Peru
Puerto Rico
Banco Central
HispanoAmericano
Banco de
Santander
10 offices
16 offices
Chile
Colombia
Mexico
Peru
Puerto Rico
Uruguay
Venezuela
52.4
10080
59
70
100
37.57
100
100
49
99.6
Majority
100
93.6
Source: El País Digital, no. 852, 2 September 1998, Economía section.
21
Table 3.Endesa’s Subsidiaries in Latin America in April 1998.
Country
Subsidiary
Argentina
Edenor
Yacilec
CERJ
Coelce
Enersis
Codensa
Emgesa
Edelnor
Elecar
Brazil
Chile
Colombia
Peru
Venezuela
Source: Santiago Carcar, “Endesa Adquiere la Compañía Brasileña Coelce en
Pugna con Iberdrola”, El País Digital, 3 April 1998, Economía section.
Table 4.Repsol’s Subsidiaries in Latin America in July 1997.
Country
Subsidiary
Argentina
Astra 81
Colombia
Ecuador
Mexico
Peru
Venezuela
Percent
Ownership
Metrogas
Grupo Comercial del Plata
JME Inversiones
Isaura
EGB
Refinería San Lorenzo (Refisan)
Refinerías Argentinas de
Petróleo (Dapsa)
Parafinas del Plata
Pluspetrol
Gas Natural ESP *82
Repsol Ecuador
Nuevo Laredo *
Saltillo *
Repsol Perú (former Copetrol)
La Pampilla
Solgás, Limagás, Energás
Repsol Venezuela
47.5
32.5
42.5
50
50
45
80
Activity
Oil exploration and extraction, production of
lubricants and asphalt.
Gas distribution
Oil refining
Natural gas extraction
Natural gas distribution
Natural gas distribution. Gasoline stations.
Gas distribution
Gas distribution
Gasoline stations
Oil refining
Bottled gas
Oil extraction
Source: El País Digital, no. 346, 14 April 1997, Economía section; no. 393, 31
May 1997, Economía section; and no. 400, 7 June 1997, Economía section.
22
-Footnotes.
1
In 1998, Spanish firms invested $10,100 million in Latin America, and US firms invested $9,200 million. In 1999,
Spanish MNEs invested $20,500 million, and US MNEs invested $7,200 million. Source: KPMG. Claudia Mancini,
‘La Inversión Externa Marcó los Años 90’, Gazeta Mercantil Latinoamericana (Buenos Aires, 7-13 Feb. 2000), p.
22N.
2
This paper analyzes Spanish ‘foreign direct investment’ (FDI) only. ‘Portfolio investment’ is excluded from the
figures as well as from the analysis. The reason is that portfolio investment and foreign direct investment are motivated
by different factors. Interest rates and short-term high returns to equity are the driving force behind portfolio
investment. Investors seek to maximize profits by investing where returns are highest. Foreign direct investment is
prompted by other factors, such as the ability of a firm to exploit its comparative advantage in a foreign market, its
decision to internalize transaction costs across borders, the will to eliminate competition in a foreign market, different
growth expectations within an industry between the home country and the host country, and overall worldwide strategy
of the firm making the investments. The International Monetary Fund (IMF) considers FDI an investment that results
in the ownership of ten percent or more of a company. Such an investment gives the investor ‘control’ over the
management decisions of a firm. An investment resulting in ownership of less than ten percent of a firm is considered
‘portfolio investment’, motivated by speculative reasons. Such an investment does not give the investor control over
the management of the firm. This statistical distinction is questioned, because in large companies a percent ownership
of less than ten percent may give an investor control power. Similarly, in some cases, a percent ownership of more
than ten percent may not give the investor control power. This may be the case in companies with few investors.
However, the statistics of the Spanish government follow the IMF recommendations. For these reasons, this article
uses the official statistics with a great degree of caution. For an introduction to the literature on this topic, see Richard
E. Caves, Multinational Enterprise and Economic Analysis (New York, 1996), pp. 24-39; and Stephen Hymer, The
International Operations of National Firms: a Study of Direct Foreign Investment (Cambridge, 1976), pp. 23-80.
3
J.H. Dunning and R. Narula, ‘Transpacific Foreign Direct Investment and the Investment Development Path: The
Record Assessed’, South Carolina Essays in International Business, no. 10 (May 1994).
