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Economists worry about Latin polls

Presidential elections in seven Latin American countries this year have made top international bankers and economists jittery about the possibility that new leaders might undermine the region's economic gains.

"There are political, market and economic concerns with the upcoming elections," William Rhodes, president and chief executive officer of Citigroup Inc's Citibank NA banking unit, told reporters on Tuesday at the Inter-American Development Bank's annual meeting.

Rhodes and Roberto Setubal, chairman of Brazil's Banco Itau SA, said most governments in the region have adopted prudent fiscal policies, allowing economies to flourish amid an overall political tilt to the left.

But they said investors should be cautious ahead of elections this year in Brazil, Colombia, Ecuador, Mexico, Nicaragua, Peru and Venezuela.

While most presidential candidates appear to support orthodox monetary policies aimed at slow, sustainable growth and lower inflation, changes in fiscal policy could send investors fleeing to safer markets, Rhodes and Setubal said.

"We're sort of putting out a notice here that there's been a lot of progress here and we want to continue to see it," Rhodes said.

Investors have poured money into Latin American markets over the last several years because of the region's newfound economic stability. But the political uncertainty of the elections makes this year's outlook less certain.

Rising interest rates in the US and Europe also might lure away investors who had sought higher rates in emerging markets. Rhodes and Setubal said small investors who have been seeking big gains in Latin American markets should be careful to keep their portfolios diversified to reduce their risk.

Setubal said that many important Latin political leaders traditionally labeled as leftists now embrace conservative monetary policy endorsed only by their right wing opponents years ago.

Brazil's Luiz Inacio Lula da Silva, for example, was feared by foreign investors who thought he would destroy Latin America's economy after his landslide 2002 election -- but Silva ended up a Wall Street favorite by continuing his predecessor's drive to bring down debt and reduce inflation.

The political trend in Latin America on economic policy seems to be "pretty much what happened in Europe 10 to 15 years ago," Setubal said.

A conflict between Bolivia and Brazil over Brazilian access to its neighbors' vast natural gas reserves wasn't resolved on the sidelines of the forum, but both nations pledged to relaunch negotiations.

Brazil wants to preserve its strong production presence in Bolivia through state-owned Petroleo Brasileiro SA, while Bolivian President Evo Morales is pushing a vaguely defined plan to nationalize the industry with state control over the entire chain of production and distribution.

Petrobras chief executive Sergio Gabrielli insisted on Tuesday that his company's strategy "is not to be a services provider. Our strategy is to be a producer of petroleum and natural gas."

Bolivian government officials and executives with its state-owned company, Yacimientos Petroliferos Fiscales Bolivianos, will come to Brazil soon to restart the stalled talks, Gabrielli said.

The streets of Belo Horizonte in southeastern Brazil were calm on Tuesday after violent protests during the event's opening on Monday seriously injured a police officer and three demonstrators.

About 300 protesters opposed to the bank's loans for big infrastructure projects and privatizations gathered at a city plaza kilometers from the IDB meeting site, but there were no reports of conflicts.

Delegates at the IDB meeting are discussing how to improve the region's crumbling infrastructure, boost economies, promote regional integration and improve living standards.

The forum's US delegate said governments must find ways to eliminate cumbersome tax and regulatory barriers, enforce property rights and increase financing so businesses can expand and create jobs.

"We must not forget that it takes more days to start a business in Latin America than in any other region of the world except sub-Saharan Africa, and more days to enforce a contract than any other region," said Clay Lowery, the US Treasury Department's assistant secretary for international affairs.
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