Goodbye cruel world

Latin America can't afford parochial finance

Latin America really can't afford parochial finance. Rafael Correa, Ecuador's president, said this week he wants to abandon a treaty for resolving US investment disagreements. Meanwhile, Bolivia, Venezuela and Ecuador have withdrawn from the International Center for the Settlement of Investment Disputes, a similar multinational forum. Such accords gird modern globalisation. Investors hardly need more reasons to avoid the region.

Before 1914, the rights of foreign investors were protected by gunboats, as with the Anglo-German bombardment of Venezuelan ports in the early days of the 20th century. To promote international capital flows, the World Bank established ICSID in 1966, ensuring that investors in emerging markets had a neutral forum for resolving disputes. The organisation now has 158 members. The United States also has entered into bilateral investment treaties, some embedded in free trade deals, in Latin America and elsewhere.

Anti-capitalist regimes in the region are rejecting these market disciplines in another sign of harmful protectionist tendencies. Argentina already requires any of the centre's judgments to be ratified by a domestic court and is considering joining the other refuseniks. Correa called the arbitration tribunals "pimps," saying they favour foreign investors and threaten to bankrupt the country.

The reassuring news is that other developing nations aren't yet following Latin America's lead. For example, 44 of Africa's 54 countries have joined the international settlement regime and none has withdrawn. That gives another fillip to the continent's investment appeal, particularly when contrasted with the growing scale of the disputes like Chevron's in Brazil and beyond and Argentina's with overseas bond investors. They reinforce the idea that the sorts of problems in question are real, and that bilateral treaties are a much better way to resolve them than warships.