4
A reform on 14 April 1977 reduced this requirement to investments of more than fifty million pesetas ($660,000 in
1977). Other investments had to be approved by the Ministry of Trade and Tourism or by the General Direction of
International Economy and Foreign Transactions (DGEITE). In 1979, the government authorized Spanish citizens to
own foreign assets and stocks held in foreign currency. The FDI law remained unaltered until 1992, when the types of
investments subject to verification by DGEITE were reduced to three categories: investments of more than 250 million
23
pesetas ($2.5 million in 1992); investments in countries or territories considered fiscal havens; and investments in
financial enterprises. Información Comercial Española (Madrid), ‘Inversiones Directas de Capital Español en el
Extranjero en 1978’, no. 1661 (1 Feb. 1979), pp. 349-350; Información Comercial Española, ‘Las Inversiones
Españolas en el Exterior en 1980’, no. 1765 (29 Jan. 1981), pp. 382-383; Información Comercial Española, no. 2415
(6-12 June 1994), p. 1403.
5
In 1995, the main host countries were the United States ($564,637 million), the United Kingdom (244,141), France
(162,423), Germany (134,002), China (128,959), Spain (128,859), Canada (116,788), Australia (104,176), and The
Netherlands (102,598).
Figures based on investment flows.
United Nations, World Investment Report, 1996.
Investment, Trade and International Policy Arrangements (New York, 1996), pp. 239-243.
6
The foreign subsidiaries in which Spanish firms owned at least five percent of the equity for an interrupted period of
more than one year prior to the date when the dividend became payable were given tax credit over subjacent taxes,
based on corporate tax law number 43, passed on 27 December 1995. The tax law also granted Spanish MNEs
deductions for depreciation of the foreign investment, up to the limit of the original value of the investment. The parent
company could incorporate in its balance sheet the deficits of its foreign subsidiaries, and thus be granted further
deductions for this. Finally, deductions of up to 25 percent of the value of the tax on the foreign investment were given
if the investment took place in activities related to the export of products manufactured in Spain, in advertising
expenditures incurred in the launch of Spanish products and penetration or promotion of new markets, and when the
investment was related to tourist services in Spain. Price Waterhouse, Corporate Taxes. A Worldwide Summary
(London, 1996), p. 572; José Palacios Pérez, ‘Análisis Comparativo del Tratamiento Fiscal de las Inversiones en el
Exterior’, Información Comercial Española, no. 735 (Nov. 1994), pp. 53-62; Pilar Morán Reyero, ‘La Inversión
Directa Española en el Exterior: Evolución Reciente’, Información Comercial Española, no. 735 (Nov. 1994), p. 13.
7
To force companies to make productive investments, the loans have to be repaid within a period of five to seven
years. The interest rate is half a point over the MIBOR rate. There are no geographical restrictions to the investment.
Fernando Aceña Moreno, ‘Instrumentos de Financiación de Inversiones’, Información Comercial Española, no. 735
(Nov. 1994).
8
COFIDES only provides funding for projects designed with profitability criteria, which contribute to the industrial
development of LDCs. Between 1988 and 1994, COFIDES approved 79 projects, 33 of them with its own credit, the
rest with funds from the European Union. It granted credits worth 1,500 million pesetas and 3.7 million Euros.
Fernando Aceña Moreno, ‘Instrumentos de Financiación de Inversiones’, Información Comercial Española (Madrid),
no. 735 (Nov. 1994).
24
9
These projects must have at least 50 percent Spanish capital. The limit of the loans is either 50 percent of the cost of
the investment or 200 million pesetas ($1.175 million), to be repaid in five to eight years. The interest rate may be
fixed or variable, but it has a two-percent subsidy, paid for by the Instituto de Comercio Exterior (ICEX). Ibid.
10
Spanish Ministry of the Economy. Quoted in El País Digital (Madrid), no. 320, 19 March 1997, Economía section,
http://www.elpais.es, observed 19 June 1997.
11
Only projects with a cost of more than 20 million Euros are eligible. Funding is available for up to 50 percent of the
total cost of the project. Projects must be of ‘mutual interest’. That is to say, they have to meet one of the following
criteria: joint-ventures between Latin American and EU companies; a high technology transfer must be involved; to
foster closer bi-regional relations (telecommunications and transport projects); to incorporate environmental
improvements, such as renewable energy sources and anti-pollution measures; to encourage subregional integration, or
to develop links with other countries. IRELA, The European Union and MERCOSUR: Towards a New Economic
Relationship? (Base document) (Madrid, 1996), p. 32.
