LATAM FDI: In this episode, Mauricio Claver-Carone joins us. Mauricio is the managing partner of an organization called the Lara Fund, and he is a former advisor to the First Trump Administration for the Americas. Welcome, Mauricio. You could expand on your biography. Tell us a little bit about yourself.
Mauricio Claver-Carone: Thank you so much. Thanks again for the opportunity. It’s always a pleasure to be with you. Thank you for your great work, particularly regarding foreign direct investment in Latin America. As you mentioned, I’m the managing partner of the Lara Fund, a private equity fund we set up about a year ago. It is the first and only US private equity fund focused on the middle markets of Latin America and the Caribbean. And then the last time we spoke, we spoke about those targets where the countries we look at, the high growth markets, pro-American countries in the region, moving away from Mexico, Brazil, which has been usually the biggest target for a lot of the global investors in the region. I am not saying that there are no opportunities there. Still, we’re focused on Panama, Costa Rica, Bahamas, Ecuador, Paraguay, Uruguay, Dominican Republic, and El Salvador, the countries showing great promise and a great opportunity and are fully undercapitalized. So, it’s been a great adventure. Indeed, in my previous role, I stemmed from the Treasury Department, began my career there as a lawyer, and then was eventually the Senior Director of the Western hemisphere at the National Security Council, where I was the President, President Trump’s advisor during his first term for the Americas.
We covered everything from Canada to Argentina. It was an action-packed time with great stories and anecdotes. It was a great experience.
LATAM FDI: Today, one of the things I want to touch upon was something devised during the first Trump administration. It’s called América Crece. Can you explain to the listeners what that is?
Mauricio Claver-Carone: Yeah, I’m happy that you mentioned that and that we had the opportunity to discuss América Crece because it was such a great initiative that, as everything with the government took way too long to start, it was something that was conceived as an idea when I was a senior advisor at the Department of Treasury with Secretary Mnuchin back in 2017. At that time, we were thinking about it, and I mentioned this during our last conversation: the US has an excellent toolbox for punishing bad guys, sanctions, et cetera. But we had a limited toolbox regarding economic statecraft. Basically, how do we promote or how do we unlock the comparative advantage that the United States has, which is our investors, our capital markets, really the opportunities and the knowledge and know-how of our investors, particularly in the Western hemisphere of the Americas, which is the neighborhood we live in, which is extraordinarily important and strategic to the United States across a whole different variety of factors. So, we created this concept called the América Crece, which was essentially, and people always talk about it as a counter-BRI, the Chinese Belt and Road Initiative, but an initiative for how we unlock private investment in Latin America, particularly in energy and infrastructure, in really our allies in the Americas.
Because what we’ve seen and what the most significant need is, is the reality is that Latin America and the Caribbean have the most significant infrastructure finance gap in the world, despite all these multilateral and everything that loan money to the region and projects that you see on these glossy press releases. It is by far the most significant infrastructure finance gap in the world. Okay, great. So how do you help the region find these bankable deals and opportunities across markets, which are wholly different in every country in Latin America and the Caribbean is different from each other? Even in Central America, I banned using the term Northern Triangle because El Salvador, Guatemala, and Honduras are very different. But things get bunched up because it’s just a lazy approach. But then how do we take each of these countries, find what their comparative advantages are, find what the bankable deals in those countries are, the incredible opportunities they are, and help them, put these deals together, and almost hand them off on a silver plate to investors here in the United States and in other allied countries throughout the world that are global investors as well, but mostly, obviously, here in the United States.
And so, we created this concept. It was an idea. And it just took a long time to develop. Eventually, we launched it as a treasury initiative. It began with Panama, and it took a while to set the frameworks. Okay, what are the opportunities in Panama? The energy was important. Natural gas is our huge comparative advantage from an energy perspective. How do we help lock in these deals for storage and the logistical side of the natural gas trade and supply chain? How do we unlock those opportunities? How do we unlock the opportunities for microgrids in the region? How does Panama become that center for microgrids, which can then be scaled and have these vast opportunities in the Caribbean, et cetera? And it was fascinating just how fast it started growing. For the first treasury, I may dig into a credit initiative we did with Panama and start unlocking deals there. Well, anyway, like everything in government, things take a long time. Two years later, when I was a senior director at the National Security Council of the White House, we turned this treasury initiative into a whole government initiative.
