Featured Q&A with Our Board of Advisors

Monday, January 29, 2007

BOARD OF ADVISORS Featured Q&A With Our Board of Advisors

Bernard Aronson Peter Hakim Managing Partner, President, Latin America's state-owned mium for multinationals firms to do busi- ACON Investments LLC Inter-American companies are gaining in impor- ness in 'sensitive' sectors, let alone enter Diego Arria Dialogue tance as renewed nationalism into partnership with the state-owned Director, Donna Hrinak has taken hold in several coun- enterprises. Partnerships work best for all Columbus Group Director for Corporate Q tries. But partnerships with the private when there is in place a government that Genaro Arriagada and Govt. Affairs, sector remain key to the success of state- respects private enterprise, the rule of law, Kraft Foods Inc. Board Member, Banco owned enterprises, nearly all government and the sanctity of contracts, and where del Estado de Chile Jon Huenemann officials in the region say publicly. When there is an environment conducive to for- Joyce Chang Principal, and why should a multinational company eign investment. For the multinational International Global Head of decide to seek strategic partnership with firm, the nature of the investment (e.g., Emerging Markets Department, Research, J.P. Morgan Miller & Chevalier state-owned industry players? How can large, export-oriented) as well as the level Chase & Co. James R. Jones these partnerships be structured to be of know-how (technology) and human Adrian Cruz Co-chair, beneficial for all parties, including the capital required (highly skilled technical Founder and Senior Manatt Jones region? Aside from the publicly-owned and managerial people) will determine its Partner, Global Strategies LLC companies, how can the private sector, bargaining position. If the investment fur- Crisis Simulations Nicolás Mariscal within itself, best approach strategic part- thers national development goals and pro- International, LLC Chairman, nerships in Latin America in today's busi- duces positive social impacts, as well, the Grupo Marhnos W. Bowman Cutter ness climate? Continued on page 3 Partner, Juan Felipe Muñoz E.M. Warburg President, Guest Comment: Jerry Haar: PHOTO OF THE DAY Pincus The Otun Group "Partnerships with state-owned Rui da Costa Thomas F. enterprises are like marriages: Managing Director, McLarty III Latin America & the President, A relatively easy to get into but very Caribbean, Kissinger McLarty expensive to get out of. Multinational firms Hewlett-Packard Co. Associates must be very careful to separate a nation's Dirk Donath Carlos Paz-Soldan rhetoric from both reality and past per- Managing Director, Partner, formance. There are high risk nations— Eton Park Capital Saul Ewing, LLP Venezuela, Ecuador, Bolivia, Argentina— Management Beatrice Rangel where rules of the game, both visible and Jane Eddy President & CEO, invisible, can change rapidly, without prior Managing Director, AMLA Consulting Corporate & Govt. notice. And there are high-risk sectors as José Antonio Ríos Venezuelan Telecom Minister Jesse Ratings Group, well, such as utilities and natural resources. International President, Chacon said Friday the government will Standard & Poor's The arbitrary power of the state to man- Global Crossing seize CANTV if no deal is reached with Jonathon Flott date a change in ownership level, operating shareholders over the firm's national- Andrés Rozental Senior Economist for control, asset and equity valuations, Chairman of the ization. Latin America, Africa Board of Trustees, employment rules, and repatriation terms and the Middle East, Venezuelan government file photo. Mexican Council on of profits and dividends raise the risk pre- General Motors Foreign Relations Wallace Gardner Everett Santos Vice President, President, Inside This Issue Worldwide Sales, DALEC LLC Chubb & Son Roger Scher FEATURED Q&A: When Should a Multinational News Briefs: US-Venezuela Ties; George W. Grayson Head of Latin Seek to Partner with State-Owned Firms? ...... 1 Mexican Interest Rates; Brazil's CVRD...... 2 Professor of Govt., American The College of Trade Powers Agree to Resume Ecuador's Correa Appoints Economy Sovereign Ratings, William & Mary Stalled Global Trade Talks ...... 2 Minister to Defense Post Temporarily...... 3 Fitch Ratings Minister: Govt. to Seize CANTV if Advisor Profile: Brazil's Incoming No Deal Reached with Shareholders ...... 2 Ambassador to the US, Antonio Patriota...... 3

