A
New Assertiveness for Latin American Governments
By
Mark Weisbrot
The relationships between governments and investors - especially
transnational corporations -are changing rapidly, and this
is especially true in Latin America today. Last month, Bolivia,
Venezuela, and Nicaragua surprised many international observers
by announcing that they would withdraw from the World Bank’s
international arbitration body, the International Center for
the Settlement of Investment Disputes (ICSID). The ICSID is
a place where - under prior arrangement - foreign investors
who have a dispute with a host government can submit their
case to binding arbitration.
Bolivia’s position is that ICSID is not an impartial
arbitrator, and cannot be expected to act as one, so long as
it is part of the World Bank. As was highlighted by the recent
controversy that led to the resignation of World Bank head
Paul Wolfowitz, the Bank may have 185 member countries, but
it is really dominated by Washington. The saga continues as
the Bush Administration once again has chosen a close neo-conservative
associate of President Bush - former U.S. Trade Representative
Robert Zoellick - to run the institution. The World Bank has
long used its power - not only from its own lending of $23
billion annually, but also as part of a “creditor’s
cartel” led by the International Monetary Fund - to pressure
governments to adopt policies favored by transnational corporations.
These include privatizations and removing restrictions on foreign
ownership, trade, and investment flows.
The Bolivian
government also argues that there are other conflicts of
interest involved in having the World Bank’s arbitration
panel rule on disputes between governments and foreign investors.
Pablo Solón, Bolivia’s Special Ambassador for
Trade and Integration, cited the case of Aguas de Illimani,
a subsidiary of the French international water giant Suez.
It turned out that the International Finance Corporation, a
part of the World Bank Group, was a shareholder in Aguas de
Illimani. It is clear that the same institution should not
be both arbitrator and a party to the dispute.
The ICSID
process, like other such international arbitration panels,
does not have the transparency, checks and balances,
or openness of a real judicial system - like ours in the U.S.,
for example. It is shrouded in secrecy. And the World Bank’s
influence in selecting arbitrators makes it anything but neutral.
Bolivia
maintains that their government, which was elected with a
majority that was tired of seeing the country’s
natural resources drained to make foreign companies rich while
their country remained the poorest in South America, needs
to change the rules so that they are at less of a disadvantage
relative to giant corporations. They have a good case. Since
the government raised its royalty rates on hydrocarbons - with
the government’s share of the biggest gas fields going
from 18 to 82 percent - it has increased its revenue by nearly
7 percent of GDP. This is a huge increase in revenue.
The IMF
wrote in their country papers on Bolivia that the country
would be hurting itself by raising the royalty rates.
They were wrong, as were most of the experts in Washington
and the US business press. In these circles it is taken as
given that anything which pleases foreign investors is good
for the host country, as it will attract foreign investment.
Likewise, anything that foreign investors don’t like
is generally portrayed as a potential disaster.
In recent years it has not worked out that way, especially
in Latin America. At the end of 2001 Argentina engaged in the
largest sovereign debt default in history, and most economists
and journalists predicted they would suffer terrible consequences
for many years to come. But in fact the economy declined for
only three months, and then went on to average nearly Chinese
levels of growth for the last five years: 8.6 percent annually.
Venezuela raised the royalties on foreign investors in the
Orinoco basin from 1 percent to 30 percent, and on May first
claimed a majority stake in all joint ventures with foreign
companies. The big oil companies - Chevron, Exxon Mobil, British
Petroleum, ConocoPhillips, and others accepted these changes
and are still there, making plenty of money.
In fact,
what is happening now in Latin America and other developing
countries is an attempt to correct for the extremism
that characterized economic policy changes in the 1980s and
90s. Aside from the macroeconomic failures that resulted from
these changes, one result was to seriously shift the balance
of power to favor foreign investors over governments. The advent
and increasing use of “investor-to-state dispute resolution,” with
investors able to sue governments directly for actions that
infringe upon their profits, is a recent development. About
two-thirds of these lawsuits have come about in just the last
five years. Similarly, there has been a proliferation of Bilateral
Investment Treaties (BITS), now more than 2500, many of them
containing provisions for ICSID to arbitrate disputes.
But there
does not appear to be any relation between adopting these “investor-friendly” reforms and even the
amount of foreign direct investment that a country receives,
as even the World Bank’s own research has concluded.
For many years China has led all developing countries as a
recipient of foreign direct investment. But the main option
for foreign companies that have a dispute with the government
has been local arbitration through the country’s own
China International Economic and Trade Arbitration Commission
(CIETAC).
The new assertiveness of Latin American governments toward
foreign investors has proven remarkably successful so far,
winning them billions of dollars of new revenues and allowing
some of the new democratic governments to deliver on their
promises to help alleviate poverty. The conventional wisdom
is that these changes are just a temporary result of high prices
for oil and other minerals and commodities, and unusually low
interest rates - all of which have given developing countries
more alternatives and bargaining power. But it is much more
likely that these changes are institutional and permanent.
Mark
Weisbrot is
co-director of the Center for Economic and Policy Research
in Washington, D.C. His expertise includes Economic
growth, trade, Social Security, Latin America, international
financial institutions, and development. Petroleumworld
not necessarily share these views.
Editor's Note: This article was first published by Common Dreams
Org, June 13, 2007. Petroleumworld
reprint this article in the interest of our readers. Petroleumworld
reprint this article in the interest of our readers.
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