What Next for Latin American Power Markets?

Abstract

Most countries in Latin America are now shifting away from the neo-liberal policies of the 1990s following the economic slowdown and currency crises of the past few years. In response, many companies active in the region have shifted their asset position and capital structure substantially, some going so far as abandoning assets and defaulting on debt. New investors are entering now with political connections, access to financing in local currencies, and a higher tolerance for risk and volatility. These players do not have the investment time horizon or access to capital that the previous wave of international corporations brought to the region. As a result, there may be a second round of consolidation when today's new entrants become tomorrow's exiting players. Looking forward, those countries with stable macroeconomic and microeconomic policies will attract the lion's share of foreign direct investment. In the absence of multilateral-bank or donor-agency support, many countries will fail to attract sufficient investment and will face chronic power shortages. Latin America's increasing government intervention and political volatility places it at a disadvantage in this global competition for capital. Unless the region can maintain strict fiscal discipline while attending to the valid concerns of its citizens, the first decade of the 21st century could well end as it began–in crisis.