Turmoil in Latin America
THE PRESIDENT OF ONE PRIVATE SECURITY COMPANY in Venezuela had a banner year in 2005, but the same insecure circumstances that accelerated his business made staying in his homeland untenable. Last July, gunwielding thieves kidnapped his wife and youngest daughter, dragging them from their car and forcing them to withdraw cash from various ATMs before dumping them in a Caracas neighborhood. Three months later, the security professional’s son was also taken hostage along with his girlfriend. The thieves took their car, money, and even their shoes, and ditched them alongside a highway. “After that, I decided to move to Miami and set up my business there,” says the security expert, who prefers to remain anonymous.
Venezuela, led by rabble-rouser leftist Hugo Chavez, is at the forefront of a period of political change in Latin America characterized by the election of governments with socialist, populist, or nationalist underpinnings. The political shift and its accompanying social ramifications, along with a changing threatscape in the post-9-11 world, have prompted foreign and domestic companies to take a hard look at the safety of their operations and personnel around Latin America.
“People are watching events very closely. Their guard is up,” says Odalys Fajardo-Guerrero, managing director of global investigation and security in Latin America for Vance International Security Services and Consulting.
Security Management takes a look at the political shifts occurring in several countries in the region, the implications for businesses, and the security countermeasures being adopted to address evolving threats.
Chavez, described by Mexican novelist Carlos Fuentes as a “tropical Mussolini,” is a critic of the United States who counts Cuban President Fidel Castro as a mentor. Wielding Venezuela’s oil and gas riches, he has exerted power throughout the continent since taking office in 1998. “Hugo Chavez is the conductor of the orchestra that is playing in the whole region,” says the Venezuelan security expert who has moved to Miami.
Chavez and other leftists have been aided by a general disillusionment with social and economic progress. Left-wing parties have strengthened their position by offering their poor populations alternatives to free-market policies that are not seen as benefiting them.
Their pitch has worked. Ecuador voted in populist Lucio Gutierrez in 2002. In January 2003, Luiz Inacio Lula da Silva, famed for being a radical populist, became president of Brazil. Argentina followed suit with left-leaning Nestor Kirchner, who entered office at the end of a deep economic crisis in May 2003. Chileans stayed their moderate socialist course, voting in Michelle Bachelet in January.
The leftists have broken new ground on their way to regional dominance. Uruguay elected its first socialist president, Tabare Vazquez, in October 2004, while at the end of last year Bolivia elected its first indigenous president, Evo Morales, a coca-farmers’ leader who helped to topple two governments in the last two years.
Leftist candidates are also front-runners in upcoming elections in Mexico, where the former mayor of Mexico City, Andres López Obrador, is promising crowds he will give priority to millions of poor Mexicans if he wins this month; and in Peru, where radical nationalist Ollanta Humala won the first round of the presidential ballot in April (the second round of elections was occurring as this issue went to press).
Humala, Kirchner, and Morales have either received political backing from, or forged economic and political ties with, Venezuela’s Hugo Chavez.
For businesses, the niggling question is how the move to the political left might affect their ability to operate in the region. It’s important to note that not all leftist regimes are the same, nor do all of them take actions that correlate with their rhetoric.
In fact, there have been some pleasant surprises amidst persistent investor hesitancy regarding the left in Latin America. When Brazil’s Lula came to power three years ago, the international market braced for the worst. Benchmark Brazil 40s—government dollar-denominated bonds that mature in 2040—sank to trade at 50 percent of their face value. Now they have rebounded to trade at around 130 percent of their face value.
In proving cynics wrong, Lula has been financially prudent and has presided over fundamentally sound economic growth. At the same time, the Brazilian leader has managed to ease problems that are often progenitors of security concerns: economic and political instability, and poverty.
“Here’s this leftist leader who was head of the workers’ party, a union guy, very much a populist, who came in and did all the right things,” says James Harper, director of corporate research at BCP Securities and a specialist in Latin American debt.
Other nations fall into the benign leftwing rubric exemplified by Lula. Chile’s Bachelet is the fourth consecutive president from the nation’s center-left alliance, and she is expected to do little to upset a stable political and economic process that has seen the conservative country’s gross domestic product regularly grow about six percent annually.
