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Spanish Investment in Latin America

Pablo Toral

Department of International Relations Florida International University

University Park Miami, FL 33199

USA Phone # 305-3482556

Fax# 305-3482197 Email: ptoral01@fiu.edu

ptoral01@yahoo.com

Paper presented at the 2001 LASA Convention in Washington D.C., 6-8 September

Abstract. The large investments of Spanish companies in Latin America in the 1990s were the result of a strategy designed by the Spanish firms to prevent their takeover by larger European companies and the subsequent loss of “national” control over key economic sectors. This article examines the economic and political motivations in Spain, in the European Union, and in Latin America for these investments. It also explores the communion of interests between the Spanish and the Latin American governments to facilitate the investments in three sectors: banking, telecommunications, and energy.

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Although the investments made by some Spanish companies in Latin America, especially in the utilities sectors, seemed very risky to observers in the early 1990s, in 1998 Spain surpassed the United States as the leading single investor in the region, and in 1999 Spanish foreign direct investment (FDI) tripled US FDI, a feat never thought of by Europeans after World War II.1 The presence in Latin America of multinational enterprises (MNEs) headquartered in Spain gained importance for several reasons: the great amount of money they invested, the strategic importance of some of the investments, and the role of FDI in the economic policies adopted by most Latin American governments as a strategy to stimulate their economies and move out of the economic recession of the 1980s.

This article will explain why the amounts of Spanish FDI in Latin America in the 1990s were so substantial, and why they occurred at that particular time.2 It will argue that these investments were the result of three variables that came together in the early 1990s: the degree of development achieved by Spain’s economy (many Spanish companies benefited from a period of sustained growth of the Spanish economy and accumulated enough resources to expand in new markets); the process of liberalization undertaken by the European Union (EU), by which the European authorities set a schedule for liberalization of several industries that up until the 1990s operated under monopoly rule (a group of Spanish companies decided to expand outside of Spain, as a defensive strategy to withstand competition in Spain, when liberalization was implemented); and the new economic framework adopted by the Latin American governments, which stressed macroeconomic stability and gave foreign companies the same legal status as domestic companies, creating the conditions that many Spanish companies considered appropriate to start their foreign expansion.

The article consists of four sections. The first section examines the development of the Spanish economy and the growth of Spanish firms. It follows the model developed by Dunning and Narula (1994) to explain the relationship between economic development and FDI. The second section analyzes the process of liberalization undertaken by the Spanish government after Francisco Franco’s death in 1975, and the transition to democracy. The third section explores the developments in the 1990s within Latin American countries that made their economies appealing to foreign investors, especially to Spanish companies. It pays special attention to the new development strategies applied by Latin American governments and the role of FDI in those models. The last section explains how the appropriate factors needed for investment between Spain and Latin America occurred simultaneously in the late 1980s and early 1990s, and explores business and political incentives that led Spanish companies to invest in Latin America, by scrutinizing the participation of Spanish firms in the privatization processes, as well as the political motivations behind these investments.

ECONOMIC DEVELOPMENT IN SPAIN J. H. Dunning and R. Narula (1994) provide a model to understand the

relationship between economic development and FDI. They divide countries up into five categories based on the role their economies play with regard to FDI.3 In stage one, a country’s location advantages are not important enough to attract FDI, except in mining and exploitation of natural resources. Income per capita and domestic demand are low. Less industrialised countries that have unqualified labor and poor transport and

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telecommunications infrastructure are in this stage. FDI is small and concentrated in commercial activities related to export. Spain went through this stage in the nineteenth century and early twentieth century.

In stage two, the domestic market and the stock of capital in activities that generate value added are higher. There are some capital-intensive industries, such as those related to steel, shipyards, and a basic chemical industry. FDI is concentrated in the manufacturing sector and in the exploitation of natural resources, and works as an economic stimulus because it contributes to increase the productive capacity of those industries. FDI may spread to emerging industries that require intermediate technology, such as consumer goods, textiles, food, and basic electric goods. Public expenditures emphasize investment in education (mainly secondary education), transport, communications, and the provision of some public goods and services. The government also develops basic infrastructure to facilitate productive activities and pursues economic policies that promote macroeconomic stability. Spain went through this stage in the 1960s.

At stage three, the standard of living is high, the tertiary sector is large and consumers and firms start to give priority to high quality goods. Product differentiation plays an important role, along with investment in research and development (R&D). Firms demand workers with university degrees. Wages are higher and no longer play a role in the comparative advantage of firms. Salaries are not an incentive for investment to reduce production costs. The degree of investment abroad for the companies of these countries is considerably high, especially motivated by the search for lower production costs (mainly cheaper labor). Spain came out of this stage in the late 1980s.

In stage four, the amount of inward FDI is equivalent to the amount of outward FDI. The comparative advantages of the country are only created factors, rather than given natural endowments. Domestic firms compete with foreign MNEs in the domestic market, as well as in international markets. There is a high degree of intra-industry trade and investment. Spain reached this stage in the mid-1990s. The fifth stage or ‘information economy’, is characterized by information-related activities such as telecommunications, computer technologies and software. Only a few post-industrial societies like the United States, Japan, Germany, France and Sweden have reached stage five. Many of the economic transactions among these countries have been internalized by MNEs. These economies are very integrated. There are a great number of acquisitions and strategic alliances among firms in these countries, seeking higher rates of efficiency.

LIBERALIZATION IN SPAIN The Spanish government played an important role in the process of

internationalization of Spanish firms, by setting a deregulatory legal framework, and pushing several publicly owned Spanish companies to make investments outside of Spain. The first step was the reduction of the legal requirements that outward capital flows had to go through. Until the mid-1970s, Spain had strong control mechanisms over capital movements to prevent capital flight, and investments outside of the country had to be approved by the Spanish Council of Ministers. Reforms were introduced in 1977, 1979, 1986, and 1992 to make Spanish legislation comply with the stipulations of the

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European Union, which made the notification of the FDI for statistical purposes the only requirement (with no need of approval).4

The incorporation of Spain to the European Union on 1 January 1986 was a powerful stimulus for Spanish exports to the European Union and for FDI in Spain (by companies from the European Union as well as from outside of it). Inward FDI in Spain increased by 1,433 percent between 1985 and 1995, from $8,939 million to $128,859 million, making Spain the sixth recipient of FDI in the world.5 The gradual liberalization of economic activities across the European Union, especially in the public utilities (set at 1997 for telecommunications and 2007 for electricity), contributed to push many Spanish firms to Latin America. The Spanish government devised a defensive strategy to protect Spain’s public utilities from European competition. Its goals were to push Spanish firms to move into new markets outside of Spain, and to increase the competitiveness of the firms by forcing them to participate in open markets, where competition with other companies would compel them to raise efficiency. Latin America became the target.

The strategy of the Spanish government comprised a set of specific policies: a reform of the tax system, a number of public funds to subsidize or finance the direct investments of Spanish firms abroad, a system of public insurance to protect the investments from the risks of the host country, and bilateral and multilateral treaties for protection of investments by the governments of the main host countries. A tax reform to prevent double taxation of Spanish MNEs was implemented in 1990, in compliance with EU directive 435. The Spanish legislature exempted Spanish firms from the payment of taxes on the distributed dividends and deducted from the taxes to pay in Spain the amount that their subsidiaries already paid in the host country, when this amount was lower than that stipulated by Spanish law.6

Public financial aid for Spanish direct investment abroad was channelled through four different types of credit, created by the Spanish government, as well as the EU institutions. The Spanish Institute of Official Credit (Instituto de Crédito Oficial -ICO-) created a fund of 20,000 million pesetas ($150 million), with the cooperation of the Ministry of Trade and Tourism, and the Institute of Foreign Trade (Instituto de Comercio Exterior –ICEX-), to finance Spanish FDI in the creation or improvement of commercial networks and in production projects.7 The Spanish Company of Finance for Development (Compañía Española de Financiación del Desarrollo -COFIDES-) was created in 1988, with a fund of 2,500 million pesetas ($19 million) to finance Spanish investment in developing countries. Its stockholders were ICEX and Argentaria (Argentaria was a government-owned bank, fully privatized by the government in 1999).8 In 1994, COFIDES, the Ministry of Trade and Tourism, and ICEX created a new fund of 2,000 million pesetas ($15 million) to finance new projects and the expansion of existing projects in LDCs.9 The government established the fourth fund in 1997, endowed with 80,000 million pesetas ($570 million), to finance FDI made by small- and medium-sized Spanish firms. It was also managed by ICO.10

Within the EU framework, Spanish companies also had access to several European funds for FDI outside of the European Union. The European Bank of Investment had four different funds to finance investment in four regions of the world. The Lomé Agreement comprised the creation of a fund of 12,000 million ECU for the period 1991-2000, for investments in the ACP countries (Africa-Caribbean-Pacific).11

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The European Development Fund had 280 million ECU to subsidize part of the former loans, as well as 825 million ECU for risk-capital operations.12

Another fund was created in 1992, for investments in Latin America and Asia (between February 1993 and February 1996 alone it disbursed 750 million ECU).13 The European Community Investment Partners (ECIP) program promoted the creation of joint ventures in developing countries of Asia, Latin America and the Mediterranean region, in which at least one of the partners was from the European Union.14 Al-Invest was a fund of 85 million ECU (half of it contributed by the European Union, the other half by the private sector), created in 1994, to promote EU FDI in Latin America.15 Moreover, the European Bank for Reconstruction and Development funded 33 percent of investment projects involving private industrial firms.16

Outside of the European Union, there were several multilateral agencies from which Spanish firms could obtain loans for FDI. The Spanish government was the third largest contributor to the Multilateral Investment Fund for Latin America (MIFLA) and the Inter-American Investment Corporation (IIC). Both of them were financial instruments of the Inter-American Development Bank (IDB). Spain contributed $50 million to MIFLA, becoming the third largest partner after the United States and Japan, and held 3.13 percent of IIC’s stocks.17 The International Financial Corporation, through its Technical Assistance Trust Funds, financed surveys, adaptation of technology and formation of labor in the early stages of investment in developing countries. Its Caribbean and Central America Business Advisory Service promoted FDI in these regions.18