NEWS BRIEFS Economic News move," Amorim told reporters, according to Reuters. "I see a positive disposition, but US Envoy in Venezuela Says Bags if they will come as far as we need that still are Packed, Hopes for Better Ties Trade Powers Agree to Resume has to be seen." US ambassador to Venezuela Stalled Global Trade Talks William Brownfield on Friday told Company News reporters that his "suitcases are Major powers agreed on Saturday to packed and ready" to leave the coun- resume global free trade talks, six months try after President Hugo Chavez said after they were suspended. Reuters report- Minister: Govt. to Seize CANTV if ed. "I believe we are back in business," No Deal Reached with Shareholders the day before that Brownfield could European Trade Commissioner Peter be expelled over statements relating Mandelson was quoted as saying in Davos, The Venezuelan government will seize to Chavez's plans to nationalize state Switzerland, where trade ministers from telecommunications company CANTV if utilities. But Brownfield added that 30 countries gathered on the sidelines of no deal is reached with shareholders over he considered it "important ... to the annual World Economic Forum. the firm's nationalization, Telecom concentrate on bilateral questions" Pascal Lamy, director general of the World Minister Jesse Chacon said Friday, accord- and to "improve bilateral relations," Trade Organization, said ministers agreed ing to Reuters. "If we do not get anywhere according to Reuters. it was time to return to "full-negotiating with the owners, we shall act as set out by mode" after the United States, the the law. In Venezuela, there is an expropri- Mexican Central Bank European Union, and other key member ation law that can be invoked simply by Holds Interest Rate Steady countries reported progress in recent citing the greater good of the public," Mexico's central bank held its bilateral talks. The WTO's Doha round of Chacon was quoted as telling reporters. benchmark overnight interest rate at 7 percent on Friday, according to a Web site press release. The decision I believe we are back in business. not to move rates was anticipated by “ ” the market, but analysts suggest that - Peter Mandelson higher food prices could put pressure on rates in the coming period. [Editor's note: see related Q&A on global talks were halted in July amid dis- Earlier this month, Venezuelan President tortilla prices in the January 18, agreements over agriculture issues, with Hugo Chavez announced plans to nation- 2007 edition of the Advisor.] the US refusing to make deeper cuts to alize CANTV—the country's biggest farm subsidies and the EU and some telecommunications company—as well as Brazil's CVRD Budgets Record developing countries refusing to lower tar- its biggest electricity distributor, $6.3 Billion for Capex This Year iffs on agricultural imports. In addition, Electricidad de Caracas. US companies Brazilian mining giant CVRD said developing countries such as Brazil are have sizeable stakes in both firms. Power Friday it has budgeted a record $6.3 resisting pressure to lower industrial tar- company AES has 87 percent of EDC, billion for investments in 2007. In a iffs. However, after recent bilateral talks while Verizon Communications' 28.5 signs have emerged that countries may be percent of CANTV is the largest single press release, the company said its willing to make more concessions. US stake in the telecom firm. Chavez said last capital expenditure budget for this Trade Representative Susan Schwab Sunday that the government would not year, not including acquisitions, is expressed "a real sense of optimism but compensate shareholders in CANTV until $1.8 billion higher than 2006. Last also sense of realism about all the work after it was nationalized, and said the gov- year, CVRD spent $21.5 billion on ahead of us," while British Prime Minister ernment would not investors pay interna- acquisitions, including $19.5 billion Tony Blair said that a deal was "more like- tional value for their stakes. stressing the to buy Canadian nickel miner Inco. ly than not ... within the next few months," stance of leading shareholder Verizon CVRD said the increase in its capital according to Reuters. Brazilian Foreign Communications would prove vital. capex budget this year is due to the Minister Celso Amorim said there could Chacon said Friday that there was not yet consolidation of new subsidiaries be a breakthrough by early April, followed a fixed price for how much the govern- and a higher concentration of finan- possibly by definitive numbers by the end ment was willing to pay to take over cial disbursement demanded by of June. He said Brazil would be flexible if CANTV, only saying that the government the US and Europe confirmed "big signals" would make a "reasonable" offer, accord- projects under development. on agriculture, and that he saw signs of US ing to Bloomberg News. He also did not willingness to make concessions. "My specify the size of the stake the govern- impression is that they have leeway to ment was seeking. Chacon did say, howev-