“We’ve seen very little concern from businesses with Bachelet coming in, maybe because Chile is a little more advanced,” says Anne Milne, director of Deutsche Bank Securities’ emerging market research. “Most people think there will not be a change to the economic model.”
Not all of the leftist movements are viewed with the same equanimity, however, as evidenced by the concerns over Chavez. Current leftist politics in Latin America are often boiled down to the contrast between the Venezuelan leader and Lula. “Chavez is quite different,” says Harper. “He’s not this left wing guy who saw the light. Since taking office he has done many things that have led investors and companies to believe he may not respect contracts and the like.”
Lending credence to investor fears, Venezuela’s tax authority in March temporarily closed the administrative offices of French oil company Total SA and the Italian oil company Eni SpA, citing accounting irregularities in the companies’ tax filings. Venezuela then took over oil fields operated by both companies after they failed to reach an agreement to form joint ventures with state company PDVSA. The firms parried, saying that in order to avoid a legal battle they would pay off a combined $126.6 million in back taxes to the Venezuelan government.
Not surprisingly, Venezuela has seen a drop-off in foreign direct investment. Other Latin American countries present similar concerns.
Bolivia rocked international investors and neighboring countries alike when it nationalized its natural gas industry in May. On his 100th day in office, President Morales ordered foreign energy companies including Brazil’s Petrobras and Spain’s Repsol YPF SA to relinquish their gas fields, sending in army troops to ensure compliance. Morales said he planned to raise the price of gas exports bought by top clients Brazil and Argentina to generate more revenue for the state. Planning Minister Carlos Villegas said Argentina’s tab could rise by as much as 65 percent.
Before that, Bolivian authorities in March detained two executives of the Spanish-Argentine energy company Repsol YPF as part of an ongoing oil smuggling investigation. The country’s attorney general is also seeking 30-year prison sentences for three former Bolivian presidents on charges of irregularities in contracts signed with foreign investors in the gas sector, including Exxon, Petrobras, Total, Repsol, and British Gas.
“Those sorts of things are no good for the country, because it indicates they [Bolivian authorities] could do worse things to foreign companies in the future,” says Eddy Quiroga, general manager of Xentrax Security, a consulting firm based in Bolivian capital La Paz. “There is a lot of instability right now. A lot of people who want to invest in the country for future business are waiting.”
“Bolivia and Venezuela are the two countries we’ve had the greatest queries over,” says Dave Cameron, vice president of the Americas security services at International SOS, which provides security and medical assistance to travelers around the world. “It is the threat of land reform, the disposition of assets, expropriation, and lack of government support in things like labor disputes. Whereas, in the past, companies have been able to depend on the security infrastructure, perhaps now they are not so certain that will be the case.”
In mid-May, Ecuador spooked investors when it cancelled a key contract with U.S. oil giant Occidental Petroleum Corp. and seized the company’s local assets. Ecuador accused Occidental—the nation’s largest investor and responsible for 20 percent of its crude production—of transferring part of an oilfield without authorization. Government officials said the takeover was not part of a nationalization of the nation’s oil industry, but it deepened the uncertainty gripping the South American mining and energy sector.
Investors are also worried about Argentina, whose president “is very much to the left,” says Fajardo-Guerrero.
Argentina’s anti-U.S. sentiment was clear during the 2005 Summit of the Americas in the Argentine seaside resort of Mar del Plata, where local and regional protesters railed against U.S. President George W. Bush.
Kirchner has triggered investor concerns by ousting Economy Minister Robert Lavagna, considered a steady, moderating force behind Argentina’s recovery.
The Argentine leader has also indicated that his country won’t adhere to International Monetary Fund (IMF) debt payment obligations, leaving his administration free from IMF policies such as spending caps and higher utility rates. “One of the things that had been holding Kirchner back from more nationalistic policies had been the IMF agreement,” says Robin King, professor of political economy, risk analysis, and international banking at Georgetown University’s Center for Latin American Studies.
“Now, without that, and with Lavagna gone, there is less of a constraint towards things like expropriations. There is nothing left to moderate Kirchner,” says King.
