The Hemisphere: Investment Going Down

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Despite all the talk of increased U.S. attention in Latin America, the U.S. business community is actually investing less there than before. While the rate of direct U.S. private investment in Western Europe rose by 36% during the first nine months of 1960, new U.S. private investment* in Latin America for all of 1960 is estimated at less than half of what the U.S. invested during 1959, only about one-sixth of what it ventured in the peak year of 1957 (see chart).

Behind this considerable falloff are many purely economic considerations. The inviting sales opportunities in Europe's new Common Market attracted dollars that might otherwise have gone to Latin America. The U.S. recession had a dampening effect and the world oil glut contributed to a sharp cutback in exploration and a drop in income in the Venezuelan oilfields, the U.S.'s largest single Latin American investment.

But the primary cause of the dropoff is political and psychological. In January, after his advisers reported increasing resistance from potential U.S. investors, Puerto Rico's Governor Luis Muñoz Marin showed up at a Manhattan hotel to give a pep talk on the Commonwealth's economic possibilities to 500 U.S. businessmen. When he finished, the first question was: "What about Castro?" Fearful that Castroism has high export value, many U.S. businessmen wonder if Cuba's nationalization of U.S. investment (totaling $1.5 billion) may be an augury of things to come across the hemisphere.

Words & Consequences. In their new nervousness, U.S. investors have become extremely sensitive to any Latin American interference with private enterprise. Last year the Mexican government bought out the electric power and motion picture distribution industries. A month ago the Mexican Congress passed a law designed to compel the U.S. and British concerns that own most of Mexico's mines to sell control of their properties to Mexican interests within the next 25 years. Such moves help explain why new U.S. investment in Mexico was only $11 million in 1960 v. $14 million in 1959 and a whopping $80 million in 1957. Mexican President Adolfo López Mateos added to the unrest last summer when he publicly described his regime as "extreme left." Within the next few months three U.S. food-processing firms put on ice their plans to establish Mexican plants.

Concern over Venezuela is great among U.S. investors. Though President Romulo Betancourt is bitterly anti-Castro and a man the State Department is anxious to have on the U.S.'s side, U.S. businessmen look askance at some of his reform measures. They fear that government-run companies in the oil, construction and petrochemical industries will eventually take over their private competitors. Some U.S. manufacturers doing business in Venezuela have been pressured into setting up branch plants there, under government threats that their import permits might be revoked. The effect is to scare off other potential investors and to accelerate the process that has cut new U.S. investment in Venezuela from a 1957 high of $912 million to a 1960 low of $130 million.