That was in December of 2019. It took two years. But ultimately, that’s when you finally get buy-in from all departments. Then the question was, how do we use financial advancing tools, etc.? Now, OPIC has long become somewhat irrelevant, if not wholly unrelated. Then, we had the idea of creating the Development Finance Corporation. Within those two years, the new International Development Finance Corporation operation, known as the DFC, was created to try to increase the ability of domestic finance. As a domestic finance institution, as a DFI from the United States for investors and deals and strategic deals outside of the United States, but to be nimbler, et cetera. We could discuss whether that worked, if it didn’t work, where we stand now, and where we’re headed, but that was the idea. Then, ultimately, when it was launched as a whole government initiative with the DFC, we started after Panama. I went to Panama, Salvador, and Ecuador, and it grew. And before you know it, between December of 2019 and the end of the first Trump administration in 2020, we had done 17 América Crece agreements throughout the region.
That’s half of the region. And by the way, we ran the scoreboard from seventeen to zero regarding the BRI. And we saw billions of dollars in deals, particularly in Panama and Ecuador. We saw Salvador and were starting to move on to the Dominican Republic. And it was a process that was very time-consuming. But that year, you started seeing that tremendous momentum, per se. And the reality And it’s that even in the transition into the Biden administration, a lot of the career staff across the agencies, state, treasury, DFC, et cetera, urged the Biden administration not to get rid of the America Crece Initiative because there was significant momentum taking place. Unfortunately, they got into this whole; if it was a Trump initiative, get rid of it. They eliminated it. Then, it took years for them to produce their initiative, which became America’s partnership, which, unfortunately, was nice. It’s excellent public relations and a nice marketing tool, but it was nothing more than photo ops rather than seeking deals. Now, can we talk about… So that’s what América Crece was, where it was headed, and obviously, we can talk about what worked, what didn’t work, what was working, what wasn’t working, and where we could be headed.
LATAM FDI: Just for the people that aren’t Spanish speakers, the translation of the America Crece Initiative is America Grows. Well, let’s look at something happening in the hemisphere that some people look at with a certain degree of preoccupation. I want to ask you for your take on Chinese investment activity in Latin America.
Mauricio Claver-Carone: Well, it’s very different than it was from, for example, when we first went, the first Trump administration started in 2017. Beginning in 2005, you started seeing a big boom in Chinese investment in the region. It reached a point in 2010 and 2012 when it was $200 billion annually. That’s decreased substantially, but the Chinese are more strategic in their investments. So, I understand that they’re in critical mineral space, logistics space, and ports in particular; they’re being very strategic about big splashy projects where they can, through perception, show that they are really like… We have a territorial staple in the region and the neighborhood where we all live. So, you’ve seen that shift per se. Are these projects particularly effective? What do we see? No. As a private investor now, one of the things that I see a lot of throughout the region is distressed Chinese assets. So many of those deals that they had invested in the energy space, et cetera, in 2010, 2012, 2014, 2016, they distress, they leave them. Then they hope nobody gets them because they prefer to see it there distressed, immobile, versus having a US investor or someone else come in and take them.
Regarding the splashy projects, it’s open to debate how effective or not they are. There’s been a lot of news lately regarding, for example, the Port of Chancay in Peru. That’s an extensive port facility in Peru. They’ve invested over $2 billion in it. Then, what I find laughable about it is the notion that what’s been marketed out there is that this will be a massive opportunity for Brazilian agricultural exports. This is the only export from the region that goes towards China. There’s not a US play there. Now, anybody who knows about intraregional commerce knows that that’s false. There is no intraregional infrastructure for Brazil, let alone any other country in the region, to be land-transporting their products over to the Port of Shanghai, which, by the way, even if you’re in Lima, to get to the Port of Shanghai is two and a half hours in a dirt road with no infrastructure, and that’s with a police escort. So this whole notion that somehow it’s going to be cheaper or even feasible to be bringing, transporting goods across the over to Shanghai to export it to China then and that it’s going to be substantially more affordable than just literally doing it through existing infrastructure in like Santos, in the Port of Santos, in Brazil, et cetera, is nonsense because anybody that knows and is involved in shipping and is done in the region knows that one of the biggest frustrations. After all, it shouldn’t be that way, but one of the biggest frustrations is that the intraregional infrastructure does not exist.
It’s not there. And in many cases, I used to use this talking point in Argentina. It’s much more expensive to transport goods domestically from the point of extraction or the end of production to the port in Argentina than it is to ship it from the Port of Buenos Aires to, let’s say, Asia to the US, et cetera. So that’s the biggest frustration. That’s not going to happen in the short term. So, what, then, is the Port of Chancay for? It’s strategic. And then one of the Chinese ministers let it slip himself. It’s for e-commerce, and he wanted to make it to an e-commerce hub. Okay, that is then for a re-export, mainly to the United States, to have some capacity. That’s what we are seeing there now with Chinese investment. Everything now, including Chinese investment in the region, is critical minerals that will continue monopolizing the alternative energy space. Yes, these logistics, but the logistics are all for re-export to the United States. That’s the big thing we’re seeing in Mexico right now. If you ask me, what concerns do I have right now?