The United Nations also had trust funds to promote industrial development in developing countries, through its Center for Industrial Development, and the International Financial Corporation of the World Bank.19 Between 1988 and 1993, Spanish firms took part in 79 projects arranged through COFIDES. 33 percent of those were funded by some of the Spanish financial institutions that participated in this program, providing a total of 1,400 million pesetas ($8.23 million). The remaining 46 projects were arranged through COFIDES, but funded by the funds of the European Union, disbursing a total of 3.7 million Euros.20

Several mechanisms provided public and multilateral insurance of investments. The Spanish Company of Credit Insurance for Exports (Compañía Española de Seguro de Crédito a la Exportación -CESCE-), created in 1970 to insure credit for exports, began insuring the FDI of Spanish companies in 1974. The philosophy of the Spanish government was that a good coverage scheme for reduction of non-commercial risk would stimulate private investment and reduce the need for institutional financing of FDI. CESCE provided insurance for the creation of new companies, as well as for the total or partial acquisition of existing foreign companies, and for protection against political risk caused by the legislative or administrative action of the host country that implied a change in the conditions and framework that originated the investment and prevented it from completion.21

In 1994, all of the Latin American countries but Mexico were members of the Multilateral Investment Guarantee Agreement (MIGA), created by the World Bank in 1988 to promote FDI in developing countries. Spain held 1.42 percent of its shares ($13.9 million) and had a representative in the Board of Directors. MIGA provided guarantees to investors against losses derived from problems of currency convertibility,

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expropriation, war, civil unrest and failure to fulfill the agreement by the authorities of the host country.22

The “Bilateral Agreements for Reciprocal Promotion and Protection of Investments” (BARPIs) sought to create a positive investment climate between Spain and the host countries. Between 1990 and 1995, Spain subscribed a BARPI with most Spanish speaking countries of the Western Hemisphere.23 Since 1986, the Spanish government tried to strengthen economic relations between the European Union and Latin America, in a similar fashion as France and the UK institutionalized relations between the European Union and their former colonies, with the celebration of periodical meetings. These efforts crystallized in 1995 in an economic agreement between the European Union and the Common Market of the South (Mercado Común del Sur –MERCOSUR-). The accord included provisions on investment signed by all EU members and by the EU Commission and set out the intention of the parties to encourage bilateral investment flows and to cooperate on intellectual property matters, to further stimulate FDI flows.24

STRUCTURAL REFORMS IN LATIN AMERICA

The Economic Crisis of the 1980s The roots of the debt crisis of the 1980s were partly in the policies implemented

by Latin American governments as a response to the effects of the “Great Depression” of the 1930s. The Great Depression caused a drop in international commodity prices, leaving Latin American economies with little export revenue. The response was a new growth strategy, known as import substitution industrialization (ISI), to produce substitutes for imported goods.25 This strategy received theoretical support from ‘development economics’, which in turn was inspired by the Keynesian theories developed after the crisis of the 1930s, calling for an increase in government expenditures to accelerate economic growth. Advocates of development economics believed that orthodox economics could only be applied under conditions of full employment. Therefore, they claimed that the lack of capital in Latin America forced the state to play a fundamental role in the promotion of economic development, giving the ‘big push’. This paradigm justified the prominent role of the state in many economic activities, including production.26

Nevertheless, ISI could not solve some of the main development problems of the after-war years. Many Latin American governments pursued fast industrialization, developing capital-intensive industries, which were unable to absorb the underemployed labour. Because the government subsidised the losses of the public enterprises (accumulating public deficits), state-owned companies lost the incentive to innovate, causing a loss of competitiveness. Protectionism reduced the degree of competition inside each country, thereby decreasing also the incentive to innovate and cut down production costs. These factors contributed to lowering the competitiveness of Latin American companies, hurting economic growth and lowering living standards. As a result, many foreign investors took their money out of Latin America in the 1980s. This, in turn, had a negative effect on growth rates.27

The magnitude of the crisis in the 1980s led to the search for new alternatives. Two models were proposed: the neoliberal model (orthodox model or Washington

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consensus), and the heterodox model, which evolved from development economics. Both models differed on the causes of Latin America’s economic crisis, and in their policy recommendations. According to the “orthodox model”, embraced by most economic agencies based in Washington, such as the World Bank, the International Monetary Fund (IMF), and the economic agencies of the US government, the economic crisis was caused by excessive state intervention (manifested in protectionist policies, excessive regulation of economic activities, and a large public sector) and the relaxation of fiscal policies.

The solution proposed was a package of ten policies to increase the role of the market forces: fiscal discipline, use of public expenditures mainly for education and health care, to improve the efficiency of the tax system by increasing the tax base and moderating marginal taxes, to adjust taxes to the needs of the market, to liberalize external trade, to lift restrictions to FDI, to privatize public enterprises, to deregulate economic activities, and to protect property rights. In short, stabilization through orthodox policies and reduction of the role of the state in the economy.28

The heterodox or pragmatic model was based on the belief that the fiscal crisis was not a temporary problem, but a structural one. It originated from the inability of the Latin American governments to change the ISI strategy into one based on outward growth, through the promotion of exports. Proponents of this model blamed the military regimes of the 1970s for the accumulation of large public deficits, caused mainly by the low tax rates. Although this model recognised the need to achieve macroeconomic stability and to reduce the role of the state in economic activities (by means of privatization of some state-owned companies, trade liberalization, and deregulation), it emphasized that these policies per se would not generate sustained rates of economic growth. The heterodox model regarded the economic role of the state as fundamental for the definition of a clear strategy of economic growth. It defended the need to improve the tax system to eliminate the public deficits first, and to use the public savings to attract private investment in strategic industries, such as technology, to avoid environmental degradation, and to improve the quality of higher education and the health system.29

The New Economic Model The policies designed by Latin American governments after the crisis tried to

achieve macroeconomic stability, to liberalize capital markets, to promote FDI, to open up trade to foreign competition, to reduce the role of the state in the productive processes by privatizing state-owned companies, to deregulate economic activities, and to devise poverty alleviation programs. Latin American governments reduced tax evasion to lower the fiscal deficit and thus achieve macroeconomic stability, raised the price of public services above costs, tightened the monetary policy to pay public debts, and established a fixed exchange rate to avoid inflation and currency devaluations.30

The liberalization of trade put an end to four decades of ISI. Governments eliminated non-tariff barriers (including quotas and prohibitions) and export taxes, and simplified tariffs, to promote exports and increase factor productivity. The creation of MERCOSUR, and the revitalization of other existing regional economic blocs (Andean Community, Central American Common Market –CACM-, Caribbean Common Market -CARICOM-) followed these principles. Between 1985 and 1992, over 2,000 state-owned firms were privatised in Latin America to generate public revenue, to reduce the

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degree of state involvement in the economy, and to increase the overall efficiency of domestic firms.31

Several policies were adopted to deregulate capital markets and generate higher rates of domestic savings and private investment, including the deregulation of capital markets, deregulation of interest rates, elimination of the rules to establish direct credit, reduction and harmonization of deposit requirements for commercial banking, reduction of entry barriers, development of capital markets, and implementation of legislation based on the needs of the market. Previous administrations had set ceilings on interest rates, and channelled investment to certain sectors, based on social and political interests, rather than on the estimates of returns on investment. The role of the state was now reduced to legislation and supervision tasks.32

FDI was very important in the post-crisis strategies. Foreign firms would bring into Latin America new techniques and managerial styles, new technologies and innovations, and force domestic firms to increase productivity. Chile and Argentina adopted these policies in the 1970s, Mexico in the mid-1980s, Peru, Colombia, and Venezuela in the early 1990s, and Brazil in the mid-1990s. Every country gave foreign firms treatment equal to that of domestic companies (but did not allow FDI in some “strategic” sectors), flat incentive policies (except in export sectors and investment in research and development), and allowed unlimited repatriation of capital and profits. The investments of Spanish firms in Latin America in the 1990s concentrated in three sectors: telecommunications, banking, and energy.33

TELECOMMUNICATIONS SECTOR Telefónica became one of the most prominent Spanish MNEs in Latin America,

not only for its presence in most countries in the region, but also for the large amounts of money it paid in the privatization of some of the national telephone companies ($2,000 million for the purchase of the Peruvian telephone company in 1992). Telefónica’s investments were motivated by a series of economic, political and sectoral factors: the liberalization of the telecommunications sector in Spain on 1 December 1997; the culmination of Telefónica’s process of privatization, which started in the 1970s and ended in 1997 with the sale by the state of the last stocks it held in Telefónica’s subsidiary Telefónica Internacional Sociedad Anónima (TISA); and the evolution of the telecommunications sector in the world, which favored the creation of large multinational telecommunications groups, integrated by some of the largest companies.

Privatization of telephone monopolies The process of economic globalization and the growth of economic

interdependence raised doubts in the 1980s about the desirability for governments to maintain telecommunications services under conditions of ‘natural monopoly’. This approach was based on the belief that telecommunications constituted a ‘strategic public service’, which the market did not price correctly. Based on this philosophy, many Latin American governments nationalized their telephone companies: Argentina in 1945, Brazil in 1962, Peru in 1970, Chile in 1971, and Venezuela in 1976.34 The Spanish government also nationalized Telefónica (created in 1926 by ITT) in 1944, under national security concerns.35

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Economic integration in the 1980s increased the need of firms to have access to good and efficient telecommunications services. Technological innovations such as digitalization, optical fibers, mobile telecommunications, and satellite communication increased the variety and quality of telecommunications services that operators could provide, as well as their reach. These advancements raised the technological demands of customers, but the national operators of traditional telephone services were unable to provide them. They had outdated technology, inefficient systems, and, in general, they could not upgrade their technology and infrastructure to satisfy the growing demands of the population and the business sector, hampering the internationalization and efficiency of the most advanced domestic businesses.