12
Loans have to be repaid in a period of ten to twelve years in the case of industrial projects, or up to twenty years in
the case of infrastructure. The European Bank of Investment (EBI) funds under 50 percent of the total cost of a project
in specific sectors: industrial, agro-industrial, mining, energy, tourism, and economic infrastructure. EBI loans cover
the ‘fixed asset component’ of a particular investment, made by a private company or by a state-owned company.
Ibid., p. 32.
13
Ibid., p. 32.
14
ECIP’s goal is to assist companies (particularly smaller enterprises) to conduct the various stages involved in the
creation of joint ventures or in the setup of private infrastructure projects, to provide training for local employees, to
transfer know-how to local partners, and to support the governments and public agencies of developing countries to
devise privatization schemes. The European Union provides up to 20 percent of the capital or up to 1 million Euros. A
network of EU and Latin American intermediary financial institutions must co-finance the investment on a nonrepayable basis. Ibid., p. 31.
15
Ibid., p. 31.
16
It gave 60 percent of its loans to private companies, and used the remaining 40 percent to finance the development of
public infrastructure projects that facilitate the development of private enterprises (Spain subscribed 3.4 percent of its
shares). Aceña, ‘Instrumentos de Financiación’, p. 71.
17
MIFLA provides financial aid for investments by small enterprises in projects that promote the participation of
women, young people, and underemployed workers. It also funds small enterprises that work in conjunction with nongovernmental organizations (NGOs), foundations and associations, and local governments, as well as those small firms
25
that foster the adaptation of technology to the development needs of the people, without harming the environment. IIC
provides loans and capital investments for small enterprises to finance up to 33 percent of their total investments in
developing regions. It also creates consortia with commercial banks that participate in its loans programs, provides
financial and technical consulting services for pre-investment surveys, identifies and selects investment projects,
searches for and selects potential investment partners, participates in the early stages of implementation of the project,
and sometimes takes part in the administration and management of the business operation. Ibid. pp. 68-69.
18
Ibid., pp. 66-67.
19
The UN Center for Industrial Development helped investors find partners in the ACP region (it is similar to the
European Union’s Al-Invest fund) and financed training programs and viability reports. The International Financial
Corporation of the World Bank funded up to 25 percent of investment in medium-scale and large-scale projects,
through contributions that ranged between $1 million and $50 million. These two funds require that promoters of the
project provide at least 30 percent of the capital, for projects of over $500,000. The funds only contribute resources to
new projects, or to the expansion, diversification, modernization, and privatization of existing ones, but they do not
participate in the management. Ibid. pp. 66-67.
20
Ibid., pp. 72.
21
There is no limit as to the amount of money to be insured. Nevertheless, there is a classification of countries into
five different categories, based on the degree of risk, to determine the cost of the insurance. The insurance is valid for a
period of five years, which can be extended thereafter on a yearly basis, for a total period of twenty years. CESCE
does not notify the host country of the insurance and obliges the company contracting it to keep it secret. The main
beneficiaries of this scheme are the largest Spanish companies, for their investments in Latin America and in
Maghrebian countries. In 1994, the Spanish state owned 50.23 percent of CESCE’s shares, banks owned 43 percent,
and insurance companies owned the remaining 7 percent. Carlos Jiménez Aguirre, ‘La Protección de las Inversiones en
el Exterior. Instrumentos Existentes’, Información Comercial Española, no. 735 (1994), pp. 86-87.
22
MIGA provides insurance for new projects, as well as for the expansion, modernization or restructuring of old ones.
It also covers acquisitions in privatization programs and subsidiaries established through direct investments. All the
projects have to be financially solid, respect the environment and have a positive impact on the economy of the host
country. It provides insurance for a period of fifteen years that can be extended five more years. However, the insured
may cancel the contract after three years. It provides coverage for a maximum of $50 million. Its interest rate is 0.5
percent. These insurance policies were not as successful as the government intended, even though some Spanish
companies subscribed them. The reasons were that Spain’s FDI was not sizeable until the 1990s, the lack of
information among Spanish firms, the concentration of Spanish FDI (before the 1990s) in countries members of the
26
Organization for Economic Cooperation and Development (OECD), where political risk was nonexistent, the cost of
the insurance, vis-à-vis the appraisal of the profits, and the fact that these schemes were designed to provide insurance
for large investments. With a few exceptions, most Spanish companies made small individual investments, and thus
failed to qualify for these programs Ibid., p. 82.