Well, look at foreign direct investment in Mexico. For Mexico right now, a third of all foreign direct investment in the last year was from Chinese companies. It’s even higher because if you calculate new investment, the only new investment that’s going in that’s not reinvestment is mostly from Chinese investors. And why that’s? Transshipment to the United States to try to avoid duties, et cetera. The new Trump administration will focus on closing out those loopholes. But if you see one trend in Chinese investment, that is the most concerning other than this Porta Chancay, which is really for, like they said, the re-export. And also, by the way, you’ve seen it, I think there should be some issues or concerns about how it could be used by a state Chinese interest in the military, et cetera. Put that aside. But from a commercial perspective, I think the biggest issue concerning Chinese investment is the investment in Mexico to be then able to re-export transfer into the United States and circumvent, obviously, the higher tax rates that China has and will have, obviously on the Trump administration.
So that’s going to be a big issue there.
LATAM FDI: Given the present panorama, what are the principal roadblocks to attracting investment to the region right now?
Mauricio Claver-Carone: Bankable deals. Bankable deals. And I said this recently: Costa Rica, which in a lot of the indexes for most attractive places for foreign direct investment, had the number one spot. Recently, this last year went down to the number three spot. Understandably, the Emirates now has the number one spot. But why did Costa Rica go down? Is it because they’ve done something wrong on the fiscal or macro side, or have the rules changed? No, they haven’t. It’s been the current government, President Chávez, with an S. I call him Chávez the Good. President Chávez has done a great job and has continued to feed that pro-business friendly environment, and investment is still very attractive there. The reason it went down two slots is because of bankable deals. There’s not that many good bankable deals. So, what is the biggest challenge? It’s a capacity issue. It’s really about putting these good bankable deals together for investors to look at and do so. And that’s true. As I look at this, I think about América Grecia because it’s full circle here. That’s the problem that we’ve seen in the region. Because of the lack of global private investors on the US side and a private equity culture in areas other than Brazil, these bankable deals are hard to come across notionally, I mean, fully packaged.
Notionally, they’re there, but you have to package them. The reason is that it’s become a region that has become so dependent on multilateral state-pushed political lending with antiquated instruments that there’s been a setback regarding how to originate and put these deals together that will be attractive to private investors. Then that goes to the notion of, Okay, what was América Crece, and what was the comparative advantage? Okay, the capacity building to put these deals together, pass them off, etc., and the private sector. There’s nothing like private-sector financing. It ensures that deals are agile and that they get done. When I was President of the Inter-American Development Bank, the number one, the largest lender in the region by far, unfortunately, the number one thing US investors would ask me is, Can the bank get out of this deal? Why? Because the lending instruments are wholly antiquated. They do 10-year plus loans and long-term loans. The derisking is wholly not thoughtful because it hurts returns in that sense. It has a whole bunch of contingencies. It’s all lending. There’s no culture of equity to it.
It hurts the agility of creative financing or projects not only to get done but also to get done and add value—so, value-producing, value-added, value creation, and then bringing in other investors. The only people that can do that are private investors. That’s why one of the things we’re trying to do through the Lara fund is also introduced, other than Brazil, where it exists, this whole notion of private equity exists. The region is used to traditional debt financing. Debt financing is excellent, but the incentive for value creation diminishes. The culture that exists is mostly these family office structures throughout the region. Then they’ll invest in deals, and they do so. However, the notion of private equity investors coming in, taking a piece of the business, helping create value, and then bringing in other investors is part of the motor of the US economy. That’s what the region needs and needs to see more of. We’re now Lara Fund, a pioneer of this. América Crece was an initiative to incentivize private investment from the US and the region. Multilaterals, and I hear it a lot. When I was in government, I thought maybe the DFC or the multilaterals could do so and incentivize these private sector investors and private investors to come in and do so.
It is the opposite. They tend to crowd them out because they kill a lot of the incentives and then because they kill the returns. It would help if you had bankable deals with healthy returns so that these investors come in, do essentially creative financing to create value, then for the new investors to come in and then wash, rinse, repeat; that’s how investment works, and that’s how economies grow. That’s what we’re trying to innovate. If the America Crece Initiative 2.0 comes down, Lara Fund will be in a perfect place to take action. People ask me all the time, Hey, government versus private sector. Look, I’ve done it in government. I’ve had the privilege of serving in the Treasury Department. I had the privilege of serving in the White House. I was a US Representative to the IMF. I then became President of the Inter-American Development Bank. I’ve done that. I’ve talked the talk. I’ve talked about investment in the region. You put out a glossy brochure and a nice press release, you do the handshake, and the politicians love it. Oh, this bank is going to loan so much to this country. Great. But guess what? You’re not producing value in the country per se.
