PRIVATIZATION GOOD FOR LATIN AMERICA

In the welcome emergence of Latin America from its lost decade of the 1980s, the international oil industry should play a crucial and profitable role. But oil and gas companies will have to convince their detractors, Latin American and otherwise, that people do not set fire to rain forests for the fun of it.

July 13, 1992

3 min read

As an Oil & Gas Journal special report on the region showed last week, two new forces are shaping Latin America's always stormy politics and economics. They are privatization and environmentalism. They reflect stark realities that companies and governments are only lately starting to heed.

SHOULD PERFORM BETTER

One of the realities is that Latin America should perform better economically than it historically has done. The region suffers no debilitating lack of natural resources. The climate and land generally favor agriculture. Yet many, too many, Latin Americans must struggle just to survive. The other reality is that Latin American economic progress, if it means only more of what occurs now, directly threatens the environment. Unless political and social structures change, economic progress might simply mean more vehicles in mercilessly congested cities and more tropical growth destroyed to make way for temporary, inefficient farms.

Although Latin American governments are not all alike, certain patterns have prevailed in the region's petroleum politics. In the main oil producing countries, state companies own the reserves and control most or all of the production and refining operations. This satisfies Latin America's fierce nationalism. It also lets politicians appease under-classes with below-cost oil products.

The devastating consequences are economic waste and excessive pollution. Natural resources do not yield as much wealth as they should, and economic benefits that do result have a way of remaining in government hands. Unable fully to regenerate capital, sometimes simply disinclined to do so, swollen state oil companies slowly go bankrupt as national petroleum patrimonies literally go up in smoke.

It has happened to varying degrees in Mexico, Brazil, Venezuela, Peru, and Argentina, which-also in varying degrees-have yielded to economic reality and begun to privatize their petroleum holdings. Privatization is healthy. But economic progress is colliding with environmentalism.

The Natural Resources Defense Council of the U.S., employing smear campaigns against individual companies, has disrupted oil and gas work in Ecuador. And local and foreign environmentalists have opposed operations in Peru, Brazil, and Venezuela. Much of this is familiar antioil obstructionism. And it remains to be seen how native nationalism reacts to sacrifice mandated from abroad.

ENVIRONMENTAL CONSEQUENCE

Companies, however, must acknowledge that their presence in remote parts of Ecuador or Brazil has more environmental consequence than it would in the U.S. or Canada. Pipeline routes, drillsites, and access roads open large sections of rain forest to people desperate for farmland-or to unscrupulous exploiters. Companies can't point to the proportionately small area they occupy and think they've settled the argument.

In any case, the environmental problem is not oil and gas activity. The problem is human desperation. People burn rain forests because they're hungry. To make them less so should be why Latin American governments permit petroleum operations in the first place. Privatization is an essential first step. By helping people to prosper, it will serve economic and environmental interests at the same time. Prosperous people don't burn rain forests. Prosperous people take care of what they own.