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The Foreign Investor's view of the 2006 Latin American Elections News reports have painted the twelve 2006 presidential elections in Latin America as watershed events which will have an important effect on foreign investment in the region. The last decade has been a good one for foreign investors. Stable governments, high commodity prices and liberalized markets have resulted in sustained economic growth. However, it would appear that danger is looming. Electorates, frustrated about a lack of improvement in real wages and increased income disparity in a region with already highly concentrated wealth; threaten to elect candidates whose populist social policies and nationalistic leanings could scare away foreign investment. Venezuela's Hugo Chávez has used his petrol-filled pockets to support political candidates throughout the region and has developed a populist political model which supports terminating free trade agreements, promotes active government intervention in private contracting and the scaling back of market liberalization. This political model flies directly in the face of the fiscal discipline and open market strategy employed in Chile, Brazil, all of Central America and to a lesser extent Argentina, which has created stable growth and a ripe environment for foreign investment. This article will present the electoral panorama with a focus on how election results might affect foreign investment. MEXICO The election, scheduled for July 2, 2006, will be the first presidential election since the National Action Party (PAN) ended the 71-year power monopoly of the Institutional Revolutionary Party (PRI) in 2006. There are the three major candidates in the Mexican race for president. Andrés Manuel Lopez Obrador, from the Party of the Democratic Revolution (PRD), is considered a populist and an "anti-corruption" candidate. He has proposed limits to NAFTA and opposes the privatization of the national oil companies. His opponents accuse him of being an ally of Chavez. Lopez Obrador has indicated that he would be suspicious of foreign trade, which could affect Mexico's exports. He promises to focus resources on social programs to help the poor with funds coming from cracking down on tax evasion, reducing bureaucrats' salaries and improving inefficiencies in the public sector. Felipe Calderon is the candidate of the PAN. The PAN is a "right wing" party, the equivalent of pro-business moderate Republicans in the US. (The current president, Vicente Fox, is a member of the PAN party.) Calderon is a free marketer who supports lower taxes and encourages private investment in Mexico. After trailing Lopez Obrador for most of the campaign, he has recently surged to a lead in the polls. Roberto Madrazo of the PRI is the third candidate. A loss in the presidential election will weaken the PRI, and could even lead to the breakup of the party. Like the PAN, He is promising job creation, energy price reductions, infrastructure projects and a tough stance on crime. Regardless of who wins the election, we do not expect a significant policy shift in Mexico. Foreign investors want to see structural reform of the labor laws and the energy sector and improvements in education, to widen the consumer base. The complex political structure and the unlikelihood of any one party controlling both congress and the presidency should result in continued gridlock and continuation of the status quo. PERU The Peruvian second round election is shaping up to being one of the more important in Peru's recent history and, depending on whom wins, could provide the populists in the region with an important victory. Alan García, the leader of left-leaning Aprista Party and former President of Peru (leaving under a cloud of corruption and financial instability), and Ollanta Humala, the brazen populist from the Peruvian Nationalist Party, will compete in this run-off. Lourdes Flores, the leader of the conservative National Unite coalition, who was defeated in the first round, was the pro-business candidate, and is negotiating an alliance with Alan Garcia. Humala's campaign strategy is characterized by increasingly radical campaign statements, reminiscent of Morales' success in Bolivia. His proposed economic policies, including state participation in "strategic sectors" of the economy, the renegotiation of multinational contracts, and a windfall profits tax on foreign mining companies, have caused a dramatic decrease foreign investment in anticipation of the election. Peru is at a crossroads. A Humala presidency, which we view as unlikely based on the Garcia/Flores alliance, will certainly lead to the flight of foreign resources out of the country and affect the focus that the US has placed on passing a US-Peru Free Trade Agreement (FTA). If Alan Garcia wins it will be an important regional repudiation of Hugo Chavez and will likely result in a government which continues to respect foreign trade with a focus on socially responsible development. COLOMBIA Colombia's presidential election is scheduled for May 28. The preeminent concern for Colombian voters is stability. We expect the populous to vote on fundamental security issues and greater government efficiency. Current President Uribe's popularity rests on the perception that, through firm-fisted policies, he has cracked down on violence and put the country on track towards economic