The Latin American governments realized in the 1980s and eliminated the consideration of ‘natural monopoly’. This decision was based on their assessment of the performance of the domestic operators (long waiting lists for the installation of new lines, outdated technology, poor service, artificially maintained low prices, and the power of the workers’ unions to influence the decisions of the companies).36 They believed that privatization would be the best solution to upgrade the quality of the telecommunications services. It would also help to end the state’s fiscal balance of payments crises, and to send a signal to private investors that the change of approach was real. This aspect was very important, because in the new economic paradigm based on the Washington consensus FDI played a prominent role. The importance of the telecommunications sector was high, given the zeal with which governments had protected it from private (possibly foreign) capital.

Telecommunications companies were privatized first to let investors know that the reforms started by the new administrations were serious. The strategic importance of the telephone company would make governments appear as truly committed to their structural reform program. By privatizing a ‘plum’ rather than a ‘lemon’, governments hoped to regain the interest of foreign investors.37 Telecommunications companies were the ‘jewel of the crown’ of each government, because they provided universal coverage and because the perspectives of growth in the sector were large. Thus, the reform proposals of the governments were more credible and attractive. Telecommunications companies from the industrialized countries were ready to take part in the privatization of these Latin American state-owned enterprises. On the one hand, they had the proper technology needed to upgrade the system. On the other, they were compelled to grow beyond their national borders, because they had made very large investments to upgrade their technology in the 1980s and they needed to increase their sales to make those investments profitable.

Telefónica’s Expansion in Latin America Telefónica had no foreign ventures when it submitted its bid in the process of

privatization of the telephone companies of Chile in 1987, Argentina in 1988, and Mexico in 1989. The liberalization prospects of the European market (the European Union set 1997 as the deadline for governments to end national monopolies in the telephone sector) led Telefónica’s executives (the state was the largest stockholder at that point) to seek investment opportunities abroad. Their goal was to expand Telefónica’s businesses overseas to compensate for the potential loss of a share of its domestic market after the end of its national monopoly. Latin America offered Telefónica a very

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appealing market. To attract foreign investors, each Latin American government gave a period of monopoly to the highest bidder in the privatization of the state-owned telephone companies.

Telefónica had several comparative advantages, vis-à-vis its North American, European, and Asian competitors. A common language was one. Latin America provided Telefónica the opportunity to offer its services and to conduct business in Spanish. A crucial advantage, however, was the similarity of political conditions in Latin America with regard to Spain. All of the Latin American countries that Telefónica was interested in were nascent democracies. The communion of political interests between Spain and Latin America created a sense of political complicity between the government of Spain on the one hand, and some of the governments of Latin America, on the other. This aspect facilitated political understanding among them, favoring all kinds of cultural, political, educational, commercial, and economic exchanges. This complicity materialized in several investment treaties, as well as accords of political and cultural exchange, signed between Spain and Latin American states, many of which were channelled through the Iberian-American summits that brought together the heads of state and prime ministers of Spain and Portugal and Portuguese- and Spanish-speaking Latin America.38

Telefónica’s first attempt to expand in Latin America occurred in 1987, with the privatization of Compañía Telefónica de Chile (CTC), but the Chilean authorities decided to sell CTC to an Australian group, the Bond Corporation, whose bid included important capital investments, whereas Telefónica’s emphasized debt-to-equity swaps.39 In 1990, Telefónica participated in the process of privatization of the Mexican telephone operator, in an alliance with GTE of the United States. The Mexican authorities believed that the Spanish company did not offer as many technological guarantees as other North American and European firms. Moreover, Telefónica’s bid was lower than that of the winner, a consortium led by France Cable et Radio ($1,687 million vs. $1,760 million).40

The Argentinean authorities disliked Telefónica for the same reasons, and tried to attract a US company. The design of the privatization process in Argentina followed US legal guidelines to attract Bell Atlantic.41 The Argentinean government split the national telephone company, Entel, into two different firms, prior to its sale in 1990. One would be granted a monopoly over the Northern part of the country, and the other over the Southern part. Telefónica submitted the highest bid for both areas, and chose to take the Southern part, which comprised Buenos Aires. Its offer was $2,720 million. Bell South was the second largest bidder for the Northern area, but it had to back out because its financial partner, Manufacturers Hanover, could not purchase the required amount of Argentinean debt, and the third bidder, a consortium led by Italy’s Stet (Telecom Italia), and France Télécom, was awarded the concession for $2,308 million.42

In 1990, the Bond Corporation faced financial difficulties to raise cash to meet creditor demands and sold all stock in CTC (42.8 percent) to Telefónica in April, for $392 million (the Bond Group had paid $130 million in 1988).43 In 1992, Telefónica’s $2,000 million bid in cash and investment for a 35 percent stake in the Peruvian telephone company more than doubled that of GTE Corporation and Southern Bell Corporation of the United States.44 In 1996, Telefónica bought Companhia Riograndense de Telecomunições (CRT) in Brazil. Its main purchase in the 1990s took place on 29 July 1998, through the privatization of the Brazilian national telephone company,

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Telebras. Telefónica paid $4,965 million for Telebras’s largest regional subsidiary, Telesp, which operates in São Paulo, and $1,174 million for Tele Sudeste Celular, a cellular telephone company that operates in Rio do Janeiro and Espírito Santo. Telefónica’s ally, Iberdrola (a Spanish electricity generator and distributor with investments in Brazil and other Latin American countries), paid $366.45 million for Tele Leste Celular, the cellular telephone company that operates in Bahia and Sergipe. Portugal Telecom acquired São Paulo’s cellular telephone company, Telesp Celular, for $3,099 million, and MCI acquired Embratel, Brazil’s sole long distance operator, for $2,245 million.45 (See table 1)

Telefónica’s medium-term objective was to develop a network of optical fiber linking all of its Latin American subsidiaries, and achieve synergy derived from the integration of all of their activities. To gather sufficient funds for this venture, in March 1998 Telefónica created an alliance with WorldCom-MCI and with Portugal Telecom. The goal of the alliance with WorldCom-MCI was to pool resources among the three in the markets of Europe, North America and South America.46 With Portugal Telecom, Telefónica also planned to expand in Africa and Brazil. Portugal Telecom already had investments in several African and Asian countries. Moreover, by 1998, Portugal Telecom was developing a network of optical fibers linking Brazil and Portugal, thanks to a concession of the Brazilian government.

Telefónica expanded in Latin America to gain new markets, to compensate for the potential loss of customers in the Spanish market after the European authorities implemented the liberalization of telecommunications, and to prevent its takeover by larger companies. By growing in Latin America, it increased the value of its assets, making an acquisition more difficult. The fear of losing market share to foreign competitors in Spain made it overcome its initial failures in Latin America by increasing the amount of money included in its bids in subsequent privatizations. Latin American states obtained large amounts of capital from Telefónica, through the privatization of the national telephone services, and brought into the economy an international firm with sufficient technological capabilities to supply the goods and services that the market demanded.

BANKING SECTOR Banks were the leading Spanish investors in Latin America in the 1990s.

Between 1995 and 1997 alone, they invested $6,000 million (over 50 percent of the total amount invested by Spanish firms in Latin America), accumulating a stock of $5,300 million, and in 1997 they had assets to the value of $62,900 million. In Chile, Colombia, Peru, Venezuela, and Puerto Rico, Spanish banks Banco Bilbao Vizcaya (BBV), Banco Central Hispano (BCH), and Banco de Santander (BS) controlled more than 20 percent of the domestic bank deposits, and BBV and BS controlled 14 percent of the Argentinean market.47

Their decision to invest in Latin America was based on the general aspects already explained, on the high competition in the Spanish banking system, and margin compression (the relation between the interest earned from loans and the interest paid on deposits). When banks give out a high number of loans, they may increase their income greatly, if their borrowers repay those loans in periodic installments, with interest. When the ratio of loans falls, relative to the ratio of deposits, the income of banks may fall, if

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banks cannot find profitable activities for the investment of the deposits. The difference between loans and deposits in Spain fell from 7.39 percent in 1991 to 4.38 percent in 1995.48 In the first half of the 1990s, Spanish banks faced a contradictory panorama, with growing liquidity and falling profits. They had to devise new ways of investing their money profitably. Their solution was to seek new markets to invest part of those profits (Latin America), and to invest in new areas of economic activity with greater prospects of economic growth (mainly the energy sector and telecommunications).

The expansion of Spanish banks in Latin America was facilitated by the process of financial and banking liberalization implemented by the Latin American governments in the 1990s, similar to that undertaken in the Spanish market in the previous decade. In the 1980s, Spanish banks developed new products and services, such as investment funds, pension funds, public bonds, equities markets, and corporate bonds, to adapt to the new needs of their market. The introduction of these products and services into Spain expanded the previous narrow role of the banks as deposit havens. New financial institutions (other than banks) soon appeared, taking advantage of the new banking market. Banks now had to develop these products and services, in order not to lose customers, reinvesting their funds with higher rates of return.

A similar process of disintermediation occurred in Latin America in the 1990s, forcing domestic banks to adopt the new financial services. Spanish banks had already developed these products in the 1980s for the Spanish market and found a competitive advantage vis-à-vis domestic Latin American banks. They believed their financial products would be easily adapted to Latin America. Latin American banks, on the other hand, were compelled to develop these new services overnight. Moreover, the deep financial crisis of the 1980s had severely reduced the number of banks in good economic conditions, and governments tried to attract new foreign banking and financial institutions to strengthen that sector, to help rebuild the banking system, and to improve the quality of services and banking loans.

