For the second time in two weeks, a Spanish company operating in Latin America has been nationalized by a populist government looking to score political points. Last week, Argentinian President Cristina Fernandez, following the advice of her Marxist adviser, nationalized YPF-Repsol, a Spanish energy company. Now the FT reports that the leftist Bolivian President Evo Morales has nationalized Red Eléctrica, another Spanish energy company active in his country. As in Argentina, the rhetoric justifying the move comes straight out of the 1970s:
“Today, as we pay homage to the workers and Bolivians that have fought for the recovery of natural resources and basic services, we are nationalising the electricity transmission provider,” Mr Morales said, according to Spain’s state news agency.
Nationalization fever is hitting South America. Venezuela has been leading the charge towards nationalization for the past 13 years, and Argentina and particularly Bolivia have begun to follow suit. One executive told the FT that nationalization has become “an annual [Mayday] tradition” for the Morales government.
And this is just the tip of the iceberg. Nearby Ecuador has been making moves toward nationalization as well, and as these nationalizations continue, other leaders may decide to follow their lead when approval ratings begin to dip.
Foreign investors (especially Spanish ones) are already beginning to get nervous after the events of the past two weeks, and if nationalizations continue, this is likely to get worse. With the global recovery still shaky, the last thing the region needs is the perception that it is a risky place to invest. Unfortunately, populist leaders are doing everything they can to reinforce this perception. Soon they will begin to pay the price, and the results will not be pretty.