Turbulence in the South American Energy Industry
AO reports on the region’s political instability and how it is affecting their energy industry
In this case it seems that investors’ confidence is tied to President Alvaro Uribe’s reelection. He is seen as the guarantor of economic and fiscal reforms. He is also seen as the person who managed to force a decline in violence, something much needed in Colombia. This is a good story with long-term potential; the only tiny black cloud on the horizon is the unlikely possibility of Uribe’s loss in the May 28th elections.
Brazil’s upcoming elections (in October) are not likely to have much impact on investors’ appetites for that country’s resources. After the global hypersensitivity demonstrated by a sharp increase in risk rating—prior to and immediately post Lula’s election—proved to be unfounded, the international community has gained confidence in the knowledge that Brazilians, regardless of which government is in power, are serious about keeping their monetary and fiscal house in order. As mentioned before, monetary policy has been managed with almost excessive orthodoxy, translating into very modest growth figures. Even so, Brazil currently boasts the seventh largest foreign currency reserves, and this month, achieved self-sufficiency in oil supply. Moreover, having invested heavily in developing technologies to transform agriculture crops into ethanol, the country is set to become a significant exporter of alternative fuels.
On the other hand, Lula’s government has been assailed by corruption scandals that have involved most of the president’s closer allies, and it has a very spotty record in its social programs. Furthermore, the miscalculation on dealing with Bolivia and the gas industry it is sure to play a part. The October elections might prove to be the perfect test. What is more important? Being left- or right-wing, or delivering clean and efficient government programs that actually improve people’s lives?
Annette Hester is a Brazilian-born, Calgary-based economist and independent scholar specializing in international affairs in the Americas, particularly the energy sector. She is a frequent contributor to Canada’s leading newsprint media and currently a senior associate at the Washington-based Center for Strategic and International Studies, as well as a research fellow at the Centre for International Governance Innovation in Waterloo, Ontario.
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