A two-speed Latin America – Pérez Alati Grondona Benites Arntsen & Martí­nez de Hoz

Latin America is a region of continuing interest to Iberian investors. Historical, cultural and linguistic ties make it the international arena in which Spanish and Portuguese companies have often felt most comfortable, indeed it is becoming the first focus of international expansion for many

The perception remains of the region as having been much less affected by the global financial crisis and economic slowdown. There is less dependence on the capital markets, businesses and consumers are less heavily indebted and transactions are much less highly leveraged – in short, the economic issues that have long held the region back have now helped it avoid the systemic weaknesses now facing Europe and the US.

The belief is that Latin America offers continuing business opportunities. Many of the region’s largest economies continue to expand and investment continues to pour in. For lawyers on the ground however, the picture is less clear, yes there is growth but it is not spread evenly across the continent. Indeed, many lawyers continue to talk of a twospeed Latin America.

“It is true that businesses in Argentina are less dependent on the capital markets, that the country is no longer a net recipient of IMF funds, and that the government maintains a fiscal surplus, but we have our own issues,” says Diego Serrano Redonnet, corporate partner at Buenos Aires-based Pérez Alati Grondona Benites Arntsen & Martí­nez de Hoz (jr).

Argentina may have successfully emerged from its own financial crisis at the start of the decade, when in 2001 it defaulted on US$95bn (€73bn) of debt, but the past year has seen continuing internal political issues and international revenues affected as the price of commodities has fallen – the country is one of the world’s largest beef, soya, wheat and cobalt producers.

In addition, the past year has seen Argentina face criticism from investors following the decision of President Cristina Fernández to nationalise the US$26bn (€20bn) in pension funds managed by private companies. The largest of these was the Consolidar fund, run by leading Spanish bank BBVA, while Spanish travel operator Marsans saw the government effectively compulsory purchase its subsidiary Aerolineas Argentinas.

“The current government has placed a lot of pressure on the local subsidiaries of multinationals to sell-out, and sought to acquire funds for its own agenda, a significant recent election may now mean it has to temper its more populist policies, but there is no doubt this has affected investor confidence,” says Serrano Redonnet.

He nonetheless remains optimistic, there is a new political wind and commodity prices are beginning to recover. “Argentina’s economic structure remains stable, we have not experienced toxic assets, and the banks continue to enjoy liquidity. Fundamentally Argentina remains solid,” he says.

Guido Tawil, senior partner at M&M Bomchil, agrees that Argentina faces a mixed economic reality but also that the country is used to turbulent times.

“Wider economic issues and perceptions are affecting us, the transactional markets remain slow and a number of high profile projects have been cancelled due to a lack of finance. But we are seeing an opening towards consensus politics, which we hope will mean more logical policies, and from next year we expect things beginning to recover”.


The experience of Argentina contrast however with that of two of its neighbours, Chile and Brazil, which continue to prosper even in the face of the global downturn.

In Santiago, Jorge Carey, senior partner of Carey & Cia sees the country’s economy continuing to perform well relative to the region as a whole. Chile also has its own problems – including an unfair distribution of wealth, a lack of oil and gas and, consequently unusually high energy costs – but there are no systemic financial weaknesses.

“Our strengths are many and well known, including political stability, very low corruption, favourable fiscal policies and management and deep capital markets which make long term capital readily available.”

Chile has seen only a marginal impact on its deal markets as a result of the global slowdown in transactional work, he says, and purchases and sales of major assets continue to be seen.

He cites the recent US$500m acquisition of the Lafarge Chilean cement affiliate by Peruvian investors as an example. Chilean banks are healthy and long term capital is readily available.

New investment opportunities continue to be presented, with the Chilean assets of the major multinationals of wide interest, he says.

“When companies need to raise cash to meet their loan covenants, such assets are the first to be sold because of their relative health and because of the speed with which the proceeds of the sale can be transferred abroad.”

It is to Brazil however that many international investors are now looking. Long-perceived as a sleeping giant, the country’s economy is now fulfilling expectations, say lawyers.

“We have seen a slight change in the profile of the work we have been doing. There has been a decline in international cross-border transactions, but the growing domestic market has balanced this. There is clearly less capital markets and structured finance work, but we have still seen some sizeable transactions,” says Alexandre Bertoldi, managing partner of one of the country’s largest law firms, Pinheiro Neto Advogados.

