European Union Trade Commissioner Karel De Gucht yesterday announced that Argentina may face retaliatory measures following the nationalization of Spanish energy giant Repsol’s majority stake in YPF, Argentina’s largest oil and gas company. De Gucht’s comments were delivered during a seminar in Brussels, Belgium, on “Strategic Challenges in the EU–Brazil Relationship.”
“We will soon be moving forward with a response to Argentina's action in the Repsol case,” said De Gucht, adding, “There has for many years been a debate about open markets in the region[…] In recent weeks, we have seen that debate heat up again with Argentina's move against a Spanish company's stake in YPF.” Although De Gucht did not specify what actions the EU is considering, any moves would presumably be in addition to the European Community’s plans to file a WTO complaint over Argentina’s alleged use of protectionist policies, such as the use of non-automatic import licensing for commonly traded goods.
On Friday, President Cristina Fernández de Kirchner signed into law the expropriation measure and named Miguel Galuccio as its chief executive. He promises to have a five-year plan ready within 100 days.
After much speculation, Argentine President Cristina Fernández de Kirchner once again proved she has the guts to move forward with a politically controversial government takeover. This time around Spanish oil company Repsol was the victim. In 2009, another Spanish company, Marsans, was forced to cede the Argentinean flagship airline to the government, and in 2008, $30 billion in private pension funds were nationalized.
Ms. Fernández announced a week ago that her government would expropriate 51 percent of YPF from Repsol, which would give the government control of the company. She cited insufficient investment resulting in energy scarcity as the reason for the takeover.
As with Aerolineas Argentinas' expropriation, the YPF takeover was popularly supported. The majority of Argentineans believe that the state should control strategic resources like oil. According to the consultancy Poliarquía, six out of every ten Argentines support the measure. This figure is lower than the 74 percent support rate reported by a government-friendly poll.
This public support, however, must not be confused with support of the government’s handling of energy policy. Indeed, according to polls, most Argentineans blame the government over YPF Repsol for dwindling hydrocarbon reserves. The public is aware how government price controls and fluctuating subsidies have distorted market forces and made necessary investments less attractive.
Top stories this week are likely to include: continued fallout over YPF expropriation; Leon Panetta to South America; Humala approves controversial mining project; and IMF warns of protectionism in Latin America.
Global Response to YPF Seizure: Repsol has threatened to take legal action against any company that invests in YPF SA, its Argentine subsidiary that was nationalized last week. This will complicate efforts by Argentine Planning Minister Julio de Vido to elicit investments in YPF. Beyond Repsol’s response, Argentine President Cristina Fernández de Kirchner faces continued condemnation from Spain and the European Parliament, which is looking at the possibility of imposing trade sanctions on Argentine imports. Petrobras, Brazil’s state-owned oil corporation, has pledged to expand cooperation with Argentina. Look for further official reaction from Europe this week.
Panetta in South America: U.S. Secretary of Defense Leon Panetta departs today for a five-day tour in South America, where he will visit Colombia, Brazil and Chile. A defense official reports that Panetta will stop in Bogotá to evaluate U.S.-funded Plan Colombia and discuss further measures to combat the Revolutionary Armed Forces of Colombia (FARC). Then, he heads to Brasilia and Rio de Janeiro to discuss potential military deals, including Embraer’s participation in a now-cancelled military aircraft contract for the U.S. effort in Afghanistan. AQ Senior Editor Jason Marczak notes, “Although the Embraer deal was worth less than $400 million, getting it back on track would be a huge plus for U.S.-Brazil relations.” Panetta and his Brazilian and Chilean counterparts will also discuss drug interdiction measures off the coasts of Africa and Central America—two of the world’s worst drug transit points.
Peru Approves Conga Mine: Peruvian President Ollanta Humala gave conditional approval last week to the controversial Conga mining project, constructed by U.S.-owned Newmont Mining Corporation. Previously, it had been stalled due to environmental concerns and protests by local Indigenous peoples in the Cajamarca region. Independent environmental auditors recommended a series of changes including larger artificial reservoirs that would allow for the adequate supply of water to local populations; Humala gave Newmont the green light for construction on the condition that these suggestions be met. Cajamarca President Gregorio Santos remains unconvinced, so watch out for the possibility of further local backlash.
IMF Warns of Protectionism: During its spring meetings over the weekend, the International Monetary Fund predicted 3.75 percent growth for the Latin America and Caribbean region this year. The IMF also warned emerging economies against adopting protectionist measures in response to the “accommodative monetary policy” adopted by the U.S. and other developed countries. The 3.75 percent figure represents a moderation of the region’s 4.5 percent growth in 2011. Given Brazil’s criticism of the United States’ monetary behavior, pay attention to whether Latin American economies heed the IMF’s advice.
