In the grip of commercial euphoria, Spain is up for sale. Foreign investment fuels boom as economy gets ready for a busy 1992

Take a walk along Madrid's spacious business avenue, Paseo de la Castellana, and a whole new Spain seems to be growing. The more humanly proportioned turn-of-century buildings have given way to the usual mixture of rust- and gray-colored, laminated glass and concrete towers familiar in any international business center. A visitor to one of these palatial offices is immediately gripped by a kind of collective commercial euphoria. Everyone is talking about mergers, restructurings, and takeovers. Spain is changing. Spain is booming, and Spain is up for sale.

All the fuss is aimed toward 1992. That's when Spain completes its transition as a member of the European Community. The same year marks the beginning of the unified European market, where tariff barriers are supposed to disappear between EC members. The year will also see the Olympic Games in Barcelona and, in Seville, a trade fair to celebrate the 500th anniversary of the discovery of America.

``I sometimes wonder what we are all going to do on the first of January 1993,'' said Javier Barcaiztegui, managing director of Spain's largest insurance broker, Gil y Carvajal. ``I suppose we are all going to be very sad.''

In the intervening period, Spain has to modernize its industry and commerce to make it competitive in the new market. The present boom, says Jaime Requeijo Gonz'alez, a member of the board of directors of Banco Zaragozano, a medium-size bank, is due to a combination of factors. Economic conditions began to change in the transition to democracy in the late 1970s, prompted by growth internationally, says Dr. Requeijo. The economy has been improving since 1983, and growth has been even faster since the beginning of 1986, when Spain became an EC member.

Foreign investment has been fueling most of the boom. Latest figures from the Ministry of Economy and Finance say that in 1987, about 2.2 trillion pesetas ($19.8 billion) flowed into Spain from abroad, double the previous year's level. Spanish industry has been growing at 4.7 percent annually, nearly three times the rate of Spain's EC partners.

Such growth prompted the government to raise interest rates last year, which now stand at 14 percent, in an effort to contain inflation, now about 5 percent. But government and business officials expect the growth to continue.

``I should think we have several years of rapid growth to come,'' Requeijo says. ``Spain has to adapt its economy to the prevailing European conditions, and that means foreign investment. Things are going to move all the time.''

The result of the foreign investment has been a doubling of real estate prices in Madrid; an increase of foreign ownership of businesses like food and insurance, to more than 50 percent in some instances; and the introduction of the corporate raider. For many businessmen, this is just part of the new order. ``If you accept that foreign money will come into the Spanish economy, then you have to put up with the consequences,'' Requeijo says.

In fact, few people in Spain object to the presence of foreign money. On the contrary, it is welcome after the kind of isolation the country lived under during the Franco years. The trade unions are concerned that the dramatic change Spanish industry is seeing might result in even more unemployment in a country that has 3 million, or 20 percent of the labor force, out of work. Leftists have criticized the government for what they say is allowing speculators to dictate the country's future.

During a ``state of the nation'' debate in the parliament last month, Prime Minister Felipe Gonz'alez defended foreign investment. ``Without investment, there would be no increase in employment,'' he said.

The top foreign investors come from other EC countries, the United States, and Japan. Bankers say many non-EC countries are eager to get a foothold in the Spanish market before 1992, when EC investors will have preference, and are thus adding to the boom.

One of the industries that is changing dramatically is insurance. In a country where insurance has been traditionally ignored as an unnecessary expense, Spain's obligation to adapt its insurance rates to EC norms has spurred massive growth. Thus Spanish insurance companies have become a prime target for foreign predators.

``Foreign investors have been paying prices that have nothing to do with the value of the companies,'' says Leon Benelbas, director of insurance at the Ministry of Economy and Finance. ``They are doing this just to get an introduction to the market.''

A mere North American, Dutchman, or Japanese who buys into Spanish industry is hardly the stuff of banner headlines in Spain. This is reserved for speculators and corporate raiders. And when there is an Arab connection, as in two recent cases, a soap opera is born.

Since 1984, the foreign investment arm of the Kuwaiti Ministry of Finance, the Kuwait Investment Office (KIO), based in London, has been investing heavily in Spain. KIO now owns nearly a quarter of one of Spain's largest companies, Explosivos R'io Tinto (ERT), a petrochemicals, oil refining, and fertilizer concern. KIO has wanted to restructure the operations of ERT, much against the will of ERT's incumbent chairman, Jos'e Mar'ia Escondrillas.

Neither ERT nor the secretive KIO has taken great trouble to inform the press, but the KIO-ERT fight has been reported at great length in the gossipy Spanish press for almost a year.

Another case involves Spain's largest bank, Banco Central. Here KIO, together with two Spanish entrepreneurs, Alberto Cortina and Alberto Alcocer - known collectively as Los Albertos - are reported to have plans to take over Banco Central by the end of this year.

Meanwhile, the bank's chairman, Alfonso Esc'amez, is trying to merge his bank with any other in an effort to dilute the KIO-Albertos holding, now at 15 percent.

KIO and Los Albertos have reacted sharply against some of the press coverage in Spain, emphasizing that they are long-term investors, not speculators. This has failed to convince many bankers. One banker who has studied Arab investment in Spain, and particularly Kuwaiti investment, said that Arab money accounts for only about 5 percent of total foreign investment in the country. It comes in fits and starts, a very speculative pattern, not like European or North American money, which shows a steady trend.''

Concern that KIO could be speculating prompted the government to change some stock exchange rules last year. Previously, an investor was not required to declare an interest in any company after buying a certain percentage of shares. Now, an interest has to be declared when an investor has acquired 5 percent, and he must ask permission to buy more than 15 percent in any company.

Changing the rules for corporate raiders, however, hasn't done anything to stop the gossip. One banker observed that ``we have never believed that the Kuwaitis were anything else but speculators. But they are helping some Spaniards to acquire certain companies.

``What will be interesting is that once these Spaniards have achieved their ambition, what price are the Kuwaitis going to demand for their services?''

But despite the problems, both economic and those involving terrorism, the mood in Spain is distinctly optimistic. Javier Barcaiztegui, who - firmly but with an elegant flourish - describes himself as a Spanish Basque, says, ``We have been isolated since the Napoleonic wars. Let's forget about that and let's integrate. I'm sure we will do it.''