Tough Latin lessons

The reaction of the international investment community to the Argentinian crisis is crucial

Pictures of riots on the streets of Argentina's capital Buenos Aires in recent weeks will have confirmed the belief among most UK and international law firms that it makes sense to steer well clear of Latin America.The civil unrest, which was provoked by economic depression and unemployment, led to the downfall of two presidents last month.

And new president Eduardo Duhalde's 29% devaluation of the peso set off more riots, cementing the region's reputation for volatility.

Only a handful of foreign law firms have offices in the region, and events such as Argentina's currency crisis mean they are unlikely to be crushed by a stampede to join them.Nevertheless, it would be a mistake to tar the whole continent with the same brush, says Malcolm Caplan, co-ordinator of Baker & McKenzie's 14-office Latin American practice.

Despite Argentina's woes, he says there are still opportunities to build significant practices.'You need to break it down by countries,' Mr Caplan says.

'The economic circumstances tend to be different and as a result the nature of the practice in each country tends to be different.'Chile, for example, continues to be the star in our empire - they are active in every area, including mergers and acquisitions, trade, and the granting of concessions to build toll roads or new ports.'Other countries with good workflow include Mexico, which benefits from its membership of the North American Free Trade Agreement (NAFTA) with the US and Canada.Colombia, where there is a significant amount of mergers and acquisitions and banking activity, is also in good shape, although how long this continues may well depend on the outcome of President Andres Pastrana's ongoing peace negotiations with the Revolutionary Armed Forces of Colombia.In contrast Venezuela, in its time an extremely profitable place in which to do business because of its oil and gas industry, is in economic and political turmoil under the leadership of President Hugo Chavez.How each of the countries will be affected by the Argentinian crisis will not be known for some time.Linklaters' Brazilian managing partner, David Fenwick, suggests that it may actually prove to be beneficial to other Latin American countries, even those with trading ties with Argentina.'In a perverse sense it may be good for Brazil,' says Mr Fenwick.

'It has caused investors to look at and distinguish between the developing markets.'He points out that Brazil has fulfilled all its commitments to the International Monetary Fund in advance, whereas Argentina has consistently failed to meet them.

Chile and Mexico are also expected to suffer little, if any, fall-out.Such diversity of economic and political performance makes it hard for law firms to develop a practice that spans the whole region.Baker & McKenzie currently has by far the largest presence with 14 offices in six countries.The accountancy-tied networks, such as Andersen Legal and PricewaterhouseCoopers/Landwell, have made headway over the last few years and now have practices in a number of jurisdictions.Of the independent UK firms, Clifford Chance, Linklaters and Richards Butler have bases in Brazil, while Clyde & Co has an operation in Venezuela.Last April, DLA formed an Air Law Alliance with Romero Arteta Ponce, one of the largest firms in Ecuador.

The exclusive alliance acts as DLA's representative office in Latin America and provides a one-stop shop for post-accident legal liability work for the whole of Latin America.It is a similar story with US firms, even though Latin America is widely seen as their backyard.

Apart from Baker & McKenzie, major firms which have set up are White & Case in Brazil and Mexico, and Morrison & Foerster, which set up in Argentina in 1999 to exploit an expected technology and Internet boom.Those firms that have been adventurous enough to open in Latin American have distinctly different motives for being there.In Baker & McKenzie's case, the firm has been committed to the region for decades.

In fact, the first office to be opened by the firm outside its Chicago headquarters was its Venezuelan practice in 1955.For Linklaters, according to Mr Fenwick, it was a natural step to take on the back of the firm's corporate client base and its capital markets practice.'We are servicing the same clientele that we service in other parts of the world - the major corporates and the investment banks,' Mr Fenwick says.Nevertheless, he admits that the work done in So Paulo is mainly for Brazilian clients, and that the majority of its Latin American work continues to be handled either in New York - financing and debt capital markets - or London, where it is cross-border mergers and acquisitions, and project finance.For other firms, the practice developed almost by accident.

