POPULIST LATIN American presidents (from left: Fidel Castro, Cuba; Hugo Chavez, Venezuela; Néstor Kirchner, Argentina; and Luiz Ignácio "Lula" da Silva, Brazil) continue to voice nationalist rhetoric that concerns foreign investors.

Throughout Latin America in the 1930s and 1940s, government ownership expanded at the expense of foreign investors. Today, with Latin American populism on the rise again, global investors do not have to look too far to find signs that history may be repeating itself.

The resurgence in Latin populism shows no signs of weakening. The recently sworn-in president of Bolivia, Evo Morales, is the latest–and probably not the last–in the new breed of populist leader. In Mexico, Andrés L—pez Obrador has been the frontrunner in this year’s race for the country’s presidency. Ollanta Humala, an enigmatic populist and former military officer in Peru, garnered a slight edge in the first round of the nation’s presidential elections in April by criticizing the country’s elite. If these join the ranks of Argentina’s Néstor Kirschner, Venezuela’s Hugo Chavez and Brazil’s Luiz Ignácio "Lula" da Silva, the populist wave will have washed over tens of millions of Latin American citizens.

ULTIMATELY, the future security of foreign investment in Latin America will hinge on the political climate of each country.

This trend provides global investors with legitimate reasons for both fear and optimism. Earlier this year, Venezuela canceled oil contracts with Italy’s ENI and France’s Total, and even went so far as to seize oil fields. In April, Bolivia’s Morales followed suit, ordering troops to seize the country’s natural gas fields. Hugo Chavez’s increasingly belligerent threats to further nationalize oil operations in Venezuela, the world’s 10th-largest petroleum producer, continue to spook global oil markets, which are already jittery because of events in the Middle East. Yet, while such actions are alarming, they do not necessarily herald a return to the angry anti-American and anti-European populism of the 20th century. Brazil’s Lula, who in the more distant past advocated a debt moratorium and the reversal of privatizations, has proven quite conventional in economic policymaking. In Bolivia, Morales may have seized control of the gas fields, but he has not evicted foreign companies currently operating there. By itself, Bolivia does not possess the infrastructure or expertise to fully exploit its enormous natural gas reserves. Morales’ nationalization of the oil and gas industry may turn out to be more of a renegotiation of the terms of the contracts signed by his predecessors than an expropriation.

Ultimately, the future security of foreign investment in Latin America will hinge on the political climate of each country. It will also depend on whether the neopopulists will evolve to resemble the populists of old, like Argentina’s Juan Per—n and Brazil’s Getúlio Vargas, or merely stick to populist posturing.

Popular Appeals
Populism first emerged in the 1930s in countries such as Brazil and Mexico as a political response to the Great Depression, and later swept throughout Latin America. The original populists were heroes to the urban working class, and villains to foreign investors. Vargas, Cárdenas and Per—n all established minimum wage laws, made it possible for workers to unionize and strike, and created an array of other benefits for the working class for the first time in their nations’ histories.

TOP VIEW The current rise of populism throughout Latin America has alarmed global investors, who fear a return of the industrial expropriations of the 1930s and 1940s. Yet contrary to some recent moves toward nationalization, neopopulist leaders in the region continue to embrace pro-market policies. But how long this will last is anyone’s guess: A downturn in the booming global commodities market could shift the political and economic landscapes for the worse.

Their governments paid for these policies by hijacking a large share of foreign-held assets. Also, rather than raise the taxes required to service their debt, the original populist governments defaulted on sovereign bonds with abandon. Brazil’s Vargas defaulted in 1931 and again in 1937. Mexico, already in default, failed to follow through with the terms of a 1930 debt renegotiation agreement; it settled in 1942, forcing investors to write off some 90 percent of interest and principal. Populist leaders nationalized the gas and petroleum industries that had been built with foreign capital, erected high tariffs and other trade barriers, regulated foreign investors nearly to the point of exclusion, padded the government payroll, ran up deficits and printed lots of money. The foreign firms that survived the first wave of populism earned revenues in currencies that seemed to be in a perpetual decline against the dollar and pound sterling, while seeing their costs rise continuously as a result of local inflation.

The populist legacy took a long time to shake off. First-generation populists used the government to capture their home markets (holding them hostage for domestic producers), arguing that industrialization would occur more quickly and development more broadly. Both democratic and military-authoritarian governments sustained this policy over decades, yielding few benefits despite staggering costs. The economies of Brazil, Argentina and Mexico all evolved around heavy government ownership, absurd levels of price inflation, exchange and capital controls and repeated problems with debt. Foreign investors were hard to find in most of Latin America. The largest multinational corporations, such as auto manufacturers and beverage producers, maintained a presence in the region, but were tightly controlled by host governments.