Latin America Turns Off the Investors It Needs

Last week, after 15 years of trying to build a business in Latin America, BellSouth Corp. disconnected from the region.

The Atlanta-based telecommunications giant agreed to sell its wireless phone holdings in 10 Latin American countries to Telefonica Moviles Inc. of Spain for about $6 billion. The price just about recovers BellSouth’s investment since 1988, including $600 million in losses it incurred last year when it withdrew from Brazil.

Still, the money won’t make up for the disappointment. And the dashed dreams of this U.S. telephone company reflect a troubling distance between the North and South American economies that could bode ill for both in the years ahead.

BellSouth once had high hopes for Latin America, home to about half a billion people. As recently as last year, it vowed to become “the leading wireless communications provider” there, in part by creating walk-in phone centers. These comfortable gathering spots -- “the Starbucks of Latin America,” one executive called them -- were designed so that people who didn’t own phones could still make calls. Meanwhile, the company commissioned a Taiwanese manufacturer to fashion an inexpensive cellphone tailored to Latin America’s vast low-income neighborhoods.

The company’s efforts succeeded, to some extent. During the last decade, phone ownership across Latin America has risen to more than 3 in 10 people from fewer than 1 in 10.

But such robust growth was continually undermined, BellSouth officials say, by bouts of political and currency instability. In the end, the company believed it had little choice but to make an exit.

The problem with Latin America today isn’t just that it’s poor. It’s that the continent is failing to inspire confidence among the world’s investors.

Even as China and India are hailed -- and feared -- for climbing the ladder of economic development, Latin America is characterized by uncertainty and crisis.

The latest headlines tell of Argentina narrowly avoiding default on its debt before getting more assistance from the International Monetary Fund. Venezuela is being roiled by political unrest. Brazil is trying to get its act together under President Luiz Inacio Lula da Silva. But Lula, who is in a dispute with the U.S. over agricultural trade barriers, has lately been criticizing America’s “predatory private sector” and calling the U.S. economy a “perverse” model that is not suited to his region.

He’s entitled to his opinion, of course, but such rhetoric isn’t helping to attract what his country needs most: dollars. Brazil, which benefited from $38 billion in foreign business investment in 1998, will be lucky to attract $10 billion this year, experts say.

“Brazil’s economy should be growing 5% a year, but is not even expanding 1%,” says Brazilian economist Raul de Gouvea, who teaches at the University of New Mexico. “Lula has yet to deliver on his promises.”

Latin American economic growth has long suffered from other self-inflicted wounds.

The quality of education ranks among the lowest of developing nations, notes L. Ronald Scheman in a new book, “Greater America: A New Partnership for the Americas in the Twenty-First Century” (New York University Press, 2003). Scheman, former head of the Inter-American Development Bank and now director general of the Inter-American Agency for Cooperation and Development, is a 40-year veteran of Latin American affairs.

The chief problem, Scheman says: Governmentbureaucracy is strangling everything, from the schools to industry.

Such trouble comes at a crucial time, a “crossroads” in Scheman’s words, not only for Latin America but also for the U.S., which is struggling in its own right to create jobs and ensure a sustained economic recovery.

“Our country would benefit from the immense potential of a market of more than 500 million people,” Scheman says.

The never-ending controversy over border control aside, he adds, the U.S. will need “Latin America’s young people later in this decade when baby boomers retire and we face a severe labor shortage.”

The Bush administration has at least recognized the nexus between North and South in its proposed Free Trade Area of the Americas, which is supposed to be signed this year.

Yet Scheman laments that, given rising protectionist sentiments in Washington and tensions between the White House and Latin American leaders such as Lula, “we are likely to get at best a very pale trade agreement.”

There are, to be sure, some positive signs. Latin America’s long-neglected infrastructure, for instance, is being better maintained. Specifically, roads are being built to transport Brazil’s soybeans to ports on the Pacific Ocean, Scheman reports. Final destination: China.

What’s more, investments in Latin American stock markets were up sharply last year, says money manager Geoffrey Dennis, who covers emerging markets for the Smith Barney division of Citigroup Inc. However, “equity investments are volatile,” Dennis cautions. “What we need to see now is more business investment and real economic growth.”

Otherwise, it won’t just be BellSouth cutting its cord to the continent. Many others will too, a scenario that threatens to leave Latin America poorer today and all of us poorer tomorrow.

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James Flanigan can be reached at [email protected]. Read previous columns at latimes.com/flanigan.