Stirling Leech, the partner in charge of Clyde & Co's Latin American practice, says the decision to open in Brazil in the early 1990s - becoming the first European law firm to set up a base in the region - stemmed as much initially from his own desire to build a practice there as from the firm's initiative.

'I would not say that Latin America is Clyde & Co's most important part of the world,' he says.

'It was me as an individual deciding that is where I wanted to work.'Mr Leech has subsequently built an 11-lawyer practice which focuses on contentious work, with particular strengths in insurance and reinsurance.

His team in London includes two English-qualified lawyers, and lawyers from Argentina, Brazil, Colombia and Mexico.'Obviously operating in such a region throws up its difficulties, such as clients being slow to pay, and it can be difficult to persuade colleagues it is worth it in the end,' Mr Leech says.

'But we have sought the most profitable work and, by and large, we have been successful.'However, there are several reasons to believe that the likes of Mr Leech will continue to be pioneers.

First, there is the question of whether there is enough demand for legal services to justify opening.

Alberto Tenaillon, head of Andersen Legal's practice in Argentina, maintains there are significant opportunities in the Latin American markets.

'There are a lot of things to do to make its economies competitive and sustainable,' he argues.

But he admits that there is less cross-border work than people might imagine.While there are cross-border investments between Argentina, Brazil and Chile, the majority comes from Europe and the US.

For this reason, the reaction of the international investment community to the Argentinian crisis is crucial.Some types of work, such as project finance, can be handled equally well by sending a team for a short but intensive period while the project is delivered.A second reason why firms are likely to stay out of Latin America for now is the question of relative profitability.This is something that is also brought into stark relief by a currency crisis, which inevitably makes it more difficult for some clients to pay their bills.As Bakers' Mr Caplan points out, the firm's top-rated Hong Kong office makes more profit than the whole of its Latin American network put together.Bakers' Argentinian practice, from being the star in Latin America two years ago, will 'probably be a disaster this year', Mr Caplan admits.With many UK and international firms facing the toughest conditions in their home markets for several years, the desire to take such a speculative step as opening in Latin America will unsurprisingly be diminished.Such resources as there are will more likely be allocated to the continuing process of building a pan-European practice.As Linklaters' Mr Fenwick says: 'There are only so many resources that firms have to apply at any given time.'Even the likes of global firms such as Freshfields Bruckhaus Deringer and Allen & Overy are therefore likely to continue to put Latin America low on their list of priorities, at least when it comes to establishing a physical presence.However, leading Spanish firms have not showed such reluctance to work in Latin America.

During the last three years, top practices such as Uria & Menendez and Cuatrecasas have all sealed alliances with leading firms in Argentina, Brazil and other jurisdictions.Uria's links with Marval O'Farrell & Mairal in Argentina, Philippi Yrarrazaval, Pulido & Brunner in Chile and Demarest & Almeida in Brazil have been singled out for particular praise.Meanwhile, Cuatrecasas has allied itself with another set of leading firms: Perez Alati, Grondona Benites, Arntsen & Martnez de Hoz in Argentina, and Machado Meyer Sendacz & Opice in Brazil.Although there have been claims that the Spanish firms can only operate a 'hand-holding' function for their clients in Latin America, in that there will be little actual requirement for Spanish law advice, these strategic steps have been well received locally.'Maybe they arrived a bit late in Argentina, but all the same there has been a great deal of work through these alliances,' says Andersen Legal's Mr Tenaillon.Whether most UK and US firms are continuing to miss a trick by ignoring Latin America remains to be seen.

As Baker's Mr Caplan points out, though profitability may be lower than elsewhere, its practice is the fastest growing part of the firm.Therefore, running a practice in such a volatile region may not be for the fainthearted, but for those prepared to take the risk, it could well pay off.Philip Hoult is a freelance journalist