Nationalizations in South America
Recently, while reading a summary on a major mining district in Peru, a company published a book complete with color photographs, but there was a remarkable and highly noticeable omission on the history of the district development. The authors chose to skip over the fact that the mineral rights were previously held by a USA mining company called Cerro de Pasco Copper Corporation, and then during nationalization in 1972 the project then languished for nearly 28 years until being privatized in an auction process. What is the point of discussing the earliest discovery on a mining occurrence by the Spanish, a time when essentially no production occurred, going over the development and slow growth of surrounding communities, going through exhaustive summaries of little cultural peculiarities, and then construction and development of the mine and skipping several decades of activity? This historical omission must be a type of political correctness not to mention unsavory political acts of the past that were company destroyers and retarded the economic development of a region for nearly three decades. Nationalization of private assets in numerous South American countries is part of the investment landscape legacy issue that still echoes today by union leaders in Chile, and it happened not so long ago in certain sectors in Argentina. Therefore, it is worthwhile to review country by country major economic disruptions that still impact the well being of their respective citizens today. The combined nationalizations in Chile, Peru, and Mexico led to the downfall of several of the great U.S. copper mining companies, including Cerro de Pasco, Anaconda, and Kennecott.
Argentina
Argentina is a wealthy country made poor by government and private citizen corrupt practices. Despite this, the federal mining law is one of the oldest in the America’s, matching the timing of the 1872 Mining law in the U.S.A. Instability of the country, including its currency, is a complex problem that shifts through time, but always comes back to the underlying cause of corruption. Periods of the government being bankrupted, hyperinflation, draconian economic policies that resulted in poorer conditions, most recently exasperated by the Kirchner administration in Argentina, is still difficult to recover from. In 2011 the Argentina peso was trading at 6 pesos to the dollar. It has been steadily inflating to its current exchange rate of 29 pesos to the dollar. Here is a country that has free education for everyone, promoting the existence of permanent students, and where 40% of the workforce is in the government. Government jobs are handed out as political favors for votes. The country income depends on taxes from only about 30% of the population that works in private industries. Businesses and citizens alike do all they can to hide income from taxes. As recently as 2012 the federal government (Cristina Kirchner) nationalized the country’s petroleum sector (YPF). Fuel prices then skyrocketed at the petrol stations. This was not the first time something like this has been done in Argentina. In 1948 the president nationalized the British owned railway systems.
Many major mining projects remain stalled in the provinces with back-assward anti-mining policies based on appeasing illiterate populations that have been sold environmental based lies from European anti-mining activists. Despite all of the above, some international mining companies have been operating in Argentina- in a country that recently had banned removing any profits made from the country, and had strict import regulations that made importing mining equipment very difficult by having to export other products of equal value that fundamentally were not part of the mining companies’ business plan. A silver miner would have to become soybean exporter. Some of these measures have been rolled back by the current federal administration, but the province level politicians need nearly complete reformation.
Bolivia
Bolivia is a mining nation, it has been for hundreds of years, and remains so today, but it is held back by Banana Republic style presidential decrees managing the mining industry that was nationalized in 1952. Before this time, three large mining monopolies controlled most the country’s tin mining. Poor working conditions and harsh practices by the companies precipitated the government stepping in. Although, the subsequent state mining of the mineral districts broke the nation through corruption, and very poor management, such that job positions at the mines turned into political appointments and favors while the operations became welfare for the workers. Production was subsidized by state funds, no longer would minerals contribute to the coffers of the state. Today, some private mining is happening, and many mining cooperatives swarm on the very historic districts, such as at Cerro Rico and Pulacayo, using rather primitive mining methods. Bolivia maintains inordinately high mining royalty and taxes, and has practices of selective one-off nationalizations of operating mines. Bolivia remains one of the poorest countries in South America through top-down mandated economic policies that keep people in third world conditions. Evo Morales has made several specific steps in nationalizing companies in Bolivia, including the gas industry in 2006, telecommunications in 2008, the main hydroelectric plant in 2010, and in 2012 the country’s power grid. In 2006 he nationalized the mine held by the Canadian company South American Silver. Morales is attempting to secure effectively a fourth term, having already cheated the political system to land a third term in a country that has a constitution that limits presidents to only hold office for two terms. Political change appears to be heading towards violent over-throw as the only way to remove him from office. It ha happened many times in Bolivia’s history.
