[VIEWPOINT]Turn a crisis into an opportunity

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[VIEWPOINT]Turn a crisis into an opportunity

On May 1, Bolivia marked May Day by announcing the nationalization of the natural gas industry, and the action sent shockwaves through the international community.
Venezuela, the largest oil producer in Latin America, completed the nationalization of its energy industry last year, and we cannot rule out the possibility that Peru will take a similar action, depending on the results of the presidential election.
Central and South America are considered to be the treasure chest of resources for the 21st century.
The international community is certainly concerned about the latest signs of resource nationalism in Latin America, led by progressive regimes.
However, the resource nationalization in progress in Central and South America today is different from expropriation against foreign companies, which was once rampant in the 1970s.
First, the government undertakes ownership of resources produced by multinationals and gains the right to dispose of them.
And then it raises the royalty and tax rates on the profits and buys a stake in the company from the multinational, so the government can secure management rights.
Therefore, the key to nationalization is to encourage companies to continue capital and technological investments, while expanding their distribution of the profits to the state.
Thanks to the recent soaring price of energy, multinational companies generally do not strongly resist government interventions.
The magnitude of the rise in price is bigger than the magnitude of the production cost rise, so the companies can still generate a considerable amount of profit.
It can be called a win-win strategy in the era of high oil prices.
Venezuela’s nationalization of the oil industry in 2005 followed this strategy, and the Evo Morales government in Bolivia seems to be following a similar path.
Korea, an energy importer, cannot welcome such moves in Latin America because they fuel oil price hikes.
However, if we have a proper understanding of the situation and respond accordingly, there are many ways to change a crisis into opportunity.
First, we need to reinforce diplomacy with the Central and South American nations, who recently have been growing in status in the international community.
Since the confrontational period between the two Koreas, Central and South America have traditionally been solid diplomatic partners for Seoul, and they have shown a friendly attitude in major diplomatic issues, such as the election of the United Nations Secretary General.
However, Korea does not maintain an embassy in Bolivia, a country with abundant resources such as natural gas and tin.
Seoul needs to reinstall the legation that closed during the financial crisis as soon as possible and show a willingness to participate in the progressive Bolivian government’s efforts to save the poor and resolve income disparity.
The energy problem, of all things, cannot be resolved with a foreign policy strategy centered on powerful nations.
Korean companies also need to work to prepare local bases in Latin America with a long-range view, even if it means a considerable initial cost.
In the case of possible withdrawals of existing multinationals, companies should collect the necessary information and be ready to move in. Chinese and Malaysian companies are already eyeing opportunities.
Existing multinational companies also should participate in resource development, as they are also investing in industries associated with manufacturing, such as railroad and port facilities.
In order to carry out the exploration, development, logistics and infrastructure projects in conjunction, companies specializing in related industries should work together as partners to raise the synergy effect.
Recently, Central and Latin American countries showed signs of expanded investment in construction, with increasingly affluent national incomes.
Korean builders can aim at the second construction boom in Central and Latin America following the rush in the Middle East.
Today, the countries rich with oil and natural gas must consider the present soaring price of energy as a chance for national development.
Therefore, we need to accept the Central and South American countries’ attempt to retrieve their shares through nationalization as a natural choice in the era of war to secure natural resources.
Instead of making an ideological interpretation and opposing such moves, we need to take a more pragmatic point of view.
Probably, this would be the best chance to secure resources and expand businesses in Central and South America.

* The writer is a professor of Latin American studies at the Graduate School of Pan-Pacific International Studies, Kyung Hee University. Translation by the JoongAng Daily staff.


by Kwak Jae-sung

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