Latin Finance - March/April 2010 - 18

political risk or any attempt to address privatization of popular president would undermine the oil. However, analysts view security as the positive trend of transitioning between most pressing matter for Mexico. political parties. “Mexico seems to be like Medellín of “It’s going to present a major issue the 1980s,” says Daniel Villar, acting chief in terms of institutionality, which had economist at the Multilateral Investment always been a strength of Colombia and is Guarantee Agency (MIGA). “I’m not sure now a weakness,” says Villar. how committed the establishment is to Colombia has in the past had strong continuing this ﬁght,” adds Villar, a Colombian citizen. In the worst case scenario, if Mexico’s government gives up the battle, direct investors risk having to pay protection money and portfolio investors face the prospect of a descent into anarchy. However, others are more optimistic. “There are very localized areas where there is violence because of the war,” OECD secretary general Angel Gurría tells LatinFinance. “There is an impact on the budget, but the Mexicans are compensating for it in other ways,” adds the former Mexican ﬁnance minister. A recent drop in FDI is more likely related to the US slowdown than crime, says Shetty, who nonetheless says the war will likely last years. “This is one of the factors that might detract from growth,” says Shetty. The analyst says that even if Mexico does achieve 4% growth this year, it is from a low base, and may not be Arming up in Mexico: the bloody drug war could spread sustainable. Spillover to other countries civil servants and competent regulators, cannot be ruled out if Calderón beats the but now the cabinet is viewed as being cartels. “If the crackdown by Calderón ﬁlled with presidential yes men, says is successful, will they move to Central Villar. There are long-term concerns America?” asks Villar. “The real crossabout how congress is controlled, border unknown factor is drugs,” he adds. and how di erent areas of economic This can be seen in Bolivia and Peru, activity are run, though Villar adds that where coca production rises when there there is no threat of currency crisis or is a clampdown in Colombia. And it may nationalization. ultimately destabilize local government, “The di culty of doing business really as in early 1990s Peru. increases as a result of the personalization of government as opposed to the Stomping on a Constitution institutionalization of government,” says Colombia has made signiﬁcant progress Villar. in the last decade, but it is becoming Others are more upbeat on the a tougher place to do business. Even opportunity. “There is scope for a noisy Uribe supporters say a third term for the – but likely transitory – local political backdrop over coming months if Uribe is not allowed to run again, or if the presidential vote is delayed beyond May to give more time to hold a referendum,” says Paul Biszko, senior EM analyst at RBC. “One should not expect any major new policy initiatives this year.” RBC expects no major shift in economic, regulatory or security policy, regardless of who wins May 2010’s presidential election. It views Colombia as one of Latin America’s most attractive investment opportunities over the next 3-5 years. “Any deeper near-term global risk-asset correction should be used to increase exposure to Colombian risk via the currency, local equities or future corporate debt issuance,” adds Biszko. Meanwhile, project developers have regulation and intervention to worry about. “It has got worse. It’s a political move by the Colombian government to become more interventionist,” says a foreign participant in that market, who asks not to be identiﬁed. Commodity producers may, for example, be investigated by local authorities, which could delay projects. Hefty ﬁnes are sometimes imposed. “Colombia has become a huge bureaucracy and there has been an increase in investigations by state-owned regulators,” says Christopher Cardona, partner in the political risk team at Chadbourne & Parke. He notes a higher incidence of fraud and government intervention, and says regulation has been a bigger issue over the last 6-9 months. “Just about everything is investigated and this is giving rise to nervousness on the part of investors,” says Cardona. Contact with the state is exposed to intervention by regulators, and though this does not typically result in expropriation, it should be a concern for investors, says Cardona, who has recently worked on cases in the Andean nation for Bloated Bureaucracy 18 LATINFINANCE March/April 2010

Latin Finance - March/April 2010

Table of Contents for the Digital Edition of Latin Finance - March/April 2010