Opinion and Analysis: International
Citigroup, China and Venezuela's Hugo Chavez
New York's Citigroup, the world's largest financial services company, is hungry and has no problem taking food from others' plates. The corporate behemoth's chief executive, Chuck Prince, publicly disclosed news of his foreign investment appetite in a Financial Times interview in which he said he is looking to aggressively buy financial services companies to increase Citigroup's presence in Latin America, Asia and Eastern Europe next year.
"I can't let the world overtake the advantages we have built up over the last 200 years," he told the FT in an interview dated August 7.
This 200-year history includes global predatory lending and close involvement in some of the largest and most controversial structural adjustment and infrastructure projects in the developing world: Citigroup underwrote much of the privatization of Argentina in the 1990s, and provided financial support for China's Three Gorges dam. (1)
Along the way, Citigroup has been able to grow with the help of the U.S. government, most notably when Congress allowed Citicorp to merge with Travelers Group to form Citigroup despite the fact that it was illegal under the Glass-Steagall Act to merge banks and insurance underwriters. The merger went through anyway under the basis of a two-year trial period. During those two years, Citigroup lobbied Congress to change the current law to officially legitimize its merger, using then Treasury Secretary Robert Rubin as its primary advocate. About one month after Glass-Steagall was successfully repealed - and the merger of Citicorp and Travelers Group legitimized - Rubin went on the new Citigroup's payroll.
Under such circumstances, it should be assumed that when Chuck Prince announces his intention to own 10% of the financial services market of various developing countries, it will happen. And it wouldn"t be such a stretch: Citigroup owns Mexico's largest bank and large chunks of Colombia's financial services sector.
Such a sense of entitlement shouldn't surprise anyone, especially when it comes from the one of the most politically powerful companies in the world, based in the financial center of the world's only superpower. But the experiences of other global corporate players trying their hand at such power plays are important to note.
China recently tried to do what Citigroup has so unabashedly vowed it will do. China tried buying the assets of an American company, and was sent running. Fearing communist control of American assets that are located mostly in Asia, U.S. politicians successfully blocked China National Offshore Oil Corporation's purchase of American energy company Unocal. After U.S. politicians spent months lobbying the Committee on Foreign Investment in the United States (CFIUS) and the White House against the deal on the grounds that it posed a "national security risk," CNOOC officials eventually gave up. Surprised analysts noted the hypocrisy of the fact that the U.S. invests heavily in China.
While the Unocal-U.S.-China story has been dramatized as turning sour because of current "US-China tensions" brought on by China's rapid economic growth, the real story goes back many years. Unocal (with the backing of the U.S. government) was the lead member of the CentGas consortium whose aim in the late 1990s was to build a pipeline through Central Asia to supply the growing energy demand of Pakistan and India. Unocal's lead representative on the consortium was Hamid Karzai, who the U.S. later installed as president of Afghanistan. The consortium, which tried to do deals with the Taliban, floundered, but was seen as a project of strategic importance to counter China's growth by boosting the demands and growth of its South Asian neighbors. (2)
Given this history, U.S. politicians may have seen China's move to acquire Unocal, which now is a leader in the Baku-Tbilisi-Ceyhan pipeline running through Central Asia to the Mediterranean, as a means of acquiring the infrastructure to reverse the economic and political encirclement that the U.S. began attempting with CentGas.
Such a history fits nicely with the unwritten rules of operating in today's political economy. When American companies want to buy the assets of non-American companies (government or private-owned), the Americans simply state their intention as new fact of corporate life. When non-American companies try to buy American assets, the U.S. government gets involved to block the transaction.
While some nations have been cornered into playing by these rules, others, like Venezuela, have sought to publicize their contradictions. International economics is a game of politics and Hugo Chavez and the Venezuelan government are playing that game quite well.
The most recent example is the firestorm being fueled by Venezeula's tax agency, Seniat. Arguing that multinational companies doing business in Venezuela have for years evaded taxes, Seniat has been raiding offices, demanding backpay. The most notable target has been Royal Dutch Shell, Europe's second-largest energy company. Seniat says the company owes about $130 million in back taxes and is demanding the company pay. For those companies who miss Seniat's deadline, the agency has been seizing property as in the case of U.K.-based InterContinental Hotels Group or temporarily shutting down operations, as with a unit of Spain's Telefonica.
Moreover, several oil companies doing business in Venezuela recently have been ordered by the government to turn their operating contracts into joint-ventures with the state oil company, ensuring PdVSA has a majority stake in the projects that were previously handled by the foreign and domestic oil companies alone. This is major turnaround from the pre-Chavez 1990s, when foreign oil companies were lured to the country by Venezuelan officials who promised tax breaks and other incentives.
In both of these cases, companies are expressing their shock, vowing to fight Venezuela in arbitration, but oftentimes finding that they have little recourse. If they want to continue doing business in Venezuela, they have to abide by the rules of the government. This very simple idea has been ignored repeatedly throughout the developing world, both by government and by multinational companies. Governments wanting foreign capital often ease investment restrictions and allow companies to govern the terms of investment, and many companies - with the tacit backing of the powerful countries they are based in - operate with impunity.
Venezuela is trying to direct its economy on its own terms - and in a political climate where unwritten rules about which companies can and cannot do business in other countries abound - such a position isn't easy to execute.
(1) For more information on Citigroup's predatory lending practices, see Inner City Press's Citigroup Watch page at:http://www.innercitypress.org/citi.html. For information on Citigroup and China: http://www.socialfunds.com/news/article.cgi/article165.html, and Citigroup and Argentina, see http://www.nytimes.com/2004/05/06/business/worldbusiness/06citi.html"ex=1399176000&en=a726a5d12b195c15&ei=5007&partner=USERLAND
(2) The Washington Post has over the years written a series of articles on this, including:http://www.washingtonpost.com/wp-srv/inatl/europe/caspian100598.htm
Chhandasi Pandya is a freelance journalist based in New York. She can be reached at email@example.com
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