23
Spain signed BARPIs with those countries that received significant amounts of Spanish FDI, those that purchased a
significant amount of Spanish exports or were potential markets for them, those which had a growing economy that
offered opportunities for Spanish goods and enterprises, and those which subscribed ‘Agreements of Economic
Cooperation’ (AEC) with Spain, to strengthen mutual economic, financial, and entrepreneurial relations. These
countries were Bolivia (agreement signed in 1990), Argentina (1991), Uruguay (1992), Paraguay (1993), Cuba (1994),
Chile (1994), Ecuador (1994), Honduras (1994), Nicaragua (1994), Peru (1994), Colombia (1995), the Dominican
Republic (1995), El Salvador (1995), Mexico (1995), and Venezuela (1995). The BARPIs included protection for
investments from the moment the investments materialized, and obliged the government of the host country to admit
the investment and to provide all types of technical assistance and licenses to the Spanish investor. The investor
received national treatment and Spain was granted most-favored nation status. The agreement also guaranteed the free
transfer of earnings to the parent company, the repatriation of profits, wages and salaries, compensation, loan
payments, investments for maintenance and development of the business operation, and transfers for liquidation of the
enterprise. The government of the host country agreed to bear economic responsibility for the loss caused to Spanish
investors in cases of nationalization, expropriation and armed conflict or similar situations. Compensation was
stipulated on the basis of the real market value of the investment prior to the announcement of the expropriation,
nationalization or armed conflict. Payment must be made in transferable and convertible currency. In case of dispute
between the investor and the host country, the agreement refers both parties to the tribunals of the host nation, the Paris
Chamber of International Commerce, the International Court of Justice, the United Nations Commission for
International Commercial Law (UNCITRAL) and the International Centre on Settlement of Investment Disputes
(ICSID). The agreement may stipulate restrictions in the access of foreign investors to some economic sectors deemed
sensible for national security purposes.
José Carlos García de Quevedo and Rosa Hontecillas, ‘Los Acuerdos
Bilaterales de Promoción y Protección de Inversiones’, Información Comercial Española, no. 735 (Nov. 1994), p. 79;
United Nations, World Investment Report, 1996, pp. 312-313.
24
According to Article 12 of the agreement, both sides agreed to create a stable and attractive investment environment
that would stimulate a rise in mutually-beneficial FDI flows, to introduce a favorable legal framework for investment,
particularly through bilateral investment protection agreements and double-taxation accords, and to promote jointventures, especially between small and medium enterprises. IRELA, The European Union, p. 30.
27
25
Eliana Cardoso and Ann Helwege, ‘Import Substitution Industrialization’, in Jeffry Frieden, Manuel Pastor, Jr., and
Michael Tomz (eds.), Modern Political Economy and Latin America. Theory and Policy, (Boulder, 2000), p. 155.
26
Sebastian Edwards, Crisis and Reform in Latin America. From Despair to Hope, (Oxford, 1995), pp. 43-48.
27
Ibid., pp. 4-5.
28
Luiz Carlos Bresser Pereira, ‘Economic Reforms and Economic Growth: Efficiency and Politics in Latin America’,
in Luiz Carlos Bresser Pereira, José María Maravall, and Adam Przeworski, Economic Reforms in New Democracies.
A Social-Democratic Approach, (Cambridge, 1993), pp. 18-20.
29
Ibid., pp. 20-26.
30
Ibid., pp. 36-50; for a detailed analysis of the reforms, see Edwards, Crisis and Reform, pp. 69-292.
31
Edwards, Crisis and Reform, p. 170.
32
Ibid., pp. 200-224.
33
Ibid., pp. 246-251.
34
Adeoye A. Akinsanya, The Expropriation of Multinational Property in the Third World (New York, 1980), pp. 115-
116; and Paul E. Sigmund, Multinationals in Latin America. The Politics of Nationalization (Madison, 1980), pp. 3639.
35
Albert Carreras, Xavier Tafunell, and Eugenio Torres, ‘Against Integration. The Rise and Decline of Spanish State-
Owned Firms and the Decline and Rise of Multinationals, 1939-1990’, in Ülf Olson (ed.), Business and European
Integration Since 1800. Regional, National and International Perspectives (Göteborg, 1997), p. 32.
36
Ravi Ramamurti, ‘The New Frontier of Privatization’, in Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons
from the Telecommunications and Transport Sectors in Latin America (Baltimore, 1996), pp. 1-45.
37
Ibid., p. 11.
38
For more information on the treaties for protection and promotion of investment between Spain and Latin American
countries, see United Nations, World Investment Report, 1996, pp. 312-313.
39
John M. Kline, Foreign Investment Strategies in Restructuring Economies. Learning from Corporate Experiences in
Chile (Westport, 1992), p. 189.