The Banking Crisis in Latin America Public policies were in part responsible for the weakness of the Latin American

financial systems when the crisis erupted. Most governments restricted the creation of new financial institutions, set ceilings on interest rates, even below inflation rates (thus generating negative interest rates and stimulating capital flight), and established concrete conditions to give credit based on non-economic nor productive criteria. Banks had a high degree of liquidity (the relation of liquid assets over deposits was high, and the relation of credit over assets was low). High liquidity eliminated their incentive to set strict criteria for the concession of loans, thereby giving loans to many unproductive projects.49 In Argentina, Mexico, and Peru, the total of non-performing loans exceeded 20 percent.50 The large number of non-performing loans decreased banking revenue, triggering a serious banking crisis. Governments tried to solve the crisis by extending credit to the state financial institutions. These institutions translated the funds to the troubled banks, which, in turn, extended them to their clients. Finally, their clients invested the new credits in the same old unprofitable projects. The result was a drainage of state and banking funds, and the deepening of the banking crisis, when the resources of the state financial institutions dried out.

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Things were a little better in Chile and Colombia, because the strict requirements of their central banks lowered the liquidity rate of the commercial banks. In 1982, Colombian and Chilean banks had relatively low ratios of cash assets to deposits and high ratios of loans to assets.51 At the outbreak of the crisis, foreign loans ceased, and the central banks became the major provider of credit to commercial banks. Thus, the central banks used this conjecture to promote ‘credit discipline’, by restricting lending to those commercial banks that gave credit only for profitable investments.

Elsewhere in Latin America, the consequences of the banking crisis were very serious. In Argentina, the largest private commercial bank and forty-two small- and medium-size financial institutions had to be liquidated between 1980 and 1982. In Chile, between 1981 and 1982, eleven financial institutions (whose portfolios represented almost 15 percent of total loans) were also liquidated, and in 1983 seven banks were taken over by the government (two of them were finally liquidated and five were rehabilitated).52 Moreover, excessive credit increased inflation and devalued national currencies. The crisis could not be overcome until governments tightened up credit, by conditioning credit to banks that conducted a realistic appraisal of the possibility of their borrowers of returning to solvency, (lowering the ratio of cash assets to deposits and increasing the ratio of loans to assets) and liberalized the banking sector.53

This change of approach facilitated the investments of Spanish banks in Latin America. Their universal character gave Spanish banks an advantage, derived from their experience in the provision of a large array of banking and financial services, ranging from traditional bank accounts to pension and investment funds, corporate lending, mortgages, and insurance. Like in Germany, banks in Spain provided all kinds of financial services, as opposed to the English model, where banks were originally barred from some of those services.

The Expansion of Spanish Banks in Latin America Until 1997, BS had invested $3,500 million in Latin America ($1,000 million in

Chile alone), accumulated assets of $45,000 million, and had 57.6 percent of its employees in Latin America. In 1996, BS controlled more than ten percent of bank deposits in Argentina, Brazil, Colombia, Mexico, Peru, Puerto Rico, Uruguay, and Venezuela54, and 47 percent of its profits in 1997 came from its Latin American subsidiaries.55 Also by 1997, BBV had invested $1,700 million in Latin America56, its assets were worth $25,700 million57, and 27 percent of its income came from its Latin American subsidiaries.58 BCH had invested $487 million, mainly through its Chilean subsidiary O’Higgins Central Hispano, S.A. BS and BBV ranked third and fourth in assets in the whole Spanish-speaking Latin America, after Mexico’s Banamex and Bancomer groups.59 (See table 2)

The expansion strategy of each of these banks was different. BBV sought a strong local partner, to which it bought between 30 percent and 40 percent of its stocks. BS sought majority ownership of its Latin American subsidiaries, sometimes 100 percent. BCH expanded in Latin America through its Chilean subsidiary, O’Higgins Central Hispano, and always sought a powerful local partner in each country.

The expansion strategy of banks in Latin America played an important role also in the expansion of the Spanish energy companies, because the acquisition of energy producers and distributors became the second part of the diversification strategies of

14

Spanish banks. The result was the creation of two main groups of companies, involving one or two of the main banks, and several energy firms. In 1998, BBV, along with Barcelona’s La Caixa, had important stocks in Telefónica, Repsol, Iberdrola, and Gas Natural. BCH was a major stockholder of Endesa, Unión Fenosa (BS was also one of its main stockholders), Fomento de Construcciones y Contratas (FCC), and Dragados y Construcciones. BS, however, did not own significant packages of stocks in any of these companies and it did not intend to develop a similar policy of diversification of investments.

The fear of competition in Spain was not one of the factors that pushed Spanish banks to invest in Latin America, like in Telefónica’s case. In fact, the Spanish banking market opened to foreign competition in the 1980s. Only pull factors operated in this sector. Spanish banks invested in Latin America because they saw great business opportunities. The banking crisis severely hit many of the local banks, and some of the foreign banks that had investments in the region when the crisis ensued. The fear of instability in the Latin American banking sector kept many foreign companies away after the crisis, paving the way for the Spanish banks, which thus faced very little competition from other large international banking groups. Given the seriousness of the Latin American banking crisis, the investments of Spanish banks were especially important for the regeneration of the banking infrastructure in many countries. They provided new credit for these cash-starved economies, developed new financial products, and helped propagate a new banking and financial culture.

Energy Sector The liberalization of the energy sector occurred simultaneously in Spain and Latin

America. In Latin America, it was the response to expectations of economic growth and to the growing demand for energy that economic growth was expected to trigger. The World Bank estimated in 1995 that, between 1994 and 2000, an additional generating capacity of 70,000 megawatts would be needed in Latin America and the Caribbean alone. Meeting this demand would require additional investments of $20,000-25,000 million dollars.60 In the midst of adjustment and debt-reduction schemes, many governments realized that the energy state-owned companies would be unable to meet the investment and production requirements and decided to privatize many of them, thereby relying on private companies, either domestic or foreign.

Based on the growth potential of the energy sector, foreign companies became anxious to operate in Latin America. Whereas demand for electricity was expected to grow by 1.9 percent annually in the United States between 1995 and 2000, with returns on investment of eight to ten percent, the growth of demand in Latin America was expected to be 5.5 percent, with investment returns of 20 to 25 percent.61 Besides the greater growth expectation in Latin America, Spanish companies were concerned about the liberalization schedule set by the European Union for the energy sector (in 2007 European governments should allow free competition in the energy sector). Once liberalization was implemented, companies from other European countries would be free to expand in Spain. With liberalization in mind, the Spanish energy sector experienced major transformations in the 1990s. Inside of Spain, competition led to major takeovers and mergers, reducing the number of operators to four: Endesa, Hidroeléctrica del Cantábrico (HC), Iberdrola, and Unión Fenosa. To maximize growth, Spanish operators

15

also moved outside of Spain, many of them into Latin America, where liberalization was under way.

Spanish energy companies culminated a process of improvement of their infrastructure and technology to increase their productive capacity in the early 1990s. The fast rates of economic growth in Spain in the 1980s forced Spanish firms to increase their generation capacity, to keep up with market demands. Significant investments in technology increased their capacity beyond the energy needs of the Spanish market. The fast growth of the energy sector in the 1980s increased their revenue and profits. Since the expansion of productive capacity in the 1980s guaranteed their ability to satisfy energy demand in Spain, they decided to invest those profits in Latin America, where the growth potential was great.

The Expansion of Spanish Energy Firms in Latin America Endesa was Spain’s largest energy company in the mid- and late-1990s and the

one with the largest investments in Latin America. When Endesa moved into Latin America, the Spanish state still owned 41.1 percent of its stocks, until its final privatization in June 1998.62 Endesa’s first investments in Latin America occurred in 1995, with the acquisition of two power generation plants from Electroperú. Endesa acquired 60 percent of Etevensa and 60 percent of Empresa Eléctrica de Piura’s (EEP) gas-fired generating plant. Both Etevensa and EEP operated in the North of Peru. In 1996, Endesa acquired 60 percent of Edelnor for $170 million (through a consortium integrated by Enersis and Chilectra, from Chile, as well as other local firms, including Banco de Crédito and Cosapi). Edelnor was one of the two distribution enterprises that provided energy to Lima. Endesa’s objective in Peru was to supply electricity to the Central-North Interconnected System, which run parallel to the Peruvian coast.63

Endesa’s main purchase in Latin America was Chile’s Enersis, in August 1997 (Endesa and Enersis had been allied in Peru prior to this operation). A month later, Endesa included Enersis in a consortium that submitted the winning bid in the privatization of Colombia’s energy producer Emgesa and distributor Codensa.64 In March 1998, both Endesa and Enersis reached an agreement to participate together in the privatization of several state-owned energy companies in Latin America, between 1998 and 2003.65 They bought 51 percent of Brazil’s Coelce in April, with an investment of $873.4 million.66 (See table 3) Endesa engaged in a particular competition for the acquisition of a large number of electricity enterprises in Latin America with another Spanish energy firm, Iberdrola. Endesa bought Coelce in Brazil, beating Iberdrola, which submitted the second highest bid. In the mid- and late-1990s, Iberdrola was the second largest electricity company in Spain. It was headquartered in the Basque Country and the large Basque bank, BBV, was one of its main stockholders and investment partners. It began its operations in Latin America in 1992. In its particular race against Endesa, Iberdrola acquired 65.64 percent of Coelba, in Northwestern Brazil, in July 1997, and in December of that year it paid $500 million for Companhia Energética do Rio Grande do Norte (Cosern), also in Northwestern Brazil.67

In July 1998, Iberdrola and BBV participated in a consortium led by Telefónica that bought five of the twelve subsidiaries of Telebras privatized by the Brazilian government.68 Iberdrola, along with Powerfin of Belgium and Enagas of Chile, bought 51

16

percent of a thermal power station in Chile, Central Termoeléctrica Tocopilla, for $178 million in 1996.69 Iberdrola also developed a joint venture in Latin America with another Spanish company, Gas Natural, to integrate the production and distribution of electricity and gas.70

Another Spanish company with investments in Latin America was Unión Fenosa. In 1997, it acquired 26 percent of Bolivia’s Transportadora de Electricidad. Its allied, BCH, acquired another 10 percent of the same company.71 In 1998, Unión Fenosa purchased the two subsidiaries of the Panamanian Institute of Hydraulic Resources and Electrification. It paid $211 million for Metro-Oeste S.A. and Chiriquí S. A.72 The fourth Spanish electricity company, HC, invested in Mexico in 1998. Its allied, Texas Utilities Corporation, won a concession to distribute gas in Mexico City in November 1998, and in December it invited HC to participate in this project, by buying 15 percent of it. HC invested $100 million.73