Brazil
The major nationalization in Brazil happened to the oil industry in 1953, an action that created Petrobras. The petroleum industry remained government controlled until the 1997 change in regulations, but this has not lasted long with “state sharing” provisions added back into the code in 2010. Brazil has a long history of state ownership, alternating between bankrupt private ownership and lesser financial operations directly of banking, electricity, telecommunications, water, and the railways. The number of state-owned enterprises peaked during the 1970s. State-owned mining was also key during industrialization, including Brazil-U.S.A. government backed steel mill (Companhia Siderúrgica Nacional) that started in 1942. The state-private sector sharing model in Brazil is convoluted, intertwined with international banks, and constantly shifting regulations following the equally complex political machinations of Brazil. The country has never truly been in a position for massive nationalization of private industry because the government has always been intermixed with most economic endeavors. The poor conditions of the government offices in Brasilia attests to the system being far less from ideal.
Chile
Chile is the single largest copper producing country in the world, and many of the major copper mines in Chile were once owned and operated by U.S. mining companies, such as the Anaconda Mining Corporation. Chile revoked all mineral rights during the 1972 nationalization, and today it has only partially privatized the sector, holding many of the early historic mining camps under the state mining agency called Codelco. This also included the world’s largest copper mine of El Teniente, which before nationalization was owned by Kennecott Utah Mining Company (later purchased by Rio Tinto in 2002), and the Andina-Los Bronces mine complex, which in part was held by Cerro de Pasco Copper Corporation.
Privatization began in the early 1980’s, mainly triggered by CIA operatives forcing the dismantlement of the Pinochet dictatorship. This was done in a half-baked way, such that Pinochet managed to place favors among family and friends, making much of the wealthy elite class of Chile today. A great example of this is the bestowment of the nitrite and salar mineral wealth to the company SQM, otherwise known as Soquimich. They are the second largest landholder in Chile after Codelco.
The Los Bronces mines were eventually privatized, sold to Exxon, who sold off the asset to Anglo American, who then discovered the Los Sulfatos major underground copper resource, that in turn in recent years had Codelco flex their muscles to strip (nationalize) the property from Anglo American, effectively causing them to sell off the rest of their operations in Chile and leave the country.
Colombia
Colombia has not had an effective modern mining industry with few exceptions. The country is very well endowed with gold, and has nearly countless illegal mines and small formal mining companies. Mining history is complicated in the country through inane presidential decrees, that include subdivision of the mineral rights between private and state by elevation above sea level, something that still persists in the mining pattern of the Marmato gold district. Rules regarding mineral tenements in Colombia have shifted several times, causing a freeze in 2012, and many companies dropping out of select areas. While not a nationalization, it did effectively change ownership of any potential mineral resource. From 1975 to 1980 Colombia attempted a plan to nationalize all secondary education in the country, something that has not worked out. In 1982 they nationalized the 4th largest bank in the country. Overall, Colombia has less direct government disruptions of their economy having already other major insurgent issues to contend with, and today Colombia is very pro-business investment oriented.
Ecuador
Ecuador no longer maintains its own currency, after the Ecuadorian Sucre failed miserably in 1999, the government went to dollarization. Today they use the U.S. dollar, with a few bizarre adaptations, such as issuing a 50 cent coin with the name Ecuador on it. They seem bent on destroying currency, even those from other countries. Under these poor practices, the president Correa started attempts to nationalize the petroleum industry in 2010. They began with super taxes, wanting to take more that 50% of profits above a certain threshold, and have played with sliding scales based on commodity prices. The same practices were laid out across the mining industry, effectively ending the company Kinross’ attempt of developing a near 10 million ounce gold deposit called Fruta del Norte. Extreme left politics in the country has cemented Ecuador’s reputation as being on the least reliable countries in South America in which to conduct a business. In the past, BHP made several large porphyry discoveries in the Cordillera Oriental, but they fled the country and years later a junior company advanced these projects which in turn were purchased by Chinese companies. They are still ineptly being developed, but after ten years are not yet in production. The Ecuadorian government has sold itself to China through a large repayable loan by oil that was once in the control of Chevron. China has built hydroelectric dams in the country that still do not function- and one of these was built at the base of a very active volcano.
Paraguay
Nobody knows much about Paraguay, or much less visits this landlocked smaller nation in south central South America. Paraguay likewise has gone through fits of nationalization and privatization mainly revolving around the railroad. The rail network began construction in 1861, and the last nationalization of the railway was in 1961. Essentially all rail traffic ended by 2006. It is a remarkable example of government-operated system that went to being grossly outdated technology and lacked maintenance to become completely defunct. Paraguay has essentially no metallic mining industry, showing that nationalization is about money grabs, that the industry does not matter to the greedy or desperate poorly educated government workers.
