Word: argentina
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Among U.S. investors in Latin America, Kaiser has long had an enviable record of readiness to make big commitments, willingness to take in local investors as partners, and consideration for local political sensitivities. But in Córdoba, Argentina, two weeks ago, when Kaiser reluctantly called a ten-day shutdown of its auto assembly lines in order to work off a prohibitively large backlog of unsold cars, hundreds of workers seized 50 supervisors, locked them in a paint shop, and held them hostage until local Kaiser Boss James McCloud agreed to keep the plant in operation...
...Latin America's biggest nations, the prospects for foreign investors are steadily deteriorating. In Chile, where strikes in the U.S.-owned copper mines have become an annual rite, and taxes run as high as 81% of profits, Anaconda and Kennecott have scrapped expansion programs totaling $325 million. In Argentina, where the gross national product actually dropped 10% last year, some 35 U.S. companies have recently canceled investment plans. New investment in Brazil has been discouraged by a law that prohibits foreign companies from withdrawing any profits above 10% of invested capital and by expropriation of an International Telephone & Telegraph...
...awfully quick payout with about a three-year ceiling"-that is, a return of 337% on invested capital. But in recent years, the average return achieved by U.S.-owned companies in Latin America has dwindled to 9% v. 15% in Europe. Prime reason for this is inflation: Argentina's peso is now worth only one-eighth what it was five years ago, and Brazil's cruzeiro has dropped by two-thirds in less than two years. This means that companies must earn almost astronomical sums in present-day money to cover the real costs of their original investment...
...more paper currency and borrowing heavily abroad. Latin America's rich have also contributed to the weakening of their nations' currencies and economies by prudently squirreling away huge sums-estimated at $10 billion to $15 billion-in Miami real estate, foreign securities and Swiss bank accounts. In Argentina alone the capital flight amounted to $650 million last year...
...local currency before it depreciates any more, and partly because they are already too deeply committed to back out, some U.S. companies are continuing to expand in Latin America's economic trouble spots. California's FMC Corp. recently completed a food machinery plant in Argentina-but is operating it at only a fraction of capacity. Other U.S. companies are holding on in the hope that the business climate in Latin America will eventually improve. In the meantime, notes Chase Manhattan Bank Economist William Butler, "it is difficult for an American firm to justify sending new capital there...