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The Washington Post
Spanish Firms Revive Latin America Conquest
By Anthony Faiola
Washington Post Foreign Service
Monday, February 14, 2000
SANTIAGO, Chile Half a millennium ago, Spanish conquistadors swept across a great southern swath of the New World, plundering, colonizing and fattening royal coffers with native gold. Now, more than 100 years after the last of their rebellious colonies won independence, Spain is back in Latin America--doing with mergers and acquisitions what it once did with swords and gunpowder.
To understand the depth of what's been dubbed the reconquista--or reconquest--of Latin America, look no further than Humberto Illanes' monthly bills. Spanish companies, including some still partially owned by the Spanish government, now own Chile's largest telephone company, power company and waterworks. In addition, Spanish banks control roughly 40 percent of the Chilean market.
"Every time I turn on the lights, make a phone call, cash a check or drink a glass of water, I'm putting money into pockets in Madrid," complained the head of the union at Banco Santiago, which was taken over last year by a Spanish financial group. "It's as if we're a colony again, paying taxes to the Spanish crown."
Spain, which only 20 years ago was a minor economic presence in the region, is now second to the United States in annual investment and is challenging the United States for regional influence for the first time since the Spanish-American War in 1898. In 1998, the last year complete statistics are available from both governments, U.S. investment across Latin America totaled $14.3 billion, while Spanish investment was $11.3 billion. Last year, Spaniards plunked down almost $20 billion, according to Spanish government estimates.
But the reconquest, analysts say, is far more than economic. It underscores the renewal of cultural and political bonds between Latin America and its colonial master. Despite growing resentment like that of Illanes, much of the region has embraced what Spain has been careful to cast as a new golden era of mutual exchange rather than the birth of a new economic empire.
Take, for example, the hot film "All About My Mother" that is generating Oscar buzz: It pairs Spain's best-known director, Pedro Almodovar, with one of Argentina's top actresses, Cecilia Roth. And as King Juan Carlos and other members of the Spanish royal family periodically touch down in the region on official visits, so Colombian rocker Shakira is holding court as the toast of teens in Madrid and Barcelona.
Spain Resurgent
Spain is also extending a promise that its own model transition to democracy from the dictatorship of Francisco Franco can become a guide for its former colonies, now charting a similar course after the downfall of unelected regimes in all countries in the region except Cuba. Implicit in that suggestion is a promise that Latin America will also emerge from the shadow of the United States.
Only by "reinforcing [and] consolidating the Ibero-American community of nations [through] our shared languages and cultures, and with our firm conviction in genuine democracy . . . can our peoples successfully face up to the challenges of the 21st century," Juan Carlos said on a recent visit to Cuba for an Iberian-American summit meeting.
For the United States, Spain has reemerged as a challenge to the spirit of the Monroe Doctrine, the principle of U.S. foreign policy that claimed the region as a sphere of exclusive American influence.
As Spain's economic might has grown here, so has its political voice--and some of its positions are polar opposites of Washington's. The decision to hold the Iberian-American summit in Havana, for example, highlighted widespread opposition shared by Spain and many Latin American governments to the U.S. embargo against Fidel Castro's Cuba. Spanish companies have helped lead investment in Cuba throughout the 1990s, providing the island with desperately needed hard currency.
"Spain understands Latin America in a way that no other country outside of Latin America possibly could," said Carlos Gasco, cabinet chief of Spain's Economy Ministry in Madrid. "We have used that to our advantage to build what we see as a long-term economic connection that is only going to keep binding us closer to Latin America."
Even in giant Brazil, which as a former Portuguese colony differs in language and culture from its neighbors, Spain is gaining economic importance. Spanish investment in Brazil's economy, the largest in Latin America, soared from $112 million in 1996 to $6 billion in 1998. Telefonica de Espana became one of the largest players in the privatization of Brazil's national telephone monopoly--winning the bid to buy Telesp, the local phone company for Sao Paulo, the world's third-largest city. The Spanish company now operates one of every four phone lines across Latin America.
But in a region where the historical image of colonial Spain is only marginally better than that of a bullying Uncle Sam, the new bonds are creating a measure of friction. Nowhere is that more evident than in Chile, a country of 15 million where massive Spanish investment--symbolized by the futuristic Telefonica tower, the tallest skyscraper in Santiago--has mixed with Madrid's "meddling" into domestic politics.
Indeed, Spanish judge Baltasar Garzon's crusade to put Chile's aged former dictator, Gen. Augusto Pinochet, on trial in Madrid for crimes committed during his 17 years in power has fanned Chilean nationalism. Then-President Eduardo Frei boycotted the Iberian-American summit last year, and leading Chilean businessmen and right-wing politicians have called for Santiago to break diplomatic ties with Madrid. Incoming Spanish executives have been met with the cold shoulder--one was even denied membership in an exclusive Santiago country club because he is Spanish.
