Spain Rediscovers Latin America : Commerce: Latin American leaders attending a summit in Madrid hope to cut the kinds of deals with the former mother country that Mexico is getting.

Latin American leaders headed for a summit in Madrid this week--the serious side of Spain’s commemoration of Columbus’ voyage to the New World--are looking to satisfy more than 500 years of nostalgia.

Most are hoping to come home from the Iberoamerican conference with deals similar to an agreement Mexican President Carlos Salinas de Gortari will be signing there: an $80-million joint venture between Mexican resort developer Situr and eight Spanish investors to build a vacation project twice the size of Disneyland on the northern tip of the Sea of Cortez, a three-hour drive from Southern California.

The Latin leaders’ quest for business at the summit underscores how their relationship with the former mother country has been redefined, with economics increasingly the emphasis of the relationship rather than strictly cultural ties.

Spain’s rediscovery of Latin America is the result of its own prosperity in the late 1980s coinciding with economic reforms sweeping the region--government sell-offs of companies and liberalization of foreign investment laws--and talk of free trade in the Americas, including the proposed agreement being negotiated by the United States, Canada and Mexico.

“We Spaniards have always made speeches about how important Latin America is to us,” said Jose Luis Carranza, who as director of international retail banking at Banco Bilbao Vizcaya, Spain’s largest bank, negotiated the first foreign investment in a Mexican financial group. “Now, the rhetoric is becoming reality.”

It is a reality made possible in large part by Spain’s 1986 acceptance into the European Economic Community. An economic backwater much of this century, Spain has enjoyed a rush of foreign investment since joining the EEC, boosting the nation’s foreign reserves and strengthening its currency. Spain now has the means to invest abroad: The surging value of the peseta has made foreign assets cheap.

While Spain still lags the United States and even other European countries in Latin American investment, Spanish companies are carving niches for themselves here in an unexpected offshoot of the move toward regional economic blocs.

Spain’s telephone company was the technology partner in a Citibank-led consortium’s $2.8-billion acquisition of a controlling interest in southern Argentina’s telephone company and also owns stakes in Venezuelan and Chilean phone services.

Spanish hoteliers are investing in Cuban tourism developments. They are using their experience in making Spanish beaches Europe’s most popular economy resorts to revitalize a foreign exchange earner Cuba has allowed to languish.

“In the case of Latin America in general and Mexico in particular, even though the figures are small, they are important in comparison with Spain’s overall foreign investment,” said Apolonio Ruiz Ligero, vice chairman of Madrid-based Iberia Airlines, which owns majority interest in Aerolineas Argentinas, Argentina’s domestic airline, Venezuela’s Austral and Viasa airlines, as well as a 35% stake in Ladeco, a Chilean carrier.

The prosperity resulting from EEC membership has produced incentives to invest abroad beyond just the means to do so.

Spain’s economic growth is expected to slow to 2.6% this year, compared to an average of 4.2% the last five years. If companies want to keep growing at the pace to which their shareholders have become accustomed, they must invest in new markets.

After years of rapid growth, some companies have reached the limit to which the home market can sustain growth.

“Finance is a mature industry in Spain,” said banker Carranza, from his office overlooking the modernistic Port Europe office building under construction on Madrid’s main boulevard. “The margins are narrow. We have to make up the difference in other markets.”

Additionally, joining the EEC has forced Spanish companies to face competition from international corporations at home. Spanish entrepreneurs have decided that the only way to beat ‘em is to join ‘em.

“Spanish companies have to be international in order to compete domestically,” said Ruiz Ligero, a former commerce minister. “There are more and more foreign companies in Spain. Ever since the Spanish government chose to open the economy, companies have had no option but to compete or die . . . A medium-size country such as Spain cannot be self-sufficient.

“For that reason, the economic and business strategy must be to find broader markets. Today, it is impossible to imagine a competitive economy that does not work for broad markets. Multimillion-dollar investments in machinery, equipment and networks cannot be made for a small market,” he said.

