Do Investment Disputes in Latin America have a Negative Effect on Economic and Investment Prospects or Fiscal Performance?

This Capstone project, in collaboration with Moody’s Investors Service, Inc., analyzed the economic and fiscal impacts of investment disputes involving Latin American and Caribbean (LAC) sovereigns. The study focused on assessing the volume and outcomes of disputes recorded in the International Centre for the Settlement of Investment Disputes (ICSID) database, exploring sectoral implications and the relative financial stakes involved. Through a meticulous examination of historical data, the team compared dispute trends across LAC with those in Eastern Europe & Central Asia and Sub-Saharan Africa to discern regional variations and their potential effects on foreign direct investment (FDI).

Their methodology integrated a comprehensive review of the ICSID database, financial analysis of claims versus settlement amounts, and a sector-specific inquiry. This approach enabled the team to identify patterns such as the notable impact of high-value claims on subsequent reductions in FDI, particularly evident in countries like Argentina, Colombia, Mexico, and Peru. The analysis revealed that while disputes often lead to a dip in FDI, the extent of this impact varies significantly depending on the outcomes of the disputes and the legal frameworks in place. The project findings emphasized the critical role of robust institutional mechanisms in managing the negative perceptions and economic repercussions associated with investment disputes. Countries with effective dispute resolution processes, like Peru, demonstrated better resilience and maintained stronger investor confidence. Conversely, regions with less effective legal frameworks experienced more pronounced economic disruptions. This research provides valuable insights for policymakers, investors, and international business entities, underscoring the importance of understanding and managing investment disputes to mitigate their adverse effects on economic stability and investment attractiveness.