Argentina's President Takes It on the Chin for Placing Her People's Needs Over the Markets
To say that the response of the editors of the Financial Times to Argentina’s renationalization of a major energy company bordered on the hysterical would be an understatement. They called it “A shabby act of economic piracy,” adding that the country’s President Cristina Fernandez de Kirchner’s action suggests she is, indeed, a “hoodlum,” and an” increasingly shrill president” who has committed “a shabby act of economic piracy,” and warned that she “is placing herself in the same camp as Venezuela’s capricious leader, Hugo Chavez” and “should not be allowed to forget that actions have consequences.”
Meanwhile, on the front page of the same edition in which these accusations appear there appeared an intriguing report.
“Repsol tried to sell a controlling stake in its Argentinean oil company to a Chinese energy group before it was nationalized by Buenos Aires, according to two people familiar with the talks,” reported Miles Johnson from Madrid, Jude Webber from Buenos Aires and Anousha Sakoui from London. “The secret attempt to sell its 57 per cent interest in YPF to the Chinese buyer, which one person involved identified as Sinopec, broke down after the Argentinean government announced on Monday that it would expropriate 51 per cent of the company. Repsol wanted more than $10bn for its stake and did not advise Buenos Aires of the discussions with Sinopec, which the Spanish group hoped to finalize before seeking formal endorsement from Cristina Fernandez, Argentine president.
“The Argentinean government holds a golden share in YPF and any deal would have required state approval. Sinopec holds 40 per cent of Repsol’s Brazilian operations. Repsol declined to comment. Sinopec could not be reached for comment.”
That’s right. The Spanish oil company moguls were negotiating behind the back of the Argentine government to sell Repsol’s stake in the in the country’s energy industry to a third party. They planned to let Fernandez know only after the deal was cinched.
Actually, it wasn’t much of a secret. On April 17, Caixin, the Chinese Financial news service, reported that its source said Sinopec was engaged in talks to buy the Argentine oil and gas company for $15 billion. Caixin said “Sinopec intended to acquire all the shares owned by Repsol, whose board of directors supported the deal, the source said. The deal would need to be approved by authorities in Spain and Argentina.”
“In recent weeks, the relationship between YPF and the Argentine government has been strained. The government headed by Cristina Fernandez de Kirchner has blamed YPF for a lack of investment in the sector, leading to shortages of refined oil,” said Caixin.
The report said Sinopec, China's second-largest oil company and Asia's largest petroleum refiner, “sees huge potential in the oil blocks owned by YPF in Argentina and is confident it can meet the requirements of Kirchner's government to speed up exploration, a second source familiar with the situation said.”
On April 18 the Buenos Aires Herald said Sinopec spokesperson, Huang Wensheng, “came on stage to play down rumors indicating that Argentina's move to nationalize local oil company YPF, controlled by Spain's Repsol, has spoiled years of planning by Sinopec to buy the energy giant.”
“We don't comment on market rumors,” Wensheng said.
The YPF nationalization appears to have killed Repsol’s not-so-secret plan to leave Argentina altogether.
Strange as it may appear, the Chinese connection to the Repsol story has been virtually absent from the major U.S. media. It’s hard to say whether the Times’, Posts and Tribunes didn’t know about it, chose not to reveal it, or didn’t somehow think it important.
The Financial Times returned to the subject April 19 in the concluding paragraphs of a snarky commentary by John Gapper, the paper’s associate editor and chief business commentator. It read: “In the long run, Argentina may get another outsider to fill the gap it has just created – perhaps a Chinese company such as Sinopec, with which Repsol was negotiating a deal before Ms. Fernandez struck. But the price that any multinational will demand to compensate for the political risk will be high.
“If a country is going to indulge in resource nationalism, it should at least act rationally. Ms Fernandez has not.”
Outgoing World Bank President Robert Zoellick, in an interview with Bloomberg Television, branded Argentina an “outlier” in Latin America, but noted the same “populist” pressures that led the government to take control of YPF and close off the economy “are prevalent around the world.”
“The U.S. has been stepping up pressure on Argentina,” reported Bloomberg.