productivity. Uribe secured a comprehensive FTA with the United States in February 2006. Colombia is already the second largest agricultural importer to the United States, and commerce in both directions is expected to increase as tariffs are lifted. One of Uribe's main challengers is Horacio Serpa, a former interior minister and the representative of the Liberal Party (PLC). He has a long history in Colombian politics and a firm political base, though is only polling at around 10% of the vote. Another main candidate is Carlos Gaviria, the candidate from the leftist Alternative Democratic Pole (PDI). Gaviria represents a direct challenge to the neo-liberal model Uribe has embraced. Observers say this election is functioning as a referendum on the continued influence of the United States in the region. We expect President Uribe to be re-elected easily and the US-Colombia FTA to remain an important focus of both governments. BRAZIL Brazil shifted to the left with the election of labor leader Luiz Inácio Lula da Silva ("Lula"). Lula has helped make Brazil less dependent on foreign energy sources and awakened international financial institutions to the some of the downsides of a pure free-market orthodoxy. As Lula approaches the end of his first term and an election this October, the results of this experiment have been mixed. Extreme poverty has decreased somewhat, aided by high commodity prices, and foreign investment has remained steady. Brazil's size makes short term change difficult, but Lula has allayed fears of that he would create barriers to foreign investment. Brazil's ruling Workers' Party endorsed Lula to run for a second term and said it would seek the broad-based alliances he wants to forge before October's general elections. The other main party, the PSDB, has nominated Geraldo Alkilmin, the former governor of San Paulo, as its candidate, whose neo-liberal approach would be well received by the business community. Regardless of the winner, we expect Brazil to continue its current policies as to foreign trade and investment. CHILE In Chile, socialist Michelle Bachelet won the Jan. 15 runoff. A member of the center-left coalition that has governed Chile since the country's transition to democracy, President Bachelet had demonstrated her moderate credentials as a minister in the previous government. Before becoming Chile's first elected woman president, Ms. Bachelet repeatedly emphasized her commitment to following and expanding the pro-market, free-trade economic model pursued by the past three administrations. Chile is the model of how fiscal discipline, minimal corruption and a moderate socialist government can govern with great success. VENEZUELA Venezuela will hold presidential elections on December 3rd, 2006. We expect President Hugo Chavez to run against a unified opposition candidate. Currently, four serious opposition figures have launched their candidacies. One of the notable candidates, Teodoro Petkoff began his political life as a communist and moved towards liberalism in the 1990s. Petkoff has been a member of Congress and a two time Presidential candidate for the Movement towards Socialism party. Another is Julio Borges, a former member of the National Assembly from the right wing First Justice Party. Borges is seen as an elitist candidate. President Chavez will almost certainly be re-elected. Venezuela's oil-dependent economy is set to continue benefiting from high international oil prices, while non-oil sectors are expected to see mixed results, depending on the degree of government investment. Private investments are expected to continue falling as the government increases its attacks against private local and foreign companies. BOLIVIA President Morales confirmed fears of how he will govern when he sent troops (a blatant act of symbolism) to take over the countries natural gas industry this May. It is worth noting that the nationalization in Bolivia (and Venezuela) is vastly different from the expropriations that occurred in the region in the 1960s. The government has forced unilateral renegotiation of concession agreements in the energy sector, improving their percentage of royalties and directly responding to the perception that prior administrations "gave away the store". Regardless, it does create legal instability and doubts as to how future investors would be treated in Bolivia. . CONCLUSION: Latin America is at a crossroads. Corruption and bad social policies have created a lower class that is angry and looking for change. Nationalistic, anti-American politicians, lead by Hugo Chavez of Venezuela, claim to have the answer. While Latin America is in no danger of becoming a populist stronghold, the possible political gains of nationalist candidates should be a wake up call to administrations throughout the region. The lesson learned is that social reforms must be part and parcel to economic growth. Even with this changing political landscape, Latin America will continue to be an exciting and lucrative place to invest. Brian Alperstein is a Partner and Chair of the International Corporate Group of Lasa, Monroig & Veve, LLP. Margarita Chapa, a Mexican national, was a foreign fellow in the firm's Government Relations Group. Ted Allen, Director of the Government Relations Group provided editorial assistance for this article. Email Brian Alperstein at balperstein@lmvlaw.com or call (202) 261 3520. www.lmvlaw.com