Latin American investment drops 20%

Argentina's Domingo Cavallo speaks to investors this week

The investment flow into Latin America slowed dramatically last year.

In 2000, investors poured $74bn into the region, 20% less than during 1999, when £93bn was invested.

Investment flow into Latin America

1999: $93bn

2000: $74bn

2001: $60bn (prediction)

Source: ECLAC

However, the 1999 figure was boosted by massive inflows in connection with the privatisation of several telecoms and electricity companies.

"The difference is to a large degree due to the purchase of just three large Latin American firms by foreign companies in 1999," said Jose Antonio Ocampo at the UN.

Mr Ocampo, who is the secretary general of the UN agency Economic Commission for Latin America and the Caribbean (ECLAC), has presented a report on foreign investment into the region.

Large sums

In the future, the region's foreign direct investment will probably stabilise at about $60bn a year, Mr Ocampo predicted.

"What is clear is that current volumes of foreign direct investment (into Latin America) are of a magnitude undreamed of a decade ago," he said.

In 2000, Brazil and Mexico received more than half the total investment into Latin America.

Brazil received $30m while Mexico received $13m.

Argentina and Chile both suffered a fall in the inflow of cash, and the report raised doubts about the future strength of investment into these countries.

Colombia and Peru both received less cash than usual. This reflected "recent political and economic instability", the report said.

Challenges for Latin America

Most Latin American countries are prepared to offer special conditions to attract investment from abroad.

This policy is not always the best way to take advantage of the accelerating global expansion push by international companies, the report suggested.

It added that "countries face a double challenge":

• To adopt foreign investment policies within their broader plans for development.

• To establish a modern and effective regulatory framework for recently liberalised service sectors.

Disguised devaluation

The foreign investment report coincided with Argentina's push to replace the old peso link to the US dollar with a basket of both dollars and euros.

The Argentine economy minister Domingo Cavallo has spent much time this week trying to convince investors that this change is not a disguised effort at devaluing the peso.

Mr Cavallo's economic policies, which set out to break the back of a lengthy recession, are highly controversial.

Argentina has long argued that the 10-year-old Latin American customs union Mercosur should become a free trade organisation instead.

And Mr Cavallo has predicted that a single Latin American currency could become a reality within the next decade.