Mining in Latin America in the late 1990s
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Summary The purpose of this report is to analyse the factors that have determined the flow of investments in mining operations in Latin America and to evaluate the extent of such investments in the 1990s. This period is in clear contrast both with the 1970s, when investments were buoyant owing to nationalization and new projects that boosted State participation in mining operations, and with the 1980s, when investment flows were sluggish. The surge in investments in the 1990s was part of the general trend towards economic liberalization and elimination of barriers to foreign capital inflows, modernization of regulations governing mining concessions, more secure mining rights, and technological changes that took place in the last few decades. The first section examines investment flows into the mining sector in the light of changes in the composition of external financing in the 1990s, which resulted in a greater participation of foreign direct investment in the external funding mix, a trend favoured also by inflows of privatization capital and which was reflected in a significant increase in net capital transfers to countries in the region. The second and third sections catalogue the main changes noted in the treatment of foreign direct investment and in the mining legislation of countries in the region, revealing a similarity between existing proposals for reform with respect to the promotion of private investment and the reduction of the State's role in the development of the mining sector. The fourth section contains a review of changes in trade and tax regimes and a comparison of the impact of taxation on investment decisions. Emphasis is placed on the effect of taxes on fixed and variable costs and on rates of return, which reveals the differences between the taxation systems applied in the region. The more favourable environment for foreign investment and the elimination of barriers to entry to the mining sector opened up a new phase in terms of foreign capital attraction in the 1990s. The policies adopted by countries in the region were instrumental in stimulating mining investments, and these and other factors are analysed in the fifth section. Following the analysis of the determinants of investment and based on the conclusion that public policies had functioned in a positive way in the nineties, the sixth section covers the variation in projected exploration costs of mining operators, the effective value of actual investments and the investment projections at the start of the new millennium.