The investments of the Spanish electricity companies in Latin America, like those of Telefónica, were in part motivated by the fear of competition in their domestic Spanish market. The elimination of geographic restrictions to the operations of electricity providers within Spain originated a process of concentration in the Spanish market. This was the first phase of a strategy designed by the Spanish government to implement full liberalization in the energy sector by 2007. The second phase comprises the complete elimination of national limits to EU firms. This liberalization deadline led the Spanish firms to expand abroad, to grow in size and thus be better qualified to withstand European competition after 2007. The growth potential of the Latin American economies in the 1990s made them prime targets for the Spanish electricity firms, wanting to profit from business opportunities there. The other large Spanish company with investments in the energy sector was Repsol, an oil producer and distributor. Repsol was created in 1987 by the Spanish state as part of a reorganization of an older state-owned company, Instituto Nacional de Hidrocarburos. Repsol went through a slow privatization process that started in 1989 and culminated in April 1997. It had a strategy of diversification in two fronts. The first part of the strategy was to diversify its business operations away from oil distribution into oil production. In its origins, Repsol was basically an oil distributor, and in 1996, refining and marketing still generated 78 percent of the company’s revenue, while exploration and production generated only 14.3 percent.74 Profit margins in refining and marketing were very small in the 1990s. In 1997, Repsol only produced 25 percent of the oil it processed. This reliance on external purchases of oil decreased its profit margins.75 Repsol decided to expand its activities into exploration and expanded outside of its home country, because there were no oil or gas fields in Spain.

The second part was to move into new markets. Latin America served Repsol’s interests in both senses. It provided a new market for expansion of its distribution business, and new oil fields for exploration and production. In 1996, Repsol purchased 47.5 percent of Astra in Argentina (which owned oil fields in Argentina and Venezuela), for $488 million.76 In June 1997, Repsol paid $330 million to the Venezuelan government in the privatization of Mene Grande oil field (Repsol more than doubled the second bid submitted by a consortium led by Chevron-Statoil). Repsol expected to increase production from 5,500 barrels daily in 1997, to 65,000 by 2002. The Venezuelan government granted exploitation of the field to the Spanish company for a

17

period of twenty years and promised to pay for all investment costs, as well as to buy all the oil extracted, for its commercialization.77 In 1997, Repsol also bought Solgás, Limagás, and Energás in Peru, thus gaining control over 42 percent of the Peruvian market for bottled gas. Through the acquisition of Corpetrol, Repsol also moved into oil refining (refinery of La Pampilla) and distribution of gasoline in Peru.

Natural gas was Repsol’s major area of interest in the late 1990s. In Spain, Repsol’s gas sales increased 28.3 percent between 1994 and 1996, but in 1997, the gas division only generated 22.3 percent of Repsol’s total revenue. In 1997, Repsol controlled over 95 percent of Spain’s market of bottled gas and 90 percent of the natural gas market. The inauguration of the African-European gas pipeline between Algeria and Spain in 1996, through the Straits of Gibraltar, indicated Repsol’s bet for natural gas for the future.78 Repsol also developed its natural gas business in Latin America, but not alone. It created a joint venture with Iberdrola and Gas Natural, called Gas Natural Latinoamericana (GNL). GNL purchased 53 percent of Gas Natural ESP from Ecopetrol, the Colombian state-owned oil company, for $148 million in June 1997. Repsol sold its participation in GNL to its partners in February 1998.79 (See table 4)

The strategic alliances among Spanish companies were particularly important in the energy sector. All of the companies in which BBV had a stake, cooperated among themselves in their Latin American ventures: Gas Natural, Iberdrola, Repsol, and even Telefónica. BCH also contributed resources to the Latin American expansion of the companies in which it owned stock: Endesa, Unión Fenosa, and Cepsa. This shows the importance of cross-sectoral alliances in the expansion strategies of Spanish companies, to raise funds, to develop synergies, and to share know-how and risk.

CONCLUSIONS The investments made by Spanish companies in Latin America in the 1990s were

not solely based on microeconomic calculations by Spanish firms, but also on broader political and macroeconomic aspects. One of them was the fear of the Spanish government to lose national control over a core of ‘Spanish’ companies, especially in the public utility sectors. The eventual liberalization of markets in the European Union, especially in telecommunications and energy sectors, made the Spanish government fear the loss of ‘national control’ over the Spanish economy, if larger and more efficient European firms took over key Spanish companies.

To prevent this loss of economic sovereignty, the Spanish authorities believed it was necessary to make domestic firms grow in size and increase their productivity rates, to make them more competitive. This would make a takeover by foreign firms more difficult. Given the small size of the Spanish market, the government devised a series of push and pull incentives to force Spanish firms to invest out of Spain. The push factors were the liberalization deadlines set by the European Union, which the Spanish government threatened to accelerate, and a series of economic incentives, such as subsidies, credits, and insurance for FDI.

The main pull factor was the direct investments made by some companies that were still totally or partially owned by the Spanish state, such as airline Iberia, Telefónica, Argentaria, Endesa, Repsol, and others. The reforms implemented by Latin American governments, and the relations between the Spanish government and the governments of Latin America, also worked as powerful pull factors, overcoming the

18

anti-colonialist sentiment that existed among the people of some countries, mainly Peru and Mexico. Latin America was the ‘appropriate’ region for the expansion of Spanish firms, not only because of cultural and political similarities with Spain, but also because the Latin American governments decided to open up the banking and public utilities sectors to foreign investment. Liberalization was the main response of Latin American governments to the crisis of the 1980s. FDI played a fundamental role in their strategy, because, on the one hand, it brought capital into the cash-starved economies and, on the other, it brought in foreign firms with new technologies, products, and services, with the great potential to increase the overall productivity rates of the economies. While providing the appropriate terrain for the expansion of Spanish firms, Latin America also benefited from the investments of Spanish companies, which were concentrated in basic infrastructure sectors that have an important influence on the overall performance of the economy, like banking, energy, and telecommunications.

These sectors were the backbone of the economy, and their rejuvenation was fundamental to resume economic growth. Spanish banks contributed to strengthen the Latin American banking system. They introduced new credit (liquidity), and developed new financial and banking products, increasing domestic savings and channeling domestic investment into productive enterprises. The investments of Telefónica helped to improve the quality of the telecommunications systems. Good telecommunications were crucial for the efficient conduct of business on a daily basis. Finally, Spanish energy firms contributed to satisfy the growing demand for energy triggered by the acceleration of economic activities that followed the liberal reforms of the early 1990s.

Moreover, the competition that existed among Spanish firms to expand in Latin America, especially in the energy (Endesa vs. Iberdrola) and banking (BBV vs. BCH vs. BS) sectors, helped introduce a new business culture in Latin America. Economic profit was now to be based on productivity gains and in the improvement of products and services, rather than on the concession of state privileges, such as limits to competition and the subsidy of losses. In this regard, some Spanish companies were forced to compete openly in some Latin American economies, while they were still shielded from foreign competition in their domestic market in Spain. This was the case of the energy firms, such as Endesa, Iberdrola, Unión Fenosa, and HC, and Telefónica before 1997.

The expansion of Spanish firms in Latin America was also facilitated by the conditions of operation. The needs of the Latin American economies were basic: the development of basic infrastructure in all sectors, such as banking, telecommunications, and energy. These were the needs of the fast-growing Spanish economy in the 1970s and 1980s. In other words, Spanish firms brought to Latin America the same expertise, technology, products and services that they had developed in previous years for the Spanish economy, to satisfy similar needs. This similarity gave them a competitive advantage, vis-à-vis the companies from other developed countries. Spanish firms knew what was needed in the market and they had the means to satisfy those needs. Their appreciation of the potential profits to be gained in these markets led them to offer more money than other European and North American competitors in the privatization of many of the Latin American banks and utilities.

Finally, to strengthen their position in Latin America and to increase their capital resources for expansion, some Spanish firms developed cross-sector alliances, in part thanks to their cross-investments. Two main groups of Spanish firms were created,

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around each one of the major Spanish banks. On the one hand, BBV, with its large investments in Telefónica, Repsol, Iberdrola, and Gas Natural, facilitated the development of joint ventures among these companies, wherever they needed to pool resources and share expertise. The other group evolved around BCH, thanks to its investments in Endesa, Unión Fenosa, FCC and Dragados y Construcciones.

The internationalization of Spanish firms and their investments in Latin America were also a result of a broader trend toward globalization of international businesses. The process of liberalization, implemented by both the European Union and the Latin American authorities, responded to the liberal economic paradigm that became dominant in the 1990s on both sides of the Atlantic Ocean. Efficiency and productivity were then the major goals of economic planners, who tried to open up their economies to attract the most competitive firms, and to force domestic companies to become more competitive. The result was the migration of Spanish MNEs to Latin America, searching for new business opportunities and for a shield against European competitors.

The concentration that resulted in Spain and in Latin America, where Spanish firms gained large market shares, is an episode in a process of further concentration. One of the results of this course is a new form of competition involving only a select group of producers that compete with each other in several markets of the world, and against a few domestic firms. The trend toward market concentration may accelerate in the future, putting more pressure on the anti-monopoly authorities of Latin America to prevent companies from obtaining monopolistic or quasi-monopolistic control over their markets. In other words, only political decisions will set the limits of globalization and concentration of business activities.

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Table 1.Telefónica’s Direct Investments Outside of Spain in August 1998.