Copyright © 2007, Inter-American Dialogue Page 2 of 4 Inter-AAmerican Dialogue’s Latin America Advisor Monday, January 29, 2007 er, he wanted the nationalization to take place as soon as possible, and said the gov- Advisor Profile ernment wanted "to know the position of Verizon in regard to the manner in which the state takes control of CANTV." In Antonio Patriota other Venezuela news, the country's cur- Editor's note: Antonio Patriota will replace Roberto Abdenur as Brazil’s rency, the bolivar, fell to a record low in ambassador to the United States in mid-February. Brazil's senate con- unregulated trading on Friday after Jose firmed Patriota's appointment in December. Vielma Mora, the head of Venezuela's Seniat tax authority, said traders caught Brazilian govt. file buying and selling dollars illegally would photo. be "severely" punished, Bloomberg News reported. The bolivar fell 3.4 percent on Name Friday to 4,600 bolivars per US dollar—53 Antonio de Aguiar Patriota percent lower than the official rate of 2,150 per dollar. Background Born into a family of diplomats, Patriota has lived in Asia, Europe, Latin America, and Political News the US. He started working in Brazil's foreign ministry during Itamar Franco's 1992-1995 pres- Ecuador's Correa Appoints Economy idency. He then went on to work with now-Foreign Minister Celso Amorim at Brazil's Minister to Defense Post Temporarily mission to the United Nations and later to represent Brazil at the World Trade Organization in Geneva. Ecuadorean President Rafael Correa on Notes Sunday appointed Economy Minister Ricardo Patino to temporarily also serve Until he assumes his diplomatic post in Washington, DC, Patriota continues as under- as defense minister following the death secretary general for political affairs in the Brazilian foreign ministry, where he is con- last week of Guadalupe Larriva in a heli- sidered to be Amorim’s right-hand man. The two diplomats have worked together since copter accident, according to a statement the mid-1990s. posted on the defense Patriota pushed hard for Brazil during last summer's contentious debate over an open ministry's Web site. seat for Latin America on the UN Security Council. But he says that pushing for a seat Correa said Friday at for Brazil on the Council is not on his agenda in Washington, according to local press. Larriva's funeral that he planned to appoint Sources: Brazilian Embassy in Washington, DC, Valor Economico, Folha de Sao Paulo. another woman to the post to replace Larriva, who had been the coun- Featured Q&A Patino try's first female defense Continued from page 1 Photo: economy minister. "We know that ministry we are not going to find partnership will be mutually beneficial to government eagerness to share in the anyone to fill the void that Guadalupe has the state and to the multinational firm." greater income from natural resources, left behind; however, we will look for as well as the need to have a tool so that another Ecuadorean woman to take over Guest Comment: César citizens do not bear all of the impact of the post of defense minister," he was quot- Gutiérrez: "In the last four elevated prices, and avoid conflicts that ed as saying by the Associated Press. The years, the trend of having state- lead to political instability. A model that 50-year-old Larriva, her 17-year-old A owned companies in strategic can reconcile state interests with private- daughter, and five military officers were sectors such as hydrocarbons and elec- sector earnings expectations will allow killed last Wednesday in a helicopter colli- tricity has returned, not just in Latin stability, avoiding the swinging pendu- sion during maneuvers to mark the 53rd America, but also in Africa and the lum of the past 40 years of between just anniversary of army aviation in Ecuador Russian Federation. The high price of the state or just the private sector. It at a base near Manta. Larriva had been crude oil, derivatives, and natural gas, would be the fair way. The issues of rec- defense minister for just nine days, having which until mid-2006 maintained an onciliation are: joint investment and div- taken office on January 15 when Correa unstoppable, upward tendency, has been idends—the amount requires skilled was sworn in as president. Correa has one of the reasons, to which we can add negotiation; the benefit for the state in ordered a special commission to investi- Continued on page 4 gate the accident.