Peru
When Peru nationalized many businesses in 1972, it was largely triggered by socialist political views in vogue at the time sweeping across the continent. This restructuring lead to a decade of decline, which in turn had the country spin out of control with hyperinflation of the Inti, and concurrent rise of terrorism that fed on the country’s population discontent, in the movement called the Sendero Luminoso which followed communist ideas largely sourced from Cuba. The nationalization of mining industry bankrupted the U.S. Company Cerro de Pasco Copper Corporation. In an ironic turn of history, after stamping out the terrorist movement, and privatizing the mining districts of the country, several of major mining camps were sold to communist China. Part of the incentive to nationalize back in the late 1960s was the perception of inequality, that the North American companies were taking advantage of the workers. This is what is so ironic, because during the three decades the mining district was idle China went through industrialization, and now are the new owners and the Peruvians are faced with a culture that has far worse track record with human rights in their own home country. How will they perform over the long run in Peru? Will the Peruvians nationalize again?
Uruguay
In the lack of meaningful mining, in 2004 Uruguay dabbled in nationalization focused on the domestic water supply, which was previously privatized in 1990. Uruguay was the first nation in the world to legalize marijuana in 2012, making it something that is directly controlled by the state. In some ways this was a nationalization of the illegal drug trade. The country will likely privatize marijuana, then later nationalize it.
Venezuela
Many reporters, politicians, and political analysts incorrectly refer to Venezuela’s extremely poor and almost totally collapsed economy today as a result of socialism, the reality is the problems come from dictatorships. Venezuela has experimented with nationalizations, with the most significant being the state completely taking over the petroleum industry in 1976. Also during the 1970s the iron mines in Venezuela were nationalized from U.S. owned companies.
Beginning in 1999, Dictator Hugo Chavez went on a string of nationalizations, starting with once again the mining industry by changing the mining law, causing numerous company’s gave up their leases and flee the country. Mining companies had mostly fled the country by the year 2000, but some remained, the largest gold mining operation was nationalized in 2011 by Chavez (this was the Las Cristinas deposit; the action bankrupted the Canadian company).
Chavez was piggishly brutal, and his less imaginative and less capable successor Maduro has completely ruined the nation. People are leaving the country in mass exodus for the want of food. In 2015 dictator Maduro stated he would nationalize food distribution, but rather the country is left broke and starving today. Their currency is in rapid hyperinflation and should today be considered completely in default, invalid. No other countries have stepped in to directly intervene, and the Venezuelans have not stepped up to pay the bloody price to remove incompetent and essentially evil government from power. The very latest change in the mining code made in 2018 requires the Venezuelan state to retain 55% interest in all mining companies active in the Orinoco gold belt. This mainly effects national operators and illegal miners as few foreign interest are in the country. Today over 400,000 Venezuelans have immigrated into Peru. Colombia is flooded with Venezuelans, as are Chile and Ecuador.
Nationalization comes from socialism, dictatorships, and corruption
Nationalization threat remains real for businesses operating in many countries across South America. Those countries with unstable currencies are more inclined to seek desperate grabs for wealth, such as in Argentina, Bolivia, and Venezuela. Colombia went through semi-nationalization with revoking mining licenses around the country in 2012. Ecuador has flipped through several spasms of super taxation on mining that effective had foreign investors running for the door. In nearly all cases very few individuals take measures to steal wealth. On the whole, South America paints an unsteady picture of governments grabbing resources to cover their own poor economic decisions, and in doing so, destroy even more value within the country. The economic histories of each South American country are far more convoluted than can be outlined here. The main point of this summary is to emphasize that nationalization of the mining industry has happened on many occasions through a variety of approaches and that those writing on the history of mining districts that make intentional omissions of these facts only distorts history in a way that people will not learn from past mistakes. This selective presentation of facts for the image of current corrupt politicians only provides more incentive to take advantage of the people. Mineral deposits while containing value can only operate under certain economic conditions. When measures are taken to drastically increase the taxes on mines it kills these operations. The perception is that the mines are endless pools of wealth, but in no country is the value of the metal in the ground enough to offset the poverty. Mining contributes incremental improvements to the host countries, such as higher paying jobs, mineral royalty, and improvements to infrastructure, however, it cannot carry the entire load of social problems. Socialists operating mines consistently do so as complete failures. Dictators making decrees and super-taxes destroy mining companies. Mineral rents paid to state coffers disappear into the pockets of corrupt politicians through complex scams, the excuse of nationalization in Peru and Chile were framed to stop American Imperialism, but in truth it was a money grab. Conversely, periods of privatization provide politicians ample chances to line their pockets. Now South America is increasingly becoming China owned, a condition that will not yield better results for the host-country citizens than previous decades with North America investment. It seems only a matter of time before the waves of nationalization will once again sweep the continent with no better results than before. And this is why South American economies have the reputation of being a pendulum that alternates between dictatorships masked as socialism and massive phases of privatization, which fundamentally comes down to shortfalls in correct planning and honesty.
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South America seems to refuse to show its inexhaustible creative force.