*RELATED – Angelina Jolie Visits Refugees in Ecuador: In her capacity as a United Nations High Commissioner for Refugees ambassador, Angelina Jolie visited displaced Colombian refugees in Ecuador over the weekend. Read an Americas Quarterly dispatch on refugees in Ecuador from the Winter 2012 issue.
Repsol shares fell by 6 percent yesterday in response to Monday's announcement that Argentine President Cristina Fernández de Kirchner intends to nationalize YPF SA, Argentina’s biggest oil and gas producer. With the government taking 51 percent stake in the company, Repsol's stake drops to only 6 percent of YPF SA. Repsol's value hit a 52-week low with prices dropping to 16.42 euros a share.
On Tuesday, both Repsol—a Spanish firm—and the European Union also denounced Argentina for not complying with international business accords. According to the EU High Representative for Foreign Affairs and Security Policy Catherine Ashton, the forced buyout “will create a negative environment for foreign investors.” Spanish Prime Minister Mariano Rajoy called it a "negative decision for everyone."Repsol, for its part, has vowed to "carry out all pertinent legal actions to preserve the value of all their assets."
Repsol has stated that if the Argentine government wanted to buy a majority stake at YPF, it would cost $9 billion—a notion rebuffed by Argentina, which prefers a valuation by an Argentine government agency. Argentine Vice Minister of the Economy Axel Kicillof also added that YPF would not be paying dividends in the coming years, instead reinvesting them into production.
Top stories this week are likely to include: the World Bank presidency goes to a vote; Secretary Clinton in Brazil; Repsol proposes talks with CFK; Chávez authorized for 90-day leave; and the possibility of progress in drug-related violence.
World Bank Presidency: With Colombia’s José Antonio Ocampo withdrawing his candidacy over the weekend, the contest for the next president of the World Bank is a two-person race. A vote is scheduled for today to decide between the two remaining candidates: the United States’ Jim Yong Kim and Nigeria’s Ngozi Okonjo-Iweala. Despite Brazil’s call recently for the BRICS nations to rally behind one candidate, pay attention to which candidate the developing economies will cast their vote. AQ Editor-in-Chief Christopher Sabatini says, “The ability of developing countries to really force a change in the international financial institutions depends on their ability to ally. They split over the IMF presidency last year, and despite their narrowing to two candidates for the World Bank, it’s difficult to imagine them rallying over the Nigerian candidate.”
Secretary Clinton in Brazil: After yesterday’s conclusion of the Sixth Summit of the Americas in Colombia, U.S. Secretary of State Hillary Clinton will be in Brasilia, Brazil, today and tomorrow for meetings on the Global Partnership Dialogue and the Open Government Partnership (OGP). She and Brazilian President Dilma Rousseff will “welcome 42 new countries into the [OGP] as they announce concrete commitments to prevent corruption, promote transparency, and harness new technologies to empower citizens,” according to a State Department press release. AQ Senior Editor Jason Marczak notes that “with last weekend’s summit not signaling any kernel of hemispheric unity, this week’s meetings are an important opportunity for the Americas’ two largest economies to show that one of the most important relationships in the hemisphere continues to strengthen.”
Repsol Proposes Talks with Argentina: Reports surfaced last week that the Argentine government was mulling a takeover of the majority of shares of YPF SA, the country’s largest oil company. Those reports sparked an international backlash especially in Spain, where YPF’s parent company Repsol is based. Spain’s minister of industry warned on Friday that Argentina would become an “international pariah” if it went ahead with the takeover—and Argentina has since delayed the project rather than abandon it. The head of Repsol is currently in Argentina and is urging talks between his company and the Argentine government. Look out for developments this week.
Chávez in Cuba for Extended Stay: Although he planned to attend last weekend’s Summit of the Americas, Venezuelan President Hugo Chávez instead departed for further medical treatment in Havana after doctors advised him on Saturday not to travel to Cartagena. On the same day, the Venezuelan legislature legally authorized Chávez to leave the country for up to 90 days. Pay attention to how Venezuelans react to the possibility of a prolonged absence of the president—especially the opposition eager to unseat him.
Progress in Drug-Related Violence?: Last weekend’s Summit “served as a good forum for discussion over drugs—and that was about it,” according to Sabatini. But while no final declaration was made on this longstanding problem, there was one glimmer of hope on Saturday. El Salvador, one of the Northern Triangle countries embattled by the bitter gang violence surrounding narcotics trade, experienced its first homicide-free day since President Mauricio Funes took office in June 2009. Whether this is a one-off success or the beginning of a pattern remains to be seen.