São Paulo continues to be the country’s financial engine but all of Brazil continues to see economic growth, he says. “The perception used to be of Brazil as an ‘alternative’ investment market now it is an essential. We are seeing multinationals that had previously left looking to come back because of the scale of opportunities the country offers.”

The government is embarking on an ‘accelerated’ infrastructure programme particularly in the north east of the country, but also significant has been the development of the country’s oil and gas sector, says José Luis de Salles Freire, Chairman of TozziniFreire Advogados.

The discovery of new ‘ultra deep’ oilfields has the potential to place Brazil among the world’s top ten producers.

“There is now discussion over what stance the government will take in relation to the ultra deep reserves; whether it is open to new bidding structures or will look to continue to protect the position of the state oil company Petroleo Brasileiro through the traditional concession system,” he says.

No new blocks have yet been allocated but foreign energy companies – including Galp Energia, its subsidiary Petróleos de Portugal, and Repsol – have clearly been successful in developing previous Brazilian exploration blocks, he notes.

But Brazil’s own businesses are also now featuring on the international stage. “Many Brazilian businesses have emerged out of difficult financial circumstances.

The result being that the leading companies have developed very efficient management and financial structures and that their growth has been largely selffunded.

We have seen, mining and construction companies lead internationally, next we will see Brazil’s own financial services sector expand.”

Dispute mechanism As Latin American companies grow it is clear also that many perceive national courts as inadequate to resolve specialist disputes. Regional recognition and compliance with international arbitration conventions is helping to make it the default dispute mechanism.

“The trend remains firmly towards arbitration even in the face of populist moves by governments, notably efforts by Ecuador, Venezuela and Bolivia to limit its application,” says Pedro J Martinez-Fraga, Miami-based coordinator of the Latin American dispute resolution practice at Squire Sanders & Dempsey.

Even in such countries, a pragmatism however prevails that foreign investment needs to be maintained and protected. Cuba, cite lawyers, is a country that as it continues to open up to foreign investment is placing an emphasis on arbitration to provide the necessary investor comfort.

In any event, the populist rhetoric and nationalisation policies of some of the region’s leaders have not diminished demand for specific investment in key areas. Venezuela may have nationalised operations owned by Repsol and Santander, but a recently signed energy accord signed with Spain has seen reparations agreed, and opportunities for companies such as Iberdrola to benefit from new supply and construction agreements.

Centrally minded

A similar two speed economic process is also apparent across Central America, say lawyers there.

The Central American Free Trade Agreement (CAFTA) continues to pull the region’s economies together, but the recent military coup in Honduras has raised inevitable concerns as it enters into trade negotiations with the European Union.

“Governments of CAFTA members unanimously wish President Zelaya were still in power, and considerable efforts are being made to ensure that it is ‘business as usual’ in the region,” says José Antonio Muñoz, partner with Arias & Muñoz, one of Central America’s largest firms.

It is his home country of Costa Rica that continues to stand out economically across the region. The manufacturing sector may have been affected by reduced global consumer demand, but signs of recovery are now being seen in its free trade zones and next year is expected to be one of recovery.

“Transactional work was seriously affected last Autumn especially in the real estate and hospitality sectors. But we are now seeing an increase in M&A and foreign direct investment generally, which is a very positive sign. Financial transactions at the corporate level are also restarting,” says Mauricio Salas, partner with Costa Rica’s BLP Abogados.

CAFTA continues to pull the region’s economies together, say lawyers. But the situation in Honduras has again painted a negative picture of Central America, and will certainly affect risk ratings and investment flows to the region.

“CAFTA has definitely helped inject some stability into Honduras and Central America at a very fragile time that should lend confidence to investors. The bottom line, however, will be how this political crisis is resolved. If it cannot, capital is still a coward and political risk will weigh more heavily in investors’ decisions regarding where to put their money,” says Regina Vargo, Miami-based Yosbel Albarra, corporate partner with Greenberg Traurig in Miami.

Nonetheless, Central America, like the rest of Latin America is in better shape to weather the downturn than in the past, believes fellow partner Yosbell Albarra.

Countries have in recent years improved their financial regulation and trade agreements have helped to provide a measure of stability.

“During the boom years, there were significant exit events for Central American investors, and many are now reinvesting the proceeds in assets that, if not undervalued, have come down to reasonable levels. In the past year, we have seen an incredible increase in Central American and South American investment and see more deals in the pipeline.”

Latin America of course remains a natural destination for Iberian investment, but lawyers across the region caution that different economies are being affected in different ways, both by international and internal domestic issues. Investors clearly therefore have to be alive to the differences.