"What gives the Spaniards the moral authority to be our judges and masters?" said Cristian Labbe, a Pinochet supporter and mayor of Providencia, an affluent neighborhood in Greater Santiago. The Spanish Embassy in Chile is located in his bustling urban center, and Labbe lashed out the only way he could: temporarily suspending the embassy's trash pickup. "The last time I checked the history books, Latin America had won its independence from Spain. But you wouldn't know it from their haughty actions," he said.
The cultural memory of the ruthless Spanish conquest of Latin America dies hard. Conquistadors fanned out over the New World in the early 16th century, driven by a lust for gold. They found it in abundance, especially in what are now Mexico and Peru, where Hernan Cortes decimated the Aztecs and Francisco Pizarro did the same to the mighty Incas. The Spanish campaign would end in the annihilation of millions of indigenous people and leave their descendants on the margins of society.
"Especially now that they've come back, the Spanish should be made to make reparations for the slaughter and robbery committed by them and their descendants," said Maria Catrileo Airemilla, a leader of Chile's Mapuche Indians, who successfully resisted the conquistadors, but nevertheless endured loss of life, land and culture during the conquest and afterward.
In the first decades of the 1800s, the great Latin America liberators led drives for independence from Spain. Although the descendants of wealthy Spanish families went on to become Latin America's aristocracy, emotional bonds to the motherland gradually eroded--especially in countries such as Argentina, which experienced massive immigration from other European nations, and Mexico and Peru, where racially mixed populations are now predominant.
Spain's reemergence as a power in the region dates to 1986, when it gained entry to the European Union. A decade after the end of Franco's dictatorship, Spain shed its image as Europe's rube cousin as financial reforms ignited the economy. Spanish companies became flush with cash and eager to enter the global economy. They looked first to their distant cousins across the Atlantic.
Latin America was just then entering its own era of economic reform, privatizing government-run enterprises and dropping investment barriers as never before. There have been some stormy seas. Spain's Iberia airline continues to lose millions on investments in the national airline of Argentina. But other Spanish companies, aided by their own recent experiences at rapid modernization, have largely met with extraordinary success. Today, Telefonica, for instance, makes more money in Latin America than it does in Spain.
The Cultural Connection
"Culture has played a significant role," said Mateo Budinich, general manager of Telefonica CTC in Chile. "We have a shared language, but each nation is extremely different in Latin America. The Spanish are sensitive to that, while at the same time capitalizing on the similarities in our cultures to smooth the way in business deals."
A vital key for the Spanish has been their stronger stomachs for Latin America's economic volatility. Even as U.S. investors panicked after the devaluation of the Brazilian currency sparked a recession in Latin America last year, Spanish investment reached a peak. Repsol, the Spanish oil giant, gobbled up Argentina's largest private company, energy titan YPF, for $13.5 billion, the largest Spanish investment in Latin American history. Telefonica pumped billions more into a massive expansion into Brazil.
And as corporate Spain established a beachhead here, it has opened the door for its subsidiaries and smaller Spanish firms. Many Latin Americans today buy their clothes from Zara--Spain's cutting-edge version of The Gap--and scoop up romance and science fiction novels from the massive Spanish publishers who now virtually monopolize the markets in many Latin countries. The Spanish have won lucrative contracts to build ports in Chile and reconstruct colonial buildings in Havana. New firms are launching Internet startups in a region considered to be the fastest-growing high-technology market in the developing world.
"I think the difference between Spanish and U.S. companies in Latin America is that the Spanish have been less afraid of the risk involved," said Raimundo Monge, head of corporate strategy for Spain's Banco Santander in Chile. The bank expanded dramatically in Chile last year--a 25 percent increase in profits over 1998--despite the country's worst recession in 16 years. "During the bad times like last year or the Mexican peso crisis [in 1995], we've continued to invest heavily while U.S. firms like Citibank have decided to curb their commitments to the region."
"But we're in this for the long run. Remember, the Spanish have known for a long time that Latin America is a gold mine."
Spain Reaches Out
Spanish companies have acquired companies in Latin America at a fast pace in recent years, and some Latin Americans have dubbed the acquisition spree the "reconquest."
Direct investment by Spain in Latin America and three selected countries
[In billions of dollars]
Here are some of the biggest recent Spanish investment deals:
Repsol (Spain) bought YPF (Argentina)
* Industry: Oil sector
* Year of purchase: 1999
* Price tag: $13.5 billion
Telefonica de Espana (Spain) bought Telesp (Brazil)
* Industry: Telecommunications
* Year of purchase: 1998
BSCH (Spain) bought Banco Santiago (Chile)
* Industry: Banking
* Year of purchase: 1999
Endesa Espana (Spain) bought controlling stake in Enersis (Chile)
* Industry: Electric Utilities
* Year of purchase: 1999
Note: 1999 data is estimated
SOURCES: Spanish Ministry of the Economy, staff reports
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