40
Manuel Sánchez, Rossana Corona, Luis Fernando Herrera, and Otoniel Ochoa, ‘The Privatization Process in Mexico:
Five Case Studies’, in Manuel Sánchez and Rossana Corona (eds.), Privatization in Latin America (Washington, 1993),
p. 162.
41
Ben Petrazzini, ‘Telephone Privatization in a Hurry. Argentina’, in Ramamurti (ed.), Privatizing Monopolies, p. 127.
42
Pablo Gerchunoff and Germán Coloma, ‘Privatization in Argentina’, in Sánchez and Corona (eds.), Privatization in
Latin America, p. 129.
28
43
Dominique Hachette, Rolf Luders and Guillermo Tagle, ‘Five Cases of Privatization in Chile’, in Sánchez and
Corona (eds.), Privatization in Latin America, pp. 79-80. See also Kline, Foreign Investment Strategies, p.190.
44
Telefónica. Quoted in (New York) Wall Street Journal, 23 May 1996, A1, A9.
45
Carmen Jiménez, ‘Telefónica Se Convierte en el Mayor Operador de Brasil’, El País (Madrid), 30 July 1998,
Economía y Trabajo section, p. 31.
46
The agreement signed by Telefónica and WorldCom-MCI on 9 March 1997 comprises several aspects. Telefónica
would buy 10 percent of Eurocom, WorldCom’s operator in Europe. Creation of a joint venture between Telefónica
(49 percent) and WorldCom (51 percent) to operate in Eastern and Southern Europe. Telefónica would have the option
to acquire 40 percent of the company that WorldCom created in Italy. Telefónica would distribute Eurocom’s products
in Spain, and it would consider the creation of a joint venture in Spain to distribute voice and value-added products.
Telefónica had the option to acquire 10 percent of MCI-WorldCom. MCI and Telefónica would create a joint venture
(70-30), managed by MCI, to adapt its services and promotions to the needs of the Spanish-speaking people living in
the US. Creation of a joint-venture between Telefónica (51 percent) and MCI (49 percent), called Telefónica
Panamericana MCI (TPAM), controlled by Telefónica, to manage Telefónica’s Latin American subsidiaries, and to
develop a digital network to link the main trade centers of Latin America with the US and Europe. MCI would have
the option to buy 10 percent of TISA before June 2000. MCI and Telefónica would merge their activities in Puerto
Rico. Telefónica would have the option to buy a share of Avantel (controlled by MCI and Banamex) in Mexico. The
president of Telefónica, Juan Villalonga, would join MCI-WorldCom’s council, and Bert Roberts, MCI’s president,
would join Telefónica’s executive council. If the merger between WorldCom and MCI did not materialize, Telefónica
and WorldCom would maintain the accord of 9 March 1998. Information provided by Telefónica and World-Com
MCI, quoted in El País Digital, no. 676, 10 March 1998, Economía section, observed 10 March 1998.
47
Miami (Florida) El Nuevo Herald, 6 July 1997, Moneda section, 5B; El País Digital, no. 425, 2 July 1997, Economía
section, observed 2 July 1997; El País Digital, no. 1120, 28 May 1999, Economía section, observed 28 May 1999.
48
Financial Times (London), 15 Oct. 1996, Sp. III, p. 3.
49
Edwards, Crisis and Reform, pp. 204-207.
50
Ibid., p. 14.
51
Liliana Rojas-Suárez and Steven R. Weisbrod, Financial Fragilities in Latin America. The 1980s and 1990s
(Washington, 1995), p. 14.
52
Edwards, Crisis and Reform, pp. 207-208.
53
Rojas-Suárez and Weisbrod, Financial Fragilities, p. 15.
54
El País Digital, no. 431, 8 July 1997, Economía section, observed 8 July 1997.
29
55
Banco Santander, quoted in El País Digital, ‘Los Beneficios del Santander Suben un 29.2% en 1997 y Superan los
110,000 Millones’, no. 635, 29 Jan. 1998, Economía section, observed 29 Jan. 1998.
56
BBV, quoted in El Nuevo Herald, 8 March 1997, Moneda section, 5B.
57
El Nuevo Herald, 23 March 1997, Moneda section, 6B.
58
BBV, quoted in El Nuevo Herald, 23 March 1997, Moneda section, 6B.
59
Financial Times, 15 October 1997, Sp. III, 3; and Financial Times, 14 March 1997, special section, “Latin American
Finance”, p. 4.