Country Subsidiary Consortium % Held by Main Partners Year of Telefónica Acquisition Argentina Sintelar Yes 25 Sintel 1990 Argentina Telefónica Yes 19.38 Citicorp, Technint, Banco 1990 de Argentina Río de la Plata, BCH Brazil CRT 35 1996 Brazil Embratel Yes 20 MCI 1998 Brazil Tele Leste Yes Iberdrola 1998 Celular Brazil Telesp Yes 65 BBV, Iberdrola, Portugal 1998 Telecom, RBS Brazil Telesp Yes 38 Portugal Telecom 1998 Celular Brazil Tele Sudeste Yes 75 Itochu, NTT 1998 Celular Chile CTC No 43.6 Chilean pension funds 1990 Chile Publiguías Yes 51 CTC, Publicar, Ed. Lord 1990 Cochrane Colombia Codelco Yes 31 Grupo Sarmiento, Ardilla Lule, CTC Celular El Salvador INTEL 51 1998 Guatemala Telefónica de 1999 Guatemala Peru CPT Yes 35 Graña y Montero, Banco Wiese, 1992 State of Peru Peru ENTEL Yes 35 Graña y Montero, Banco Wiese, 1992 Perú State of Peru Portugal Contactel Yes 15 Marconi Puerto Rico TLD No 79 Autoridad de Teléfonos de P.R. Romania Telefonica de Yes 60 Romtelecom, Radio-Communicatil Romania Venezuela CANTV Yes 6.4 GTE, Electricidad de Caracas, 1991 AT&T Infonet Yes 7.29 DBT, FT, KDD, Swiss PTT, PTT Netherland, Telecom Singapore, RTT FNA Yes MCI, Mercury, France Télécom, DBT, others JNI Yes AT&T, BT, KDD, France 1995 Télécom Unisource Yes 25 Telia, PTT Netherland, Swiss PTT

Source: Telefónica, and Juan José Durán Herrera and Fernando Gallardo Olmedo, “La Estrategia de Internacionalización de las Operadoras de Telecomunicaciones”, Información Comercial Española (Madrid), no. 735 (November 1994), p. 97.

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Table 2.Main Subsidiaries of Spanish Banks in Latin America in September 1998. Bank Country Subsidiary Percent Ownership Argentaria

Argentina Siembra AFJP, Sur Seguros de Retiro Sur Seguros de Vida Bolivia Fondo de Pensiones Argentaria Brazil Colombia Colfondos Mexico Central America Banco Exterior de España 10 offices South America Banco Exterior de España 16 offices Banco Bilbao- Vizcaya Argentina Banco Francés del Río de la Plata-Banco de Crédito Argentino 52.4 Bolivia AFP Previsión BBV Brazil Banco Excel Económico 10080 Colombia Banco Ganadero 59 Mexico Banca Cremi, Banco Oriente,

Banco Probursa 70 Panama BBV Panamá 100 Peru Banco Continental 37.57 Puerto Rico BBV Puerto Rico, 100

Banco de Ponce 100 Uruguay Banco Francés Uruguay Venezuela Banco Provincial 49 Banco Central Hispano- Argentina Tornquist 100 Americano Bolivia Banco del Sur 98.42 Chile O’Higgins-Santiago-BCH 50.03 Colombia Banco de Colombia 35 Mexico Banco Bital 8 Paraguay Banco Asunción 77.7 Peru Banco del Sur 98.42 Uruguay Banco Centra Hispano 100 Banco de Santander Argentina Banco Río de la Plata-Banco Santander Argentina 41.2 Brazil Banco Geral do Comercio 50 Banco Noroeste 25 Chile Banco Santander Chile 65.15 Pensiones Chile Majority Colombia Banco Comercial Antioqueño (Bancoquia) 55 Mexico Banco Santander Mexicano 68.5 Banco Santander de Negocios de México 100 Peru Banco Santander Perú 100 (Banco Mercantil + Banco Interandino) Puerto Rico Banco Santander Puerto Rico 99.6 Leasing Puerto Rico Majority Uruguay Banco Santander Uruguay 100 Venezuela Banco de Venezuela 93.6

Source: El País Digital, no. 852, 2 September 1998, Economía section.

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Table 3.Endesa’s Subsidiaries in Latin America in April 1998. Country Subsidiary Argentina Edenor Yacilec Brazil CERJ Coelce Chile Enersis Colombia Codensa Emgesa Peru Edelnor Venezuela Elecar

Source: Santiago Carcar, “Endesa Adquiere la Compañía Brasileña Coelce en Pugna con Iberdrola”, El País Digital, 3 April 1998, Economía section.

Table 4.Repsol’s Subsidiaries in Latin America in July 1997. Country Subsidiary Percent Activity

Ownership

Argentina Astra 81 47.5 Oil exploration and extraction, production of lubricants and asphalt.

Metrogas Gas distribution Grupo Comercial del Plata JME Inversiones Isaura EGB 32.5 Refinería San Lorenzo (Refisan) 42.5 Oil refining Refinerías Argentinas de Petróleo (Dapsa) 50 Parafinas del Plata 50 Natural gas extraction Pluspetrol 45 Colombia Gas Natural ESP *82 Natural gas distribution Ecuador Repsol Ecuador Natural gas distribution. Gasoline stations. Mexico Nuevo Laredo * Gas distribution

Saltillo * Gas distribution Peru Repsol Perú (former Copetrol) 80 Gasoline stations La Pampilla Oil refining Solgás, Limagás, Energás Bottled gas Venezuela Repsol Venezuela Oil extraction

Source: El País Digital, no. 346, 14 April 1997, Economía section; no. 393, 31 May 1997, Economía section; and no. 400, 7 June 1997, Economía section.

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-Footnotes.

1 In 1998, Spanish firms invested $10,100 million in Latin America, and US firms invested $9,200 million. In 1999,

Spanish MNEs invested $20,500 million, and US MNEs invested $7,200 million. Source: KPMG. Claudia Mancini,

‘La Inversión Externa Marcó los Años 90’, Gazeta Mercantil Latinoamericana (Buenos Aires, 7-13 Feb. 2000), p.

22N.

2 This paper analyzes Spanish ‘foreign direct investment’ (FDI) only. ‘Portfolio investment’ is excluded from the

figures as well as from the analysis. The reason is that portfolio investment and foreign direct investment are motivated

by different factors. Interest rates and short-term high returns to equity are the driving force behind portfolio

investment. Investors seek to maximize profits by investing where returns are highest. Foreign direct investment is

prompted by other factors, such as the ability of a firm to exploit its comparative advantage in a foreign market, its

decision to internalize transaction costs across borders, the will to eliminate competition in a foreign market, different

growth expectations within an industry between the home country and the host country, and overall worldwide strategy

of the firm making the investments. The International Monetary Fund (IMF) considers FDI an investment that results

in the ownership of ten percent or more of a company. Such an investment gives the investor ‘control’ over the

management decisions of a firm. An investment resulting in ownership of less than ten percent of a firm is considered

‘portfolio investment’, motivated by speculative reasons. Such an investment does not give the investor control over

the management of the firm. This statistical distinction is questioned, because in large companies a percent ownership

of less than ten percent may give an investor control power. Similarly, in some cases, a percent ownership of more

than ten percent may not give the investor control power. This may be the case in companies with few investors.

However, the statistics of the Spanish government follow the IMF recommendations. For these reasons, this article

uses the official statistics with a great degree of caution. For an introduction to the literature on this topic, see Richard

E. Caves, Multinational Enterprise and Economic Analysis (New York, 1996), pp. 24-39; and Stephen Hymer, The

International Operations of National Firms: a Study of Direct Foreign Investment (Cambridge, 1976), pp. 23-80.

3 J.H. Dunning and R. Narula, ‘Transpacific Foreign Direct Investment and the Investment Development Path: The

Record Assessed’, South Carolina Essays in International Business, no. 10 (May 1994).

4 A reform on 14 April 1977 reduced this requirement to investments of more than fifty million pesetas ($660,000 in

1977). Other investments had to be approved by the Ministry of Trade and Tourism or by the General Direction of

International Economy and Foreign Transactions (DGEITE). In 1979, the government authorized Spanish citizens to

own foreign assets and stocks held in foreign currency. The FDI law remained unaltered until 1992, when the types of

investments subject to verification by DGEITE were reduced to three categories: investments of more than 250 million

24

pesetas ($2.5 million in 1992); investments in countries or territories considered fiscal havens; and investments in

financial enterprises. Información Comercial Española (Madrid), ‘Inversiones Directas de Capital Español en el

Extranjero en 1978’, no. 1661 (1 Feb. 1979), pp. 349-350; Información Comercial Española, ‘Las Inversiones

Españolas en el Exterior en 1980’, no. 1765 (29 Jan. 1981), pp. 382-383; Información Comercial Española, no. 2415

(6-12 June 1994), p. 1403.

5 In 1995, the main host countries were the United States ($564,637 million), the United Kingdom (244,141), France

(162,423), Germany (134,002), China (128,959), Spain (128,859), Canada (116,788), Australia (104,176), and The

Netherlands (102,598). Figures based on investment flows. United Nations, World Investment Report, 1996.

Investment, Trade and International Policy Arrangements (New York, 1996), pp. 239-243.

6 The foreign subsidiaries in which Spanish firms owned at least five percent of the equity for an interrupted period of

more than one year prior to the date when the dividend became payable were given tax credit over subjacent taxes,

based on corporate tax law number 43, passed on 27 December 1995. The tax law also granted Spanish MNEs

deductions for depreciation of the foreign investment, up to the limit of the original value of the investment. The parent

company could incorporate in its balance sheet the deficits of its foreign subsidiaries, and thus be granted further

deductions for this. Finally, deductions of up to 25 percent of the value of the tax on the foreign investment were given

if the investment took place in activities related to the export of products manufactured in Spain, in advertising

expenditures incurred in the launch of Spanish products and penetration or promotion of new markets, and when the

investment was related to tourist services in Spain. Price Waterhouse, Corporate Taxes. A Worldwide Summary

(London, 1996), p. 572; José Palacios Pérez, ‘Análisis Comparativo del Tratamiento Fiscal de las Inversiones en el

Exterior’, Información Comercial Española, no. 735 (Nov. 1994), pp. 53-62; Pilar Morán Reyero, ‘La Inversión

Directa Española en el Exterior: Evolución Reciente’, Información Comercial Española, no. 735 (Nov. 1994), p. 13.