Now, through Lara Fund, I’m walking the walk. We’re doing everything we discussed in the countries where opportunities exist. That’s what we seek. And guess what? The goal for the other global investors is for them to come in and follow because we know how to get this done.
For the immediate future, given all that you’ve just said, what do you see in Latin America in 2025?
2025 is going to be an exciting transition year. I told you already, from the challenges part, what I see from a foreign direct investment perspective, if you look at Mexico right now, I have concerns because where you’re seeing, Mexico has done everything in the last six, seven years, has done everything to disincentivize foreign direct investors. And yet, the US investors that have gone into Mexico have done so because of proximity. Most global investors and companies have gone in because of the supply chain, proximity, etc. China has taken that in the last four years and tried to exploit it, and it’s now becoming systemic, where I think that’s a big issue that we’re going. That’s what I have to deal with, and obviously, the new Trump administration will have to deal with it. But that trend there doesn’t necessarily then people think, and this is a question I get a lot, but then I talk to a lot in regards with the institutional investors, It’s like, okay, well, if they don’t invest in Mexico, are they going to look then at another country in the region?
Are they going to look at El Salvador? Are they going to look at Costa Rica, et cetera? The answer is no. The answer is they will look right here in the United States. They’re going to go where you are, Steven, in Arizona. But they’re going to go right here in the United States. Look, in 2020, when I ran for president of the IDB, I did so on a nearshoring platform. When COVID hit, China was an irresponsible actor during that phase. Economically, they were struggling, and they still are struggling. It was an excellent opportunity to promote the whole concept of nearshoring. And instead of embracing it, they fought me on it. Mexico, the Mexican government fought me on nearshoring. The Argentine government fought me on nearshoring. They said it was geopolitics. I was carrying the US flag. It was all politics, et cetera. Now, the story I see is all these countries in the region complaining that they haven’t seen the benefits. They have yet to take advantage of the benefits of nearshoring. And guess what? They had the opportunity. And now the clock has ticked.
But what’s happening? The alternative is not nearshoring to another country. The alternative is reshoring to the United States and doing so right here. And look, that’s going to be a priority for President Trump. That just is. We want to invest right here in the United States. There are great opportunities throughout. Still, I do not believe that if an investor does not go into Mexico, they’re going to go to Costa Rica, or they’re going to go to Guatemala, or they’re going to go to El Salvador. They’re going to come right here to the United States. Each country has to figure out its comparative advantage and what those opportunities are within and not think that this is just like, ” Oh, someone has allocated so much for this emerging market, and it will flip off. The difference for 2025 is that countries compete with the United States for investment.
LATAM FDI: That’s good to hear from an American perspective.
Mauricio Claver-Carone: Absolutely. But that’s also an opportunity. That’s also an opportunity. This is why I advocate modernizing trade agreements. This is an opportunity for countries in Central America to avoid getting comfortable with their economy being based on exporting a limited number of product lines to the United States. You have to diversify. You have to seek how to create. Look, it’s no secret that the big… Look at the big growth companies in the region. Some of the largest companies in the world, public-wise, et cetera, and growing-wise, are coming from the region. But what are they? Fintech, e-commerce. Why? Because they’re skirting the government. They’re just creative. They’re innovating and creating value through the digital ecosystem. That’s great. Now, you need an infrastructure to support that, which is where, for example, our fund is and where we focus. We focus on industrial assets, we focus on data centers, and, obviously, on the energy side that is needed to power that whole ecosystem. But finding what the comparative advantages are per country, the opportunities there are not only going to make those countries stronger, but they’re going to make the commerce between those countries in the United States even stronger per se, and not rest on your laurels, not think like this is.
Real competition and competition in a free market world makes people better. So that will be the challenge, but that brings a great opportunity. In so doing, do not think that people will pour into your country, considering that this is a privilege. I will invest billions of dollars in this deal because the government tells me it’s good. No, they want to find bankable deals that are well put together, have good terms, have good partners and sponsors, and check all the boxes. You’re now competing for investment with Arizona, the state of Florida, etc. You’re now competing with investment in steep deals. For that, you have to be sharper. And that exists because I always see those deals and those things in the region. And they’re hard to find, but they exist. And when you find them, they’re great opportunities. The returns are great. You can’t deny that. That’s important. Returns are essential for investors. That’s the comparative advantage that the region has, as opposed to the greater returns in the area than they’re going to be here in the United States.
