The Blue Voice

«Home | Next: Barry Goldwater and segregation»

Friday, April 20, 2012

Business press struggles with the YPF story

I'm fascinated to see how the business press is reacting to Argentine President Cristina Fernández' proposal to take control of 51% of the YPF oil company, which is currently controlled by the Spanish-based multinational Repsol. Argentina is one of the countries that has serious - and so far successfully - challenged the neoliberal/Washington Consensus economic policy prescriptions over the last decade. How the business press responds to actions like the YPF nationalization says a lot about the ideological outlook they take.

Roben Farzad in Argentina Tries the Chávez Way Bloomberg Businessweek 04/17/2012 takes a more frivolous approach:

It's hard to believe now, but in the early 1980s, Argentina was perhaps the most promising and talked-about emerging market. Coming off the trauma of its Dirty War and military dictatorship, and its disastrous invasion of the Falkland Islands, democracy finally took root in 1983. Endowed with abundant natural resources, endless tracts of fertile land, and half-decent infrastructure, the then-167-year-old country projected upside to the investor community.

But Argentina regressed. In late 2001, as its economy collapsed, the country defaulted on $100 billion in debt and nationalized several enterprises. Argentina has since been a pariah state among international creditors. At the World Bank’s International Centre for Settlement of Investment Disputes, Argentina has more disputes pending against it than any other nation. Since 2003, rulers Néstor Kirchner and wife Cristina Fernández de Kirchner have nationalized $24 billion in private pensions and raided $6.6 billion in reserves from the central bank to make debt payments.

Now, Cristina Fernández (a widow since October 2010 and reelected by a landslide a year later) is seizing control of YPF, the former national oil monopoly that since 1999 has been majority-owned by Spain’s Repsol (REP). On Monday, she delivered a fire-and-brimstone speech on TV that blamed foreigners for the energy shortages plaguing the country—a rationalization for what would be the largest natural resource re-nationalization since Russia moved to seize Yukos in 2003. Fernández decreed that Argentina’s minister of planning and public investment would immediately assume the reins at YPF.

I have the irresistible urge to unpack this particular ~~pile of hoo-hoo~~ piece of reporting. So I will:

It's hard to believe now, but in the early 1980s, Argentina was perhaps the most promising and talked-about emerging market.

That would have been under the leadership of President Carlos Menem, also still a member of Cristina's Partido Justicialista (PJ), the Peronist party. Menem was committed to neoliberal fundamentalism. His government privatized state functions like crazy and deregulated according the dictates of what became known as the Washington Consensus endorsed by the International Monetary Fund (IMF) and the World Bank. A man whose economic policies Angela Merkel would surely love. Those measures, along with Argentina's euro-like tying of their currency to the US dollar, crashed their economy spectacularly in 2001. Deregulation of the capital markets made Argentina particularly vulnerable to attacks by international financial speculators.

Coming off the trauma of its Dirty War and military dictatorship, and its disastrous invasion of the Falkland Islands, democracy finally took root in 1983. Endowed with abundant natural resources, endless tracts of fertile land, and half-decent infrastructure, the then-167-year-old country projected upside to the investor community.

Democracy first "took root" in Argentina in the early 1800s, but it would be fair to say that the roots were relatively weak ones. The country was plagued by a long series of military takeovers. But all of them were mild in comparison to the brutal military dictatorship of 1976-83, the worst Argentina and South America has ever experienced. It was that dictatorship that began the push for Argentina to adopt the aggressive neoliberal economic policies demanded by the IMF and the World Bank. Or, to use Farzad's phrase, the military dictatorship "projected upside to the investor community".

But Argentina regressed. In late 2001, as its economy collapsed, the country defaulted on $100 billion in debt and nationalized several enterprises.

They "regressed" because the neoliberal/Free Market/Washington Consensus policies insisted on by the US, the IMF and the World Bank failed miserably - for the people and national economy of Argentina. It worked well for financial speculators and for companies like Repsol that got to buy a majority in YPF and milk it as a cash cow for the benefit of their investments outside of Argentina.

In late 2001, as its economy collapsed, the country defaulted on $100 billion in debt and nationalized several enterprises. Argentina has since been a pariah state among international creditors. At the World Bank’s International Centre for Settlement of Investment Disputes, Argentina has more disputes pending against it than any other nation. Since 2003, rulers Néstor Kirchner and wife Cristina Fernández de Kirchner have nationalized $24 billion in private pensions and raided $6.6 billion in reserves from the central bank to make debt payments.

Or, to put it more briefly, Argentina stopped playing the neoliberal game after it had wrecked their economy. And they've been recovering nicely ever since. Countries like Greece, Spain, Portugal, Ireland and Italy are suffering from a similar disaster today that Argentina suffered in 2001. But they are following Angela Merkel's neoliberal prescriptions and it's wrecking their economies even more badly. The sooner they learn from Argentina's lessons, the better. They will no doubt be criticized by Bloomberg Businessweek when they do. But their people and their national economies will have a chance to improve that they won't get under Angienomics.

