Argentina: Keeping up with the Chavezes?
There is word of more capital destruction in South America. 聽It鈥檚 hard to keep up with the听颁丑补惫锄es, but down Argentina way, President Cristina Kirchner announced that her government is seizing a majority stake in oil company YPF SA, owned by Repsol YPF of Spain, the largest oil company in the world.聽The New York Times reports from Rio De Janeiro,
The expropriation would reassert state control over an important pillar of Argentina鈥檚 economy, but it has already increased diplomatic tensions with Spain and the European Union. Mrs. Kirchner quickly ousted Sebasti谩n Eskenazi as YPF鈥檚 chief executive, naming two top aides, Julio de Vido and Axel Kicillof, to run the company.
Argentina鈥檚 government founded the company in the 1920s and it was then privatized in the 1990s. 聽She says the taking of YPF is a 鈥渞ecovery of sovereignty and control.鈥� She said the move would allow Argentina to raise production, after the country recently became an energy importer.
The people of Argentina are all about the seizing. 聽Because of price caps and other regulatory uncertainty, supply is not keeping up with demand. 聽The government has pressured YPF to increase production and threatened to revoke its oil field concessions, but the price caps make increased production uneconomic.
However, Kirchner鈥檚 deputy economy minister, Axel Kicillof, told the Senate, 鈥淚t鈥檚 a common practice of the producer [or] exporter that he holds back production, the treasure, because they have a chance to obtain a higher price,鈥�
Kicillof has a doctorate in economics from the University of Buenos Aires, where he won a faculty prize in 2006 for his thesis on John Maynard Keynes鈥檚 famous work, 鈥淭he General Theory of Employment, Interest and Money.鈥�
So it鈥檚 not surprising that in his testimony to the Senate, he included, 聽鈥漌hen there鈥檚 a crisis, the worst thing that can be done is to say the state is the problem. The state is the solution. When there is recession and economic crisis, the state becomes a key actor to revitalize demand and investment.鈥�
There鈥檚 already too much government mucking things up in Argentina, but the 40-year-old minister, described as 聽鈥滱ttractive, good dad, geek and brain behind the expropriation of YPF,鈥� provides the thinking behind 聽Kirchner鈥檚 imposition of new restrictions on foreign-currency transactions and tightening of import controls. In her prior term, she nationalized private pension funds and the flagship airline.聽 鈥淲e鈥檙e giving YPF to the same kids who bankrupted Aerolineas,鈥� quips Congressman Omar de Marchi.
YPF thinks it鈥檚 only fair that the government pay $10 billion for the majority stake, but Mr. Kicillof, according to the Wall Street Journal, 鈥渟coffed at that figure, saying compensation determines on what a federal tribunal decides after it evaluates YPF, including possible environmental damage. 鈥楲et鈥檚 see what we will find when we open the black box,鈥� he said.鈥�
So what are the prospects for investment in Argentina?
鈥淚 worry less about Apache鈥檚 operations in Egypt than in Argentina,鈥� said Fadel Gheit, a senior oil analyst at Oppenheimer & Company in New York. 聽鈥淭he oil industry in Argentina is just getting ready to take off, but this may be a way to kill it in its infancy.鈥�
鈥淵ou have to be clever to do business in Argentina,鈥� Federico MacDougall, an economist at the University of Belgrano in Buenos Aires told the NYT. 鈥淚t was hard to do business in Argentina before. Now it is even harder.鈥�
Capital goes where it鈥檚 treated best. 聽When the capital leaves, the people are left to starve.