Spanish companies began to reach those conclusions at the same time Latin American governments were deciding they could no longer afford to own and operate major chunks of their countries’ industry.

They began to auction off airlines, telephone companies and banks and to contract out municipal services.

The timing was perfect for Spaniards. They eagerly bid on the companies that government was selling.

An especially active participant in Latin American auctions was Iberia Airlines.

“Iberia decided to adopt an active policy in Latin America to consolidate and increase its share in those markets,” said Ligero. “We are doing that by increasing Iberia’s own activity on one hand, and on the other, by buying an interest--where possible a controlling interest--in a series of Latin American companies.”

Since buying Aerolineas Argentinas, Iberia has implemented a five-year plan that includes the purchase of seven McDonnell Douglas MD-88s over the next three years.

Spanish companies are also among the first to take an interest in the latest in Latin American privatization: contracting out municipal services.

Dragados y Constructores, a Spanish engineering firm that runs the municipal water treatment system for the Mexican beach city of Valencia, has formed a partnership with the Mexican construction conglomerate Grupo Gutsa to bid on a sewage treatment project for Mexico City.

“This will be among the largest such projects in the world,” said Juan Diego Gutierrez, president of Gutsa, which is the majority owner of the joint venture.

“They are experts,” he said of his new partners. “We shouldn’t try to invent everything. In this new world of globalization, countries that have advanced technology should find a place in the Mexican market.”

In contrast to the active bidders, Spanish banks have chosen to wait until after the auctions to buy privatized companies.

In December, Banco Bilbao Vizcaya paid $10 million for a 2% interest in Grupo Financiera Probursa, the first Mexican financial group to buy one of the 18 banks privatized during the last year. BBV has since quintupled its stake in Probursa, with a total investment of $75 million.

Caja de Ahorros y Monte de Piedad de Madrid, another Spanish financial institution, has purchased for $50 million 30% of the parent company of Mexico’s Banco del Oriente.

BBV’s Carranza noted that the timing that has so favored Spanish bankers is working against their U.S. counterparts.

“Banks that have important domestic problems are not in a position to invest abroad,” he said. “That is why they have not been active. Also, the prospect of a free trade agreement may lead them to believe that they will be able to enter the market cheaper. But they may be missing the boat. Later, the same banks being sold today are going to cost more.”

Part of the reason they may cost more is that Spanish firms such as BBV will expect a return on the investments they are now putting into their new Mexican affiliates.

“Our great strength is retail banking,” said Carranza. “Mexico’s banking system has been under-developed. As an example, Mexico has one office for every 20,000 customers, whereas the international standard is one office for every 2,000 customers. We have the most developed banking network in the country. So, what we know how to do best is what Mexico needs most.”

That need for foreign know-how is not confined to Mexican banking.

While Latin American governments are divesting their holdings, they are recognizing a desperate need for foreign capital and technology to boost backward private industries.

To attract capital for modernization, Latin governments have eased restrictions on foreign investment. Even the Cubans, while still clinging to socialism, have begun to search for money and know-how abroad.

Spain’s biggest hotelier, Grupo Sol, which runs the international Melia and Sol chains from Palma de Mallorca, accepted the Cuban proposal to build a five-star hotel complex on Varadero Beach, near the old DuPont vacation home.

Grupo Sol and a Canary Islands-based consortium of Spanish investors split a 50% interest, and the Cuban government owns the other half. Grupo Sol has the right of first refusal should the government decide to sell.

“We thought it was an idea worth trying,” said Jaime Cintas, Grupo Sol spokesman. “Cuba might become one of the most attractive tourist areas in the Caribbean. We are happy to be the first. When the political situation changes, and obviously things will change, we will already be there.”

Other Spanish investors are less adventurous in their forays into Latin America.

“We are alert to opportunities,” said banker Carranza. “The Caribbean is beginning to interest us. However, our ability to invest is limited, and we must be selective. Chile has a small population; Argentina, Colombia and Brazil still have a long way to go in reforming their economies; Venezuela has political problems. In the short term, nothing in South America. They are still far behind the reform process and the political stability of Mexico.”