In March, Argentina revoked French utility Suez SA’s 30-year contract to supply water and sewage treatment to people in the Buenos Aires area. Kirchner’s planning minister, Julio De Vido, accused Suez of not investing enough in services for 10 million customers, and management of the operation was placed under the Argentine government’s control. Argentine bonds fell on concerns that Kirchner is tightening the state’s grip on private industry.
Suez had served Buenos Aires water customers since 1993. The French firm and more than 20 international utility companies have taken Argentina to the World Bank court over breach of contract, claiming they had an agreement allowing them to hike prices if there was a currency devaluation. The government refused to allow a hike after it devalued the peso in January 2002.
End of midnight tango. Accompanying the political and economic turmoil has been an upsurge in crime in various trouble spots. Perhaps the most precipitous security downfall has been in Argentina. Buenos Aires (BA)—where a third of the country’s people live—long held the reputation as the safest city on the continent. Despite being the world’s eighth largest urban center, it was not uncommon for women to walk alone safely through BA’s downtown in the wee hours.
That serene state began to change in the late 1990s as the country slid into a devastating four-year recession. Nearly every colleague of mine working at a BA news agency was robbed, often in taxis, where they would be sandwiched by two men brandishing weapons.
The economic and political turmoil hit a nadir in 2001 with the largest sovereign debt default in history. The taxi mafia intensified, muggings became common, and a freeze on bank accounts produced looting and violence.
Argentina has since enjoyed a surprisingly strong economic rebound built on a leap in the price of commodities, and the crime rate has decreased, but the previous security enjoyed by its citizens and visitors has not completely returned.
Companies doing business in Latin America have been taking some steps to deal with the security challenges at hand and to head off those that appear to be on the horizon.
Diplomacy. Dogged diplomacy is one tool being put to use. “In these environments, there’s a realization [firms] need to be a lot better at external relations, specifically their liaison with the government,” says SOS’s Cameron.
Companies are putting a lot of effort into regularly meeting with government representatives to forge relationships and understand what their needs are, he says. They are launching community-relations strategies that cast governments in a good light, allowing the state to demonstrate to the local population that they are supporting the growth of the country, Cameron says.
Contingency planning. There has also been a greater focus on contingency planning to brace for worst-case scenarios. One new twist is to map out evacuations of executives to domestic locations, rather than spiriting them out of the country, since “there is no guarantee they will be let back in if they are pulled out,” says Cameron.
Case in point: After political protests roiled Bolivian capital La Paz during the past few years, many firms moved offices eastward to Santa Cruz. Ducking confrontations there and elsewhere has become a common theme.
“We see a lot of attention being focused on avoiding protests by following news and keeping up on the day-to-day situation,” says Andy Case, a Latin America analyst at iJET Intelligent Risk Systems, a travel intelligence firm based in Annapolis, Maryland.
Company security directors monitor roads leading to airports and scrutinize the safety of routes taken between the office and employee homes. They also develop strategies to deal with possible civil wars. Firms have strengthened their ties with local guard force providers and international security companies.
Physical security. Physical security has also been bolstered in some areas.
Quiroga says Bolivian firms are boning up on security measures they had previously ignored. Some are looking into electronic security systems, while others are replacing old access control networks with modern magnetic card systems.
“In Bolivia very few companies paid attention to security or safety. But now with the new government, companies are concerned about their situation, and they are considering security measures,” Quiroga says.
In the eastern Bolivian gas fields, perimeter security has been upgraded around installations following infiltrations by local groups that demanded a greater share of the profits. To try to head off future contention, one company that operates a gas well there removed all of its overseas nationals, and staffed the facility with local managers.
Local recruitment. In some countries with good educational systems, such as Argentina, multinational firms are predominantly hiring locals, right up to senior management. “They know how to take care of themselves and move around,” says Toby Friedl, a Latin American analyst for iJET.
While employee background checks may not always be conducted by the firms, they are careful about whom they choose. Job hunters often have to present transcripts or diplomas to back up their stated educational record, along with documentation proving their history with previous employers. “Many companies also ask for photos as part of the applications to see how you present yourself,” says Case. “In general, much more scrutiny is used across Latin America when hiring local nationals compared to the U.S. or western Europe model.”
