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“¡Exprópiese, che!”

April 17, 2012

It’s been a rather exciting, emotionally-charged couple of days for Argentine President Cristina Fernandez de Kirchner.

After storming out of a meeting during the Summit of the Americas yesterday when it became clear that there would be no declaration in support of Argentine claims to the Falkland Islands, Kirchner (often referred to simply as “CFK”) announced today that her administration intends to expropriate YPF, an oil company currently controlled by Spanish firm Repsol.

The plan seems to involve expropriating a total of 51% of the controlling shares. That 51% will be further divided: 51% of the newly expropriated will be under the control of the federal government while the remaining 49% will be split up between Argentina’s oil-producing provinces.

According to MercoPress, beyond that, the plan seems specifically designed to protect the interests of the Argentine-owned Petersen Group, which will retain its 25.5%, and the 17% that’s up for grabs in the Buenos Aires, New York, and Madrid stock exchanges.

In fact, it seems as though the real loser here will be Repsol, which will go from its current 57.4% of shares to a measly 6.4%.

In case you’re wondering what happens to investor confidence when a president nationalizes a foreign company, here’s what it looked like at the NYSE closing bell:

(Courtesy of Yahoo! Finance.)

The sharp cut off is a reflection of American depositary receipts being halted right around 1:30pm EDT today, after falling a little over 11% to $19.50.

The decision comes at a time when Argentina has already been criticized for protectionist tendencies. In bilateral meetings with Kirchner on April 9th, Uruguay’s José Mujica presented a plan that would alter trade restrictions under Mercosur to lower the impact of Argentine and Brazilian protectionism on the two smaller Mercosur nations, Paraguay and Uruguay.

However, the Wall Street Journal points out that Argentina is the only major country in Latin American that doesn’t have “a significant state presence in the oil industry.” Mexico, Venezuela, Colombia, Peru, Bolivia, Chile, Brazil, and Uruguay all have their own state-run firms in oil and gas. The article quotes CFK as saying, “We are the only country in Latin America that doesn’t control its own energy policy.”

The party line, at this point, is a sort of refined sense of nationalism. MercoPress provides Kirchner’s explanation:

We do not choose a nationalizing model, but we promote a model focused on recovering the sovereignty of the country’s resources.

CFK has also implied that this is what her late husband, Néstor—who graciously stepped aside to allow her to run for president, instead of running for reelection—would have wanted, as he had always been a supporter of the “Argentinazation” of YPF.

Understandably, Spain has already announced that while no specific decisions have yet been made, they will “respond appropriately” to this matter.

Spanish Minister José Manuel Soría had already cautioned the CFK Administration last week that any action taken against a Spanish company would be interpreted as a hostile gesture, reiterating that Spain will defend the interests of its businesses at home and abroad. He spoke with confidence that the EU will support Spain.

The Economist—which got burned slightly in February by the government’s “official statistics” on Argentina’s inflation rate—asserted that since the Kirchners “had already ruined Argentina’s reputation as a safe place to do business long before the nationalisation of YPF,” the long-term economic ramifications remain unclear.

One thing, however, that is clear would be Liam Denning’s observation over at WSJ blogs: “In the oil industry, it isn’t curiosity that kills cats – it’s nationalization.”

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4 Comments
  1. This explains why CFK is so pushy about the Falklands. It is said that there are important oil reserves there.

    • That explanation certainly stands to reason.

      Interestingly enough, the CFK Administration is using the same unique flavor of nationalism to explain the Falklands issue: “We have to take back what should be ours.”

      We’ll see how all of this plays out, but I fear that the Argentine model will end up looking less like Mexico or Brazil, and more like Venezuela.

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