Caracas, 28 October.- According to a report published today by the Latin American Economic System (SELA), foreign direct investment in Latin America and the Caribbean reached US$ 44 billion in 1997, the highest ever by the region in that sector.

The report, entitled "External Financing and External Debt in Latin America and the Caribbean in 1997", and which was prepared by the Permanent Secretariat of SELA (headquartered in Caracas) also points out that the most important increases were registered in Brazil and Mexico, which concentrated 60% of total foreign direct investment, and if Argentina and Venezuela are also included, the percentage becomes 80.

This report, prepared on an annual basis, analyzes the evolution of external financing and the external debt of the 28 SELA Member States, added that at year-end 1997, the region had attracted capital in excess of 73 billion dollars. This however did not prevent it from suffering the repercussions of the international financial crisis that was sparked in July in Southeast Asia.

The document goes on to detail that although the level of flows "expanded" during the first nine months of 1997, there was also a downward slide during the last three months, due to the international financial crisis, which has bored its way into 1998 "and whose final consequences are unpredictable."

From the report one is also able to glean the presence of another "positive trait" embodied in the "change in the nature" of the capital finding its way into the region. In effect, there was a decrease in the amount of short-term capital favoring instead a rise in flows aiming for medium-term bank loans, bonds and direct investments.

This hike in foreign direct investment –jumping from 11.3 billion dollars in 1993 to 44 billion dollars in 1997- was propelled by economic factors such as the region's high GDP growth rate and the improvements attained in the communication and transportation services, as well as the advances made in the processes of integration, privatization of public enterprises and the purchase of private enterprises with foreign capital.

The report likewise makes reference to the discussion that has arisen among specialists as a result of the financial crisis. This debate centers on whether countries should maintain policies that allow the entry and exit of capitals with no type of barriers or whether measures should be applied to "control" these movements.

In this regard, one of the instruments recommended to set limits on the entry of short-term "speculative capital" and also allow obtaining development funds, is the application of a tax on transactions involving foreign currency conversion, as proposed in 1972 by the 1981-Nobel prize winner, Professor James Tobin,

Similarly, the report signals the fact that the Organization for Economic Cooperation and Development (OECD) is concluding a number of technical aspects for a project for the negotiation of a Multilateral Investment Agreement (MIA) which would establish an international framework for investments.

This agreement, among others, would implement a dispute settlement system that would provide the investor with the option to seek international arbitrage and the State, which served as the recipient of the investment, would be obliged to accept it.

Moreover, as regards the external debt, the report points out that the region's total for this item reached 644 billion dollars in 1997, representing a three-fold increase as regards the total for 1980 while multiplying the 1975 amount nine times. Ninety percent of this total is concentrated in Brazil, Mexico, Argentina, Venezuela, Colombia, Peru and Chile.

Interest payments, which remained stable from 1980 to 1994 (ranging from 24 to 28 billion dollars) rose "abruptly" to 42.5 billion dollars in 1997.

External debt operations for the external debt for the year considered in the document refer above all to debt relief in Bolivia and Guyana, for 448 and 253 million dollars respectively, the incorporation of the World Bank "HIPC" initiative for the reduction of the debts of the most indebted and lowest income countries and the issuance of thirty-year bonds without collateral and the repurchase of Brady bonds purchased by Argentina, Brazil, Ecuador, Panama and Venezuela.

Lastly, the report encompasses a statistical appendix on the 30 (thirty) most important Latin American enterprises, privatizations carried out in 1997 for amounts greater than 300 million dollars, and the 173 largest national enterprises purchased by transnational companies.

Petróleos de Venezuela S.A. (PDVSA) is at the top of the list of the most important multinational enterprises of Latin America and the Caribbean. PDVSA, whose sales in 1996 reach almost 34 billion dollars and profits totaled 4.5 billion dollars. Next on the list is Bunge (foods sector) of Argentina, whose sales amounted to 8.25 billion dollars and profits, 20.7 million, and YPF (petroleum sector), also of Argentina, with sales and profits of 6 billion dollars and 816.7 million dollars, respectively.

The most outstanding privatizations carried out in 1997 include the sale of 41.7% of Compañía Vale do Rio Doce (mining) for the amount of 3.14 billion dollars; that of the cellular telephone services of Sao Paulo for 2.5 billion dollars and the sale of 65.6% of Compañía de Electricidad of the State of Bahía for 1.6 billion dollars. All of these companies are located in Brazil.

Regarding sales of regional enterprises to firms in Latin America or in third countries, in first place we have: Enersis (electricity sector) of Chile, which sold 27% to Endesa of Spain for 1.2 billion dollars; followed by Cifra, (trade sector) of Mexico, which sold 50% to the U.S based chain, Wal-Mart for 1.2 billion dollars, and third, Hit of Venezuela (beverages/beer sector), which forms part of the Cisneros Group was sold to Panamco of Mexico for 1 billion dollars.

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