Now, Cristina Fernández (a widow since October 2010 and reelected by a landslide a year later) is seizing control of YPF, the former national oil monopoly that since 1999 has been majority-owned by Spain’s Repsol (REP). On Monday, she delivered a fire-and-brimstone speech on TV that blamed foreigners for the energy shortages plaguing the country—a rationalization for what would be the largest natural resource re-nationalization since Russia moved to seize Yukos in 2003. Fernández decreed that Argentina’s minister of planning and public investment would immediately assume the reins at YPF.

Nationalization is always a sin for the American business press. A "fire-and-brimstone" type sin, we might say.

They could have also used other examples of partially or fully state-owned oil companies, from Saudi Arabia, China, Venezuela, Mexico, Brazil and others. As The Economist reported in some detail earlier this year, the 13 largest oil companies in the world fall into that category. But since neoliberalism says that nationalized oil firms are inefficient, that must mean the world oil business is in a shambles, right?

Or, not. What it means is that Argentina has rejoined the list of countries that consider oil and gas production such a critical national resources that they choose not to leave it to the whims of the Great God Free Market. One leader who expressed such a sentiment in 2008 was Mariano Rajoy, currently the conservative Prime Minister of Spain, who said, "Nuestro petróleo, nuestro gas y nuestra energía no se pueden poner en manos de una empresa rusa, porque eso nos convertiría en un país de quinta división." ("Our oil, our gas and ourenergy can't pass into the hands of a Russian firm, because that would convert us into a fifth-rate country.") His concern then was that the Russian oil company Lukoil might buy shares in Repsol. Now, Rajoy is loyally defending Repsol against Cristina's nationalization proposal while wrecking his own country's economy with the austerity economics demanded by Princess Angela von Merkel. (Hace cuatro años, Rajoy se oponía a la extranjerización de los hidrocarburos en España Télan 19.04.2012; Medios argentinos airean vídeos de Rajoy rechazando la entrada de Lukoil en Repsol El País 20.04.2012) Here's Rajoy back then holding forth on the need for sovereignty in energy matters (in Spanish), Rajoy exige que se impida la entrada de Lukoil en Repsol Libertad Digital Televisión 22.11.2008:

Farzad does get around to some relevant information about the case of Argentina and YPF: "In 2011, for the first time since YPF was privatized in the early 1990s, Argentina became a net importer of natural gas and oil. The government there blames Repsol for starving YPF of investment in order to pay out shareholder dividends."

Then he takes another shot at Cristina: "This month, on the 30th anniversary of the war over the islands Argentina persists in calling Las Malvinas, she has been thumbing her nose at London." Actually, Argentina generally has persisted in calling the island the Malvinas since, you know, Britain occupied them illegally in 1833. But Farzad treats it as an arrogant quirk of the current President.

Xavier Vidal-Folch offers refutations of the Argentine government's charges about the business inadequacies of YSP under Repsol's ownership in Repsol ¿fiera predadora? El País 19.04.2012. But at best it's a sloppy analysis, in which he doesn't make at all clear the sources of his counter-claims. And the arguments are fairly slippery. He makes the point that only 50 of YPF's employees are Spaniards, but so what? I haven't noticed Cristina's government arguing that too many of YPF's employees were Spanish. He also claims that Repsol is the largest investor in Argentina, but based on what? The market value of the shares they bought in YPF? The point of the Argentine government's criticism of Repsol-YPF is that they haven't invested sufficiently in exploration and development. Vidal-Folch addresses that arguments, but also in a very unclear way. He also seems to basically think the issue of dividend payouts is an irrelevant issue to anything else, that it stands alone separate from any question of what the company is delivering to Argentina in terms of development and exploration.

Ben Sills and David Voreacos report for Bloomberg on the agreement between Repsol and YPF's second-largest owners, the Petersen Group, which is controlled by Argentina's Eskenazi family: Repsol Required to Buy Eskenazi YPF Stake 04/20/2012. There is likely to be a legal fight over Repsol's commitments to the Petersen Group.

Like several reports I've seen, Sills and Voreacos make a particular point that the Eskenazi family's investment in YPF was backed by former President Néstor Kirchner, Cristina's late husband:

The Eskenazis made their fortune in banking and construction, buying 15 percent of YPF from Repsol in 2008 in a deal backed by then-president Nestor Kirchner, the late husband of Fernandez. The acquisition was financed with a syndicated bank loan and a seller’s note from Repsol. The Eskenazis bought an additional 10 percent of YPF in 2011 with two similar loans.

Tags: argentina, axel kicillof, cristina fernández, mariano rajoy, spain, ypf

posted at 1:21:00 PM by Bruce Miller

| +Save/Share | |