60
Saud Siddique, ‘Financing Private Power in Latin America and the Caribbean’, in Finance and Development, V.32,
no. 1 (1995), pp. 18-21.
61
Ibid., pp. 18-21.
62
Santiago Cacar, ‘La Euforia Bursátil Anima al Gobierno a Vender su 41% de Endesa para Ingresar 1,6 Billones’, El
País Digital, no. 700, 5 April 1998, Economía section, observed 5 April 1998.
63
The Oil and Gas Journal, vol. 95, no. 5 (1997), p. 35.
64
The consortium was also integrated by Chilectra of Chile, Grupo Financiero Popular de Colombia, and Fondelec,
from the United States. In El País Digital, ‘Endesa se Adjudica Dos Eléctricas de Colombia por 337.000 Millones’, no.
502, 17 Sept. 1997, Economía section, observed 17 Sept. 1997.
65
Endesa extended its participation in Enersis from 32 percent to over 65 percent on 14 April 1999. This provoked
serious debates in the Chilean Congress. On 29 April, Chile’s Monopoly Commission blocked Endesa’s move, but on
11 May 1999 it finally authorized the takeover. In El País Digital, no. 1075, 14 April 1999, observerd 14 April 1999;
El País Digital, no. 1091, Economía section, observed 29 April 1999; and El País Digital, no. 1103, Economía section,
observed 11 May 1999.
66
Each company provided 41 percent of the funding. The remaining 18 percent came from Chilectra and Electricidade
de Portugal. In Santiago Carcar, ‘Endesa Adquiere la Compañía Brasileña Coelce en Pugna con Iberdrola’, El País
Digital, no. 701, 5 April 1998, Economía section, observed 5 April 1998; El País Digital, no. 699, 3 April 1998,
Economía section, observed 3 April 1998; and El Nuevo Herald, ‘Pasa Firma Brasileña a Manos de Europeos’, 3 April,
1998, Moneda section, p. 6B.
67
El País Digital, ‘Iberdrola Compra la Eléctrica Brasileña Cosern por 73.800 Millones’, no. 589, 13 Dec. 1997,
Economía section, observed 13 Dec. 1997.
68
Carmen Jiménez, “Telefónica Se Convierte en el Mayor Operador de Brasil”, El País, 30 July 1998, Economía y
Trabajo section, p. 36.
69
Euromoney (London), no. 326 (June 1996), pp. 167-168.
30
70
Ignacio Sánchez-Zuloaga, ‘La Internacionalización Productiva de las Empresas Españolas, 1991-1994’, Información
Comercial Española, no. 746 (Oct. 1995), pp.102-103.
71
El País Digital, no. 411, 19 June 1997, Economía section, observed 19 June 1997.
72
El Nuevo Herald, ‘Pagan $301 Millones por Empresa Eléctrica Panameña’, 12 Sept. 1998, Economía section, 6B.
73
AFP-Extel News Limited, ‘Hidrocantabrico to invest 18 bln pesetas in Mexico Under Eastern Group Accord’, 14
December 1998.
74
Luis Aparicio, ‘Repsol, en Manos Privadas’, El País Digital, no. 346, 14 April 1997, Economía section, observed 14
April 1997.
75
Ibid.
76
Ibid.
77
Ludmila Vinogradoff, ‘Repsol Consigue Entrar en Venezuela Tras Ofrecer el Doble que sus Rivales’, El País
Digital, no. 344, 12 April 1997, Economía section, observed 12 April 1997.
78
79
Aparicio, ‘Repsol, en Manos Privadas’.
Expansión (Madrid), ‘Repsol Abandona el Capital de Gas Natural Lationamericana’, 7 Feb. 1998,
http://expansion.es, observed 7 Feb. 1998.
80
The Brazilian Monetary Council authorized BBV to increase its control over equity in Banco Excel Económico up to
100 percent, on 30 July 1998. BBV, http://www.bbv.es/BBV/home.html, observed 12 Sept. 1998.
81
Metrogas, Edenor and Pluspetrol were subsidiaries of the Astra group, before Repsol bought 47.5 percent of Astra in
1996. The Spanish oil company acquired Grupo Comercial del Plata, JME Inversiones, Isaura, EGB, Refisan, Dapsa
and Parafinas through Astra on 30 May 1997. Ibid.
82
The companies marked with an asterisk were operated through Gas Natural Latinoamericana, a company created by
Repsol, Iberdrola and Gas Natural, to participate in gas extraction and distribution projects in Latin America, and in the
privatization of gas fields and distributors in that region. Ibid.
31