Awareness. Companies are also counting on security directors to brief staffers as thoroughly as possible on dangers they may face in any particular country. Security experts in some areas are putting companies on guard about murder, rape, pickpockets, and road cargo theft, for example.
Others hire security firms to update their employees. “We give them the dos and the don’ts,” says Vance’s Fajardo-Guerrero. “It sounds like a cliché, but knowledge is power. If you arm your employees properly, they will be fine.”
An example of a specific recommendation for those traveling to Mexico is to avoid calling the police in times of trouble. “Don’t call the cops, because the corruption there is so rampant and intense you may get into more problems,” says Fajardo-Guerrero.
In dicey places such as Caracas, security companies generally recommend not taking cabs at the airport. Companies that ignore the rule stand a chance of seeing their employees kidnapped.
“A lot of attacks are occurring between 1 and 4 in the morning on travelers who are poorly prepared and don’t have prearranged transport from the airport to their hotels,” says Cameron. “We’ve seen companies have four to five such incidents in the last year.”
Executive protection. Friedl says he has heard of at least two cases where important executives have canceled trips to Venezuela because they have been advised against it.
Those who do venture to Caracas or other Latin American hot spots are relying on more protection. “Executive protection is being used a lot more,” says Friedl. In Argentina, that means armored cars, which have also become more common in Mexico and Brazil.
“Now if you have money in Argentina, you see more bodyguards and tinted windows,” says Friedl. “People are careful about what sort of vehicle they choose. You won’t see that many luxury vehicles in Buenos Aires because of security concerns.” One of iJET’s clients in Buenos Aires actually picks out the types of cars employees are allowed to drive.
Security professionals throughout the continent are also encouraging executives—particularly those in the petroleum industry—to keep a low profile. As in Argentina, they are being advised not to travel in expensive cars, throw lavish parties, or show up in newspaper society pages. “In some cases, they are already lowering their profile; in other cases, they will,” says Quiroga.
In my own experience traveling in Caracas, I recall being advised to avoid loitering in front of boutique windows in the downtown shopping district, as thieves interpret that as a sign of wealth.
Executives in the region are being shielded from crime in other ways as well. At Maiquetía airport in Caracas, kidnappers or thieves have been known to read names on welcome signs held up in the waiting area, then intercept the indicated person and pose as their contracted ride. When the businessperson unwittingly goes along with the wrong party, he or she is robbed.
To prevent such incidents, iJET has instituted a system where clients are greeted with a password, ensuring that the stranger at the airport is the one who is supposed to be picking them up.
Executives are warned against traveling too close to the border of Venezuela and Colombia because of rebel activity, and they are advised to dodge rural areas. Local businesspeople carry their car’s registration in their wallets in case their vehicle is broken into.
There are indications that while kidnappings are down in some places, like Argentina, they are up elsewhere, like Venezuela, where the involvement of local police is suspected.
In addition to prevention and deterrence, companies are preparing for the worst. Kidnap and Ransom insurance is being used for high executives, says Friedl.
Overall, while making decisions about business and travel, companies need to constantly monitor situations on the ground. They can get some information from the State Department and the Overseas Security Advisory Council (OSAC). They can also look to private sector sources, such as iJET and Control Risks, which put out country security ratings that have proven to be a staple element within client portfolios. At the time of this writing, iJET gave Venezuela a 4 on a scale of 1 to 5, with 5 being the most dangerous. The ranking takes into account crime, security services, civil unrest, terrorism, kidnapping, and geopolitical risk. Bolivia was also given a 4.
Despite the shifting political scenario and waves of crime, firms with established operations in Latin America are not likely to give up on those countries. “They are used to the turbulence that comes and goes in a periodic manner throughout the region,” says Simon Strong, managing director of Latin America and the Caribbean regions for Kroll Associates Inc.
Security pundits agree that the main objective for these entrenched firms is to stay on top of regional developments to monitor operations and employee safety, and to provide staffers with security briefings and updates. “Clients are adjusting security schemes to the situation,” says Fajardo-Guerrero. “They are closely watching everything.” They will adapt.
Robert Elliott is an assistant editor at Security Management. He worked in Latin America for six years.