Featured Q&A Continued from page 3 Latin America Advisor the form of royalties and income taxes; Guest Comment: Nicolás is published every business day by the Inter-American Dialogue, Copyright © 2007 and assuming joint social responsibility Mariscal Servitje & Juan for affected groups. Everything above is Pedro Escobar: "Infrastructure Erik Brand, General Manager, Publishing possible under a long-term model. In A development will be the Peru, we have been doing this with suc- theme, and efficient project structures Robert Simpson, cess." will be the tone, for securing Latin Editor America's much-needed development. Elisabeth Burgess, Board Comment: Rui da Costa: The private sector will play a key role in Reporter "Identifying and developing funding and operating these projects. key partnership is a vital aspect Economic stability as never seen in the Danielle Jetton, Computer Services Coordinator A of conducting business no region is already attracting the attention matter what region you're in. In the tech- of international investment groups, and Inter-American Dialogue: nology sector, state-owned and private multinational developers and operators. companies both benefit in many ways Nevertheless, local culture, relationships, Peter Hakim, President from working together. For instance, and knowledge of market conditions government entities can offer advantages need to be addressed through partners in Michael Shifter, such as a stronger knowledge of the local each country to ensure the success of Vice President, Policy market, ability to bypass bureaucratic demanding projects. In addition to these Joan Caivano, delays, and the ability to provide local obvious conditions, local capabilities in Director, Special Projects contacts that a multinational company construction and operation are fairly may not easily be able to achieve. well developed in several Latin American Dan Erikson, Multinational companies can offer a countries. International experience in Senior Associate, US Policy more global business perspective and structuring financial and managerial Claudio Loser, technological and financial opportuni- packages will, no doubt, be instrumental Senior Fellow ties that a local government entity may for achieving competitive project pro- Manuel Orozco, not have. Governments are also starting files. As an example of programs that Executive Director, Remittances and Rural to open their arms and welcome part- already integrate these factors is the PPS Development Project nerships with multinationals, since they initiative under development in Mexico. help boost the local economy, decrease International teams forming SPCs (spe- Marifeli Pérez-Stable, unemployment, and position the coun- cific project companies) have successful- Vice President, Democratic Governance try as a player in the global market. In ly bid and won interesting road, hospital Jeffrey M. Puryear, the private sector, the right partnerships and wastewater projects." Vice President, Social Policy between industry players can also be Viron Vaky, beneficial for the businesses and the Senior Fellow region. HP currently works with many different companies on issues such as Subscription Inquiries are welcomed at combating piracy and the white box [email protected] industry. HP also works with other com- Jerry Haar is a Professor of International Latin America Advisor is published every panies in developing products. The ben- Business at Florida International business day by the Inter-American Dialogue eficial results in working together are University. 1211 Connecticut Avenue, Suite 510 many, such as lower costs in product Washington, DC 20036 Phone: 202-822-9002 Fax: 202-822-9553 development, shipping costs, and mar- César Gutiérrez is President of the Board keting. The end consumer also wins by of state-owned Petroperu. The opinions expressed by the members of the being able to have the latest products, Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The services, and technology available in the Rui da Costa is a member of the Advisor analysis is the sole view of each Advisor and does not market. Overall, the benefits reach all the board and Managing Director for Latin necessarily represent the views of their respective players involved. A third form of part- America and the Caribbean at Hewlett- employers or firms. The information in this report has been obtained from reliable sources, but neither nership is working together on corporate Packard Co. its accuracy and completeness, nor the opinions social responsibility activities. State- based thereon, are guaranteed. If you have any ques- owned and private companies working Nicolás Mariscal Servitje & Juan tions relating to the contents of this publication, contact the editorial offices of the Inter-American together for the good of the community Pedro Escobar are Executive Directors at Dialogue. Contents of this report may not be repro- not only achieve a better corporate Grupo Marhnos in Mexico. duced, stored in a retrieval system, or transmitted image, but also help improve the quality without prior written permission from the publisher. of life of those living in the region."