7 To force companies to make productive investments, the loans have to be repaid within a period of five to seven

years. The interest rate is half a point over the MIBOR rate. There are no geographical restrictions to the investment.

Fernando Aceña Moreno, ‘Instrumentos de Financiación de Inversiones’, Información Comercial Española, no. 735

(Nov. 1994).

8 COFIDES only provides funding for projects designed with profitability criteria, which contribute to the industrial

development of LDCs. Between 1988 and 1994, COFIDES approved 79 projects, 33 of them with its own credit, the

rest with funds from the European Union. It granted credits worth 1,500 million pesetas and 3.7 million Euros.

Fernando Aceña Moreno, ‘Instrumentos de Financiación de Inversiones’, Información Comercial Española (Madrid),

no. 735 (Nov. 1994).

25

9 These projects must have at least 50 percent Spanish capital. The limit of the loans is either 50 percent of the cost of

the investment or 200 million pesetas ($1.175 million), to be repaid in five to eight years. The interest rate may be

fixed or variable, but it has a two-percent subsidy, paid for by the Instituto de Comercio Exterior (ICEX). Ibid.

10 Spanish Ministry of the Economy. Quoted in El País Digital (Madrid), no. 320, 19 March 1997, Economía section,

http://www.elpais.es, observed 19 June 1997.

11 Only projects with a cost of more than 20 million Euros are eligible. Funding is available for up to 50 percent of the

total cost of the project. Projects must be of ‘mutual interest’. That is to say, they have to meet one of the following

criteria: joint-ventures between Latin American and EU companies; a high technology transfer must be involved; to

foster closer bi-regional relations (telecommunications and transport projects); to incorporate environmental

improvements, such as renewable energy sources and anti-pollution measures; to encourage subregional integration, or

to develop links with other countries. IRELA, The European Union and MERCOSUR: Towards a New Economic

Relationship? (Base document) (Madrid, 1996), p. 32.

12 Loans have to be repaid in a period of ten to twelve years in the case of industrial projects, or up to twenty years in

the case of infrastructure. The European Bank of Investment (EBI) funds under 50 percent of the total cost of a project

in specific sectors: industrial, agro-industrial, mining, energy, tourism, and economic infrastructure. EBI loans cover

the ‘fixed asset component’ of a particular investment, made by a private company or by a state-owned company.

Ibid., p. 32.

13 Ibid., p. 32.

14 ECIP’s goal is to assist companies (particularly smaller enterprises) to conduct the various stages involved in the

creation of joint ventures or in the setup of private infrastructure projects, to provide training for local employees, to

transfer know-how to local partners, and to support the governments and public agencies of developing countries to

devise privatization schemes. The European Union provides up to 20 percent of the capital or up to 1 million Euros. A

network of EU and Latin American intermediary financial institutions must co-finance the investment on a non-

repayable basis. Ibid., p. 31.

15 Ibid., p. 31.

16 It gave 60 percent of its loans to private companies, and used the remaining 40 percent to finance the development of

public infrastructure projects that facilitate the development of private enterprises (Spain subscribed 3.4 percent of its

shares). Aceña, ‘Instrumentos de Financiación’, p. 71.

17 MIFLA provides financial aid for investments by small enterprises in projects that promote the participation of

women, young people, and underemployed workers. It also funds small enterprises that work in conjunction with non-

governmental organizations (NGOs), foundations and associations, and local governments, as well as those small firms

26

that foster the adaptation of technology to the development needs of the people, without harming the environment. IIC

provides loans and capital investments for small enterprises to finance up to 33 percent of their total investments in

developing regions. It also creates consortia with commercial banks that participate in its loans programs, provides

financial and technical consulting services for pre-investment surveys, identifies and selects investment projects,

searches for and selects potential investment partners, participates in the early stages of implementation of the project,

and sometimes takes part in the administration and management of the business operation. Ibid. pp. 68-69.

18 Ibid., pp. 66-67.

19 The UN Center for Industrial Development helped investors find partners in the ACP region (it is similar to the

European Union’s Al-Invest fund) and financed training programs and viability reports. The International Financial

Corporation of the World Bank funded up to 25 percent of investment in medium-scale and large-scale projects,

through contributions that ranged between $1 million and $50 million. These two funds require that promoters of the

project provide at least 30 percent of the capital, for projects of over $500,000. The funds only contribute resources to

new projects, or to the expansion, diversification, modernization, and privatization of existing ones, but they do not

participate in the management. Ibid. pp. 66-67.

20 Ibid., pp. 72.

21 There is no limit as to the amount of money to be insured. Nevertheless, there is a classification of countries into

five different categories, based on the degree of risk, to determine the cost of the insurance. The insurance is valid for a

period of five years, which can be extended thereafter on a yearly basis, for a total period of twenty years. CESCE

does not notify the host country of the insurance and obliges the company contracting it to keep it secret. The main

beneficiaries of this scheme are the largest Spanish companies, for their investments in Latin America and in

Maghrebian countries. In 1994, the Spanish state owned 50.23 percent of CESCE’s shares, banks owned 43 percent,

and insurance companies owned the remaining 7 percent. Carlos Jiménez Aguirre, ‘La Protección de las Inversiones en

el Exterior. Instrumentos Existentes’, Información Comercial Española, no. 735 (1994), pp. 86-87.

22 MIGA provides insurance for new projects, as well as for the expansion, modernization or restructuring of old ones.

It also covers acquisitions in privatization programs and subsidiaries established through direct investments. All the

projects have to be financially solid, respect the environment and have a positive impact on the economy of the host

country. It provides insurance for a period of fifteen years that can be extended five more years. However, the insured

may cancel the contract after three years. It provides coverage for a maximum of $50 million. Its interest rate is 0.5

percent. These insurance policies were not as successful as the government intended, even though some Spanish

companies subscribed them. The reasons were that Spain’s FDI was not sizeable until the 1990s, the lack of

information among Spanish firms, the concentration of Spanish FDI (before the 1990s) in countries members of the

27

Organization for Economic Cooperation and Development (OECD), where political risk was nonexistent, the cost of

the insurance, vis-à-vis the appraisal of the profits, and the fact that these schemes were designed to provide insurance

for large investments. With a few exceptions, most Spanish companies made small individual investments, and thus

failed to qualify for these programs Ibid., p. 82.

23 Spain signed BARPIs with those countries that received significant amounts of Spanish FDI, those that purchased a

significant amount of Spanish exports or were potential markets for them, those which had a growing economy that

offered opportunities for Spanish goods and enterprises, and those which subscribed ‘Agreements of Economic

Cooperation’ (AEC) with Spain, to strengthen mutual economic, financial, and entrepreneurial relations. These

countries were Bolivia (agreement signed in 1990), Argentina (1991), Uruguay (1992), Paraguay (1993), Cuba (1994),

Chile (1994), Ecuador (1994), Honduras (1994), Nicaragua (1994), Peru (1994), Colombia (1995), the Dominican

Republic (1995), El Salvador (1995), Mexico (1995), and Venezuela (1995). The BARPIs included protection for

investments from the moment the investments materialized, and obliged the government of the host country to admit

the investment and to provide all types of technical assistance and licenses to the Spanish investor. The investor

received national treatment and Spain was granted most-favored nation status. The agreement also guaranteed the free

transfer of earnings to the parent company, the repatriation of profits, wages and salaries, compensation, loan

payments, investments for maintenance and development of the business operation, and transfers for liquidation of the

enterprise. The government of the host country agreed to bear economic responsibility for the loss caused to Spanish

investors in cases of nationalization, expropriation and armed conflict or similar situations. Compensation was

stipulated on the basis of the real market value of the investment prior to the announcement of the expropriation,

nationalization or armed conflict. Payment must be made in transferable and convertible currency. In case of dispute

between the investor and the host country, the agreement refers both parties to the tribunals of the host nation, the Paris

Chamber of International Commerce, the International Court of Justice, the United Nations Commission for

International Commercial Law (UNCITRAL) and the International Centre on Settlement of Investment Disputes

(ICSID). The agreement may stipulate restrictions in the access of foreign investors to some economic sectors deemed

sensible for national security purposes. José Carlos García de Quevedo and Rosa Hontecillas, ‘Los Acuerdos

Bilaterales de Promoción y Protección de Inversiones’, Información Comercial Española, no. 735 (Nov. 1994), p. 79;

United Nations, World Investment Report, 1996, pp. 312-313.

24 According to Article 12 of the agreement, both sides agreed to create a stable and attractive investment environment

that would stimulate a rise in mutually-beneficial FDI flows, to introduce a favorable legal framework for investment,

particularly through bilateral investment protection agreements and double-taxation accords, and to promote joint-

ventures, especially between small and medium enterprises. IRELA, The European Union, p. 30.

28

25 Eliana Cardoso and Ann Helwege, ‘Import Substitution Industrialization’, in Jeffry Frieden, Manuel Pastor, Jr., and

Michael Tomz (eds.), Modern Political Economy and Latin America. Theory and Policy, (Boulder, 2000), p. 155.

26 Sebastian Edwards, Crisis and Reform in Latin America. From Despair to Hope, (Oxford, 1995), pp. 43-48.

27 Ibid., pp. 4-5.

28 Luiz Carlos Bresser Pereira, ‘Economic Reforms and Economic Growth: Efficiency and Politics in Latin America’,

in Luiz Carlos Bresser Pereira, José María Maravall, and Adam Przeworski, Economic Reforms in New Democracies.

A Social-Democratic Approach, (Cambridge, 1993), pp. 18-20.

29 Ibid., pp. 20-26.

30 Ibid., pp. 36-50; for a detailed analysis of the reforms, see Edwards, Crisis and Reform, pp. 69-292.

31 Edwards, Crisis and Reform, p. 170.

32 Ibid., pp. 200-224.

33 Ibid., pp. 246-251.

34 Adeoye A. Akinsanya, The Expropriation of Multinational Property in the Third World (New York, 1980), pp. 115-

116; and Paul E. Sigmund, Multinationals in Latin America. The Politics of Nationalization (Madison, 1980), pp. 36-

39.

