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Latin America

My Lords, the Latin American world is undergoing a process that involves politics, poverty and economic advance, each one a tension with the others, to which we should pay great attention. The International Monetary Fund reviewed the Latin American economy last week, and the general picture is that it is doing better than expected in making political progress and economic advances and in reducing poverty, as well as in making progress in employment and developing macroeconomic policies and the like. But, with that promising conclusion, the IMF issued a very strict warning which I propose to develop as follows. Such promising economic progress in most countries is sustained by high commodity prices and a surge in demand. It is very dangerous indeed for the Latin American continent to build its economic future on that base. But when we look at politics, poverty and economics in Latin America, as I will now do with that warning in mind, what do we find? There is this logic: the nation’s national resources equal the nation’s wealth, which equals the means of reducing the nation’s poverty, which equals the need to nationalise. It is the logic of leaders who have been elected in a number of South American countries in the recent past, and we must recognise it whether we agree with it or not. In 1938, Mexico nationalised its energy industry, which now enjoys a quasi-constitutional position in the life of that country. Thus recognising the realities, let us take Bolivia as an example. Bolivia has the second highest gas reserves in South America, and is the poorest country in South America by a long way. In 2004, in a national referendum, 95 per cent of Bolivians voted for the nationalisation of their energy resources. In 2005, a hydrocarbons law upped the return on royalties and tax to 50 per cent. Last Monday, nationalisation was imposed by government decree. That is not progress carried out by those indifferent to the national will, but by people responding to it—at least, in terms of nationalising resources. Few of us would know that in many South American constitutions the natural resources of the country in question are regarded as belonging to that nation and inalienable in that ownership. So, realistically, we should accept that in a country such as Bolivia these changes are the result of popular forces. In pursuing nationalisation, Bolivia, Ecuador and other countries seek a return on their own resources—the quid pro quo of the nation in relation to the investor. Ecuador imposed a 50 per cent windfall tax last month, while Venezuela has renegotiated all of its energy contracts with foreign investors. We know what happened in Bolivia. Whether we like it or not, the Latin American world is changing. During that change, is it not important for both the nation and the investment community to keep a sense of balance? Yesterday in the Financial Times, the editorial comment on Bolivia said quite plainly that,"““there is nothing intrinsically wrong in trying to maximise tax and royalties””" for your country. On the other hand, when we think of the political leaders of South America, we ought perhaps to remember Adlai Stevenson, who said:"““Patriotism is not short, frenzied outbursts of emotion but the tranquil and steady dedication of a lifetime””." Political change may at times be dramatic, but thereafter it has to be considered and prudent, and will sometimes take a long time. So, what are the prospects if the balance is to be kept in South America? The Morales victory is only the second occasion in several hundred years when an indigenous Indian became the president of a country in Latin America, the first being Benito Juárez. That is an astonishing rarity of success from what was the majority of the population. In Bolivia, this indigenous leader—faced with the national will which I have described—is selling Brazil 50 per cent of its needs in gas, which provides one-third of Bolivia’s tax returns. There is no doubt that there will be a solution. I have looked at the decree of last Monday. It is only three pages long and has nine short articles. One would have thought that it was drafted with flexibility in mind, as negotiations start now in the 180 days which have been given to investors to renegotiate. For Brazil, Lula has responded with prudence and care, so there are good prospects. However, the net result of all this is that the poor of Latin America have spoken and their leaders have responded with passion, which we should meet with patience. We do so through the present Minister, my noble friend Lord Triesman, of whom I ask nothing save a promise that he continues to give the same level of intellectual enthusiasm, commitment and friendship toward Latin America that he has shown since taking office. His efforts will be matched throughout by those of the noble Viscount, Lord Montgomery, whose persistence is outdone only by his persuasion and utter determination that we will never forget Latin America. We should not, as its nations’ destinies are linked with ours and we should look to it more than we do.