“Last month, President Barack Obama suspended trade preferences for the country in retaliation for the government’s failure to pay damages owed U.S. investors, including Houston-based water utility Azurix Corp.” (The Azurix case is being championed by Rep. John Culberson [R- Texas], a far right winger and a co-sponsor of a bill linked to Obama citizenship conspiracy theories. On March 26, in an unprecedented action, Obama suspended trade agreements with Argentina in support of the Azurix claim and a similar one by Blue Ridge Investment, a subsidiary of Bank of America.)
“While it’s unclear how Spain will respond to Argentina’s action, it’s possible that they could try to censure the country at the G-20, IMF or the World Bank,” Bloomberg news service reported April 19. “Spanish Foreign Minister Jose Manuel Garcia-Margallo said today that his government would coordinate any action with the U.S., Deutsche Presse-Agentur reported, citing comments by the diplomat following a meeting in Brussels with Secretary of State Hillary Clinton.
“The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press,” wrote Economist Mark Weisbrot in the Guardian (UK) April 18.
“We have heard all this before,” continued Weisbrot. “When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, and the economy would spiral downward into deeper recession.”
“Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere,” wrote Weisbrot. “Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled.
“All this is probably why Cristina Kirchner was re-elected last October in a landslide victory.”
“Of course this success story is rarely told, mostly because it involved reversing many of the failed neoliberal policies – backed by Washington and its International Monetary Fund – that brought the country to ruin in its worst recession of 1998-2002,” wrote Weisbrot. “Now the government is reversing another failed neoliberal policy of the 1990’s: the privatization of its oil and gas industry, which should never have happened in the first place.”
“Most of the world’s oil and gas producers – from Saudi Arabia to Norway – have state-owned companies,” wrote Weisbrot. “The privatizations of oil and gas in the 1990s were an aberration – neoliberalism gone wild. Even when Brazil privatized $100 billion of state enterprises in the 1990s, the government kept majority control over Petrobras.
“As Latin America has achieved its ‘second independence’ over the past decade and a half, sovereign control over energy resources has been an important part of the region’s economic comeback. Bolivia re-nationalized its hydrocarbons industry in 2006, and increased hydrocarbon revenue from less than 10 percent to more than 20 percent of GDP (the difference would be about two-thirds of current government revenue in the United States). Ecuador under Rafael Correa greatly increased its control over oil and its share of private companies’ production.
“So Argentina is catching up with its neighbors and the world, and reversing past mistakes in this area. As for their detractors, they are in a weak position to be throwing stones. The ratings agencies are threatening to downgrade Argentina. Should anyone take them seriously after they gave AAA ratings to worthless mortgage-backed junk during the housing bubble, and then pretended that the U.S. government could actually default? And as for the threats from the European Union and the right wing government of Spain – what have they done right lately, with Europe caught in its second recession in three years, nearly halfway through a lost decade, and with 24 percent unemployment in Spain?”
“It is interesting that Argentina has had such remarkable economic success over the past nine years while receiving very little foreign direct investment, and being mostly shunned by international financial markets,” continued Weisbrot. “According to most of the business press, these are the two most important constituencies that any government should make sure to please. But the Argentine government has had other priorities. Maybe that’s another reason why Argentina gets so much flak.”
Time magazine reported” "This president is not going to answer any threat, is not going to respond to any sharp remark, is not going to echo the disrespectful or insolent things said," Fernandez said to applause from business, union and political leaders at an official event announcing the proposed law. "I am a head of state and not a hoodlum."
"We are the only county in Latin America, and I would say in practically the entire world, that doesn't manage its own natural resources," Fernandez said. She said her proposal "is not a model of statism" but "the recovery of sovereignty."
In recent days, every effort has been made by the Western mass media to portray Argentina as week, irresponsible and now isolated internationally. The picture won’t wash. Fernandez’s decision to renationalize the country’s energy company has met with sympathetic response Latin America.
"I don't like the arrogance of rich Europe's response," said Uruguayan President José Mujica, adding that the company should never have been privatized in the first place.
Carl Bloice, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism, is a columnist for the Black Commentator. He also serves on its editorial board.