35 Albert Carreras, Xavier Tafunell, and Eugenio Torres, ‘Against Integration. The Rise and Decline of Spanish State-

Owned Firms and the Decline and Rise of Multinationals, 1939-1990’, in Ülf Olson (ed.), Business and European

Integration Since 1800. Regional, National and International Perspectives (Göteborg, 1997), p. 32.

36 Ravi Ramamurti, ‘The New Frontier of Privatization’, in Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons

from the Telecommunications and Transport Sectors in Latin America (Baltimore, 1996), pp. 1-45.

37 Ibid., p. 11.

38 For more information on the treaties for protection and promotion of investment between Spain and Latin American

countries, see United Nations, World Investment Report, 1996, pp. 312-313.

39 John M. Kline, Foreign Investment Strategies in Restructuring Economies. Learning from Corporate Experiences in

Chile (Westport, 1992), p. 189.

40 Manuel Sánchez, Rossana Corona, Luis Fernando Herrera, and Otoniel Ochoa, ‘The Privatization Process in Mexico:

Five Case Studies’, in Manuel Sánchez and Rossana Corona (eds.), Privatization in Latin America (Washington, 1993),

p. 162.

41 Ben Petrazzini, ‘Telephone Privatization in a Hurry. Argentina’, in Ramamurti (ed.), Privatizing Monopolies, p. 127.

42 Pablo Gerchunoff and Germán Coloma, ‘Privatization in Argentina’, in Sánchez and Corona (eds.), Privatization in

Latin America, p. 129.

29

43 Dominique Hachette, Rolf Luders and Guillermo Tagle, ‘Five Cases of Privatization in Chile’, in Sánchez and

Corona (eds.), Privatization in Latin America, pp. 79-80. See also Kline, Foreign Investment Strategies, p.190.

44 Telefónica. Quoted in (New York) Wall Street Journal, 23 May 1996, A1, A9.

45 Carmen Jiménez, ‘Telefónica Se Convierte en el Mayor Operador de Brasil’, El País (Madrid), 30 July 1998,

Economía y Trabajo section, p. 31.

46 The agreement signed by Telefónica and WorldCom-MCI on 9 March 1997 comprises several aspects. Telefónica

would buy 10 percent of Eurocom, WorldCom’s operator in Europe. Creation of a joint venture between Telefónica

(49 percent) and WorldCom (51 percent) to operate in Eastern and Southern Europe. Telefónica would have the option

to acquire 40 percent of the company that WorldCom created in Italy. Telefónica would distribute Eurocom’s products

in Spain, and it would consider the creation of a joint venture in Spain to distribute voice and value-added products.

Telefónica had the option to acquire 10 percent of MCI-WorldCom. MCI and Telefónica would create a joint venture

(70-30), managed by MCI, to adapt its services and promotions to the needs of the Spanish-speaking people living in

the US. Creation of a joint-venture between Telefónica (51 percent) and MCI (49 percent), called Telefónica

Panamericana MCI (TPAM), controlled by Telefónica, to manage Telefónica’s Latin American subsidiaries, and to

develop a digital network to link the main trade centers of Latin America with the US and Europe. MCI would have

the option to buy 10 percent of TISA before June 2000. MCI and Telefónica would merge their activities in Puerto

Rico. Telefónica would have the option to buy a share of Avantel (controlled by MCI and Banamex) in Mexico. The

president of Telefónica, Juan Villalonga, would join MCI-WorldCom’s council, and Bert Roberts, MCI’s president,

would join Telefónica’s executive council. If the merger between WorldCom and MCI did not materialize, Telefónica

and WorldCom would maintain the accord of 9 March 1998. Information provided by Telefónica and World-Com

MCI, quoted in El País Digital, no. 676, 10 March 1998, Economía section, observed 10 March 1998.

47 Miami (Florida) El Nuevo Herald, 6 July 1997, Moneda section, 5B; El País Digital, no. 425, 2 July 1997, Economía

section, observed 2 July 1997; El País Digital, no. 1120, 28 May 1999, Economía section, observed 28 May 1999.

48 Financial Times (London), 15 Oct. 1996, Sp. III, p. 3.

49 Edwards, Crisis and Reform, pp. 204-207.

50 Ibid., p. 14.

51 Liliana Rojas-Suárez and Steven R. Weisbrod, Financial Fragilities in Latin America. The 1980s and 1990s

(Washington, 1995), p. 14.

52 Edwards, Crisis and Reform, pp. 207-208.

53 Rojas-Suárez and Weisbrod, Financial Fragilities, p. 15.

54 El País Digital, no. 431, 8 July 1997, Economía section, observed 8 July 1997.

30

55 Banco Santander, quoted in El País Digital, ‘Los Beneficios del Santander Suben un 29.2% en 1997 y Superan los

110,000 Millones’, no. 635, 29 Jan. 1998, Economía section, observed 29 Jan. 1998.

56 BBV, quoted in El Nuevo Herald, 8 March 1997, Moneda section, 5B.

57 El Nuevo Herald, 23 March 1997, Moneda section, 6B.

58 BBV, quoted in El Nuevo Herald, 23 March 1997, Moneda section, 6B.

59 Financial Times, 15 October 1997, Sp. III, 3; and Financial Times, 14 March 1997, special section, “Latin American

Finance”, p. 4.

60 Saud Siddique, ‘Financing Private Power in Latin America and the Caribbean’, in Finance and Development, V.32,

no. 1 (1995), pp. 18-21.

61 Ibid., pp. 18-21.

62 Santiago Cacar, ‘La Euforia Bursátil Anima al Gobierno a Vender su 41% de Endesa para Ingresar 1,6 Billones’, El

País Digital, no. 700, 5 April 1998, Economía section, observed 5 April 1998.

63 The Oil and Gas Journal, vol. 95, no. 5 (1997), p. 35.

64 The consortium was also integrated by Chilectra of Chile, Grupo Financiero Popular de Colombia, and Fondelec,

from the United States. In El País Digital, ‘Endesa se Adjudica Dos Eléctricas de Colombia por 337.000 Millones’, no.

502, 17 Sept. 1997, Economía section, observed 17 Sept. 1997.

65 Endesa extended its participation in Enersis from 32 percent to over 65 percent on 14 April 1999. This provoked

serious debates in the Chilean Congress. On 29 April, Chile’s Monopoly Commission blocked Endesa’s move, but on

11 May 1999 it finally authorized the takeover. In El País Digital, no. 1075, 14 April 1999, observerd 14 April 1999;

El País Digital, no. 1091, Economía section, observed 29 April 1999; and El País Digital, no. 1103, Economía section,

observed 11 May 1999.

66 Each company provided 41 percent of the funding. The remaining 18 percent came from Chilectra and Electricidade

de Portugal. In Santiago Carcar, ‘Endesa Adquiere la Compañía Brasileña Coelce en Pugna con Iberdrola’, El País

Digital, no. 701, 5 April 1998, Economía section, observed 5 April 1998; El País Digital, no. 699, 3 April 1998,

Economía section, observed 3 April 1998; and El Nuevo Herald, ‘Pasa Firma Brasileña a Manos de Europeos’, 3 April,

1998, Moneda section, p. 6B.

67 El País Digital, ‘Iberdrola Compra la Eléctrica Brasileña Cosern por 73.800 Millones’, no. 589, 13 Dec. 1997,

Economía section, observed 13 Dec. 1997.

68 Carmen Jiménez, “Telefónica Se Convierte en el Mayor Operador de Brasil”, El País, 30 July 1998, Economía y

Trabajo section, p. 36.

69 Euromoney (London), no. 326 (June 1996), pp. 167-168.

31

70 Ignacio Sánchez-Zuloaga, ‘La Internacionalización Productiva de las Empresas Españolas, 1991-1994’, Información

Comercial Española, no. 746 (Oct. 1995), pp.102-103.

71 El País Digital, no. 411, 19 June 1997, Economía section, observed 19 June 1997.

72 El Nuevo Herald, ‘Pagan $301 Millones por Empresa Eléctrica Panameña’, 12 Sept. 1998, Economía section, 6B.

73 AFP-Extel News Limited, ‘Hidrocantabrico to invest 18 bln pesetas in Mexico Under Eastern Group Accord’, 14

December 1998.

74 Luis Aparicio, ‘Repsol, en Manos Privadas’, El País Digital, no. 346, 14 April 1997, Economía section, observed 14

April 1997.

75 Ibid.

76 Ibid.

77 Ludmila Vinogradoff, ‘Repsol Consigue Entrar en Venezuela Tras Ofrecer el Doble que sus Rivales’, El País

Digital, no. 344, 12 April 1997, Economía section, observed 12 April 1997.

78 Aparicio, ‘Repsol, en Manos Privadas’.

79 Expansión (Madrid), ‘Repsol Abandona el Capital de Gas Natural Lationamericana’, 7 Feb. 1998,

http://expansion.es, observed 7 Feb. 1998.

80 The Brazilian Monetary Council authorized BBV to increase its control over equity in Banco Excel Económico up to

100 percent, on 30 July 1998. BBV, http://www.bbv.es/BBV/home.html, observed 12 Sept. 1998.

81 Metrogas, Edenor and Pluspetrol were subsidiaries of the Astra group, before Repsol bought 47.5 percent of Astra in

1996. The Spanish oil company acquired Grupo Comercial del Plata, JME Inversiones, Isaura, EGB, Refisan, Dapsa

and Parafinas through Astra on 30 May 1997. Ibid.

82 The companies marked with an asterisk were operated through Gas Natural Latinoamericana, a company created by

Repsol, Iberdrola and Gas Natural, to participate in gas extraction and distribution projects in Latin America, and in the

privatization of gas fields and distributors in that region. Ibid.