Use that to your advantage. Don’t look at, Oh, How do we derisk everything so no one wants to take risks? Well, then that’s how then you get stuck with the crappy multilateral 10-year debt financing arrangement, which crowds out any other investors—got to get out of that mindset. Innovate, create, and find those opportunities. Frankly, that’s what we’re doing. If it didn’t exist, we wouldn’t be doing it.
LATAM FDI: Given that statement, you’ve got public sector experience. You’ve alluded to your company, the Lara Fund, on several occasions in this conversation. Can you give us an overview of your company, its length, and what you’re looking to achieve ultimately?
Mauricio Claver-Carone: Yes. As I mentioned, We’re the first and only US private equity fund focused on those middle markets in the region. We see those opportunities out there, particularly in these industrial assets throughout the region, the data center field, the digital asset field, and the energy, right? That’s the key. These countries have great opportunities. They have great business environments. We’re trying to help them shine amongst the competition in emerging markets, per se, but also for the comparative advantage for US investors looking for good returns in safer countries per se. What we don’t and are trying to do in these countries differs from the Lara Fund. Lara Fund is learning from the experience of institutional investors in the region, which, if you ask them, most of it is in Mexico and Brazil. If you ask them how they lost money, they mostly have lost based on the currency, which is a considerable challenge and currency risk. We don’t take currency risk. We do dollar deals. We do them. We prioritize dollarized or pegged countries where you don’t have to take that currency risk or in countries that do dollar deals.
That’s big. That’s important because hedging currency is expensive. It’s doable, but it’s costly. As history shows, that’s usually where investors take a hit. We’re taking that off the table to reduce the risk in the countries we seek to invest in. The institutional risk is low, particularly compared to other emerging markets. Then, it’s really about operational risk. If you have a good deal, good sponsors, and good partners like Lara Fund, the opportunities exist, and they’re there. There. So, we’re focused on that, and we’ve been off to a year of growth, and it’s been fantastic. We saw that our thesis was correct. We’ve seen over $2 billion worth of deals in the region, most of which are good, and you have to decipher, but there’s a lot more. And that’s just been in a starting phase. Now, there’s a lot of momentum taking place and a lot of excitement regarding new investments. We’ve been talking a lot about the America Crece Initiative. If there is an America Crece 2.0, I would highly advocate for it. Many people who served in the first term would highly advocate for it because it was extraordinarily successful. It did give the United States a comparative advantage over the Chinese
We’re extraordinarily well-positioned to walk the walk. We’ve talked to talk. We know what works. We know what doesn’t work. We know that doing it through DFC has its limitations. There’s going to be a battle for reauthorization of the DFC now. It’s already capped. There’s going to be a battle for reauthorization. It will take a long time to fix much of the damage currently done to the DFC, where it’s become a mini USAID, and that’s no offense to USAID. It’s just that the role of DFC was never supposed to be that of USAID. So, there’s a lot of fixing that’s going to take place. That’s going to take time. The multilaterals need to be updated. Their instruments have perverse incentives and are relics of the 20th century. There, That’s limited as well. You have to walk the walk with the private sector, and we’re leading the way in that regard. I’m proud of the work we’ve done. I think we’re starting January. We’ve been in a growth phase, a high growth phase. We’re going to be in for a higher growth phase.
This is to redefine global investment in Latin America and the Caribbean and to show international investors that high-quality bankable deals with great returns and limited risk exist in these regions, and we’re leading the way.
LATAM FDI: We’ve covered a wide range of information during this short period and found that listeners who listen to our podcasts have questions after hearing them. They asked how to contact the people joining us in these sessions. Mauricio, if somebody wants to contact you to ask you a question that may have come up due to what you’ve just spoken about, how do they go about doing that?
Mauricio Claver-Carone: Our website is www.larafund.com, so L-A-R-A stands for Latin American Real Assets.
LATAM FDI: If it’s okay with you, I’ll do the same for all the other guests. If you have a LinkedIn page, I’ll link it to it on the transcript portion of the page hosting this podcast.
Mauricio Claver-Carone: Thanks, Steven. And thanks again for everything you do regarding FDI and LATAM. You’re a key voice, so we appreciate and follow you.
LATAM FDI: I appreciate the compliment. I hope you have a wonderful day. Take care of yourself, and hopefully, we’ll have you back for another conversation soon.
Mauricio Claver-Carone: I look forward to it.