What was the Wizard of Oz really about? One hundred years ago Populism swept the United States in response to tight credit and the domination of the national economy by large corporate trusts. The US populists were led by such notables as, trust-buster, Theodore (Dor-o-thy) Roosevelt and free silver advocate, William Jennings Bryan (The Lion). The house falling on the Witch of the East, which opens the story, signified Roosevelt's victory over the Wall Street robber barons. The brainless farmers (Scarecrows) of that era threatened to unite with the oppressed, heartless factory workers (Tin Men) and petition the government to put an end to the gold standard (Yellow Brick Road). A chronic shortage of gold, measured in ounces (~Oz~), throttled the economy and the economic prosperity of the common man. (Read more: Wizard of Oz)
Dealing With Latin Populists
BY JOACHIM BAMRUD
Last week's Ibero-American Summit in Chile was supposed to be a good opportunity for private-sector leaders in Spain, Portugal and Latin America to influence policy-makers to boost investor-friendly policies.
Instead, the summit turned out to be only the latest platform for populist, anti-business rhetoric, with presidents like Hugo Chavez of Venezuela and Daniel Ortega of Nicaragua attacking Spanish companies.
Ortega compared Spanish electricity company Union Fenosa to the mafia and accused it of using "gangster methods" and corruption. He also criticized a previous government of Nicaragua which sold state electricity companies to Union Fenosa. "We wouldn't have let them in," he said, while the Spanish king and prime minister were looking on. "They bought, amidst corruption, the generating companies which were in good shape."
Ortega blames Union Fenosa for Nicaragua's electricity problems and has repeatedly threatened to expel the company. Union Fenosa, however, blames the problems on users who are not paying their bills. Ortega's speech in Chile earned him a rebuke from the American Chamber of Commerce in Nicaragua.
The latest rhetoric comes after a series of populist policies implemented this year in Latin America. In January, Chavez nationalized Venezuela’s largest telecom and electricity companies CANTV and EDC. He later renegotiated the terms of existing oil contracts – leading ExxonMobil and ConocoPhilips to leave rather than accept the less profitable terms. Meanwhile, Ecuador’s populist president Rafael Correa this month announced he will renegotiate the contracts of foreign mining firms and revoke those who aren’t being used. He also threatens to expel U.S.-based City Oriente and Mexico-based America Movil for alleged tax problems. That comes on top of his recent decision to hike oil royalties from 50 to 99 percent.
“Risks remain high while Correa is in office and beyond given Ecuador’s long history of political instability and inconsistent policymaking,” U.S.-based consultancy Global Insight warned in an analysis today.
City Oriente has taken its case to the World Bank’s International Center for Settlement of Investment Disputes (ICSID). But it may face some problems. Correa says he won’t recognize any verdicts from the ICSID. Ecuador already faces a suit from U.S.-based Occidental petroleum, which was Ecuador’s largest foreign investor until it had its operations expropriated from the government last year.
And Bolivia – led by populist president Evo Morales – has decided to leave the ICSID altogether. It also faces a possible ICSID case brought by Swiss-based Glencore, which had its tin smelter seized without compensation in February.
LESS PRIVATE INVESTMENT
The result? More litigation and less investment, experts say. “Obviously there will be protracted litigation at certain levels,” says Michael Diaz, managing partner at U.S.-based law firm Diaz, Reus, Rolff & Targ. “It will affect their trade policies with the U.S. and other developing countries.”
Both Ecuador and Bolivia are seeking an extension of the Andean Trade Preferences and Drug Eradication Act (ATPDEA), which provides duty-free access for around 5,600 products. The two are also – along with Colombia and Peru – set to negotiate a free trade agreement with the European Union.
Meanwhile, investment will decline. “Who want to invest in those countries if they won’t respect the rule of law?,” asks Diaz.
(But that argument cuts both ways, who will embrace these multinational corporations if they fail to respect the law and the environment? See: False Environmental Impact Statements induce Regional Environment Commission to Implement Fines. , Mining Giants Account For Fifty Percent Of All Corporate Profits in Chile , Ransacking Chile - Fabulous Profits for Multinationals , Chile's 21st Century Gold Rush , Chilean authorities outraged over new leak at Los Pelambres mine , Chile's Government fines itself for polluting the environment )
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