Zwangswirtschaft Becomes Full-Blown Socialism

First make the company unprofitable by price controls, then blackmail it by revoking its concessions, then steal it – that seems to have been the playbook of  Argentina's government regarding YPF Repsol.

President Christina Fernandez-Kirchner noted in her press conference on the seizure that

 

Argentina will manage YPF “professionally,” Fernandez said, adding that the country is one of the few that doesn’t control its own oil.

Deputy Economy Minister Axel Kicillof will help De Vido to run the company, according to Fernandez.

[..]

Argentina is expropriating YPF for the “public good,” a government official said in yesterday’s speech.

 

By this she means: Argentina is one of the few countries where the oil industry was not yet fully nationalized, as if that were a bad thing. The reality of the situation is that the high share of government control all over the world over the oil industry has created a major supply problem, as governments can not possibly 'manage oil companies professionally'. As all state-owned enterprises, nationalized oil firms are inefficient and wasteful – they are not businesses, they are bureaucracies. To wit, a bureaucrat – the deputy economy minister – will now 'help to run the company'.

The stock market's assessment of the seizure speaks for itself:

 

 

 

 


 

YPF's stock market capitalization has collapsed. Note that the bounce late in the day was occasioned by speculation that the seizure will be subjected to international arbitration to obtain full value of YPF's Argentine assets. Whether Argentina will feel bound by such arbitration is a different matter – click chart for better resolution.

 


 

As several commentators have observed, this seizure makes Argentina into an even bigger pariah than it  already was following the default in the early 2000ds.

To argue, as Fernandez-Kirchner does, that it is happening 'for the good of the country' is beyond ludicrous. In all likelihood YPF will now become a demesne and feeding trough for her political cronies. Oil production will probably collapse even further (it is already in deep trouble due to the government's price controls).

A few snips from the Bloomberg article linked above highlight the problems created by the seizure:

 

“They are going to be closing the country as an investment destination,” Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London, said yesterday in a telephone interview from the city. “What’s surprising is that they are expropriating assets rather than going through a fair market means to get hold of a stake in the company. That sets a terrible precedent.”

Argentina, which defaulted on a record $95 billion of debt in 2001, needs to regain control of Buenos Aires-based YPF to avoid becoming “an unviable country,” after oil production slumped, Fernandez said to the accompaniment of cheers from supporters at the presidential palace. Compensation for the seizure will be determined by the National Appraisal Tribunal, Fernandez said, without giving more details.”

 

In other words, the government wants to determine itself how much it will pay for the assets. This is how it plans to transform the seizure into an outright theft. As the analyst quoted above notes, Argentina is 'setting a terrible precedent'. The disdain for property rights won't be without consequences: as an investment destination, Argentina has just died again.

Not surprisingly, Spain is incensed over the seizure, as Spain's Repsol owns almost 60% of YPF. Meanwhile, the majority owners of the shares of the combined entity are – Spain's banks! It's not as though they can use yet another hit to their balance sheets. In fact, that's about as useful as a hole in the head to them.

 


 

The four biggest holders of YPF Repsol shares are Spanish banks – click chart for better resolution.

 


 

“The majority stake in YPF is owned by Spanish oil firm Repsol, whose shares fell by 8% in early trading in Madrid. Promising a "clear and overwhelming" response, Spain summoned the Argentine ambassador to express its concern.

The nationalisation has alarmed foreign investors but is said to be popular among ordinary Argentines. [just wait until they find out what it means for them, ed.]

Repsol has vowed to demand compensation, saying it could seek international arbitration over its 57% stake in YPF. "These acts will not remain unpunished," Repsol executive chairman Antonio Brufau told reporters.

The head of the European Commission, Jose Manuel Barroso, said he was "seriously disappointed" by Argentina's decision. The EU expected "the Argentinian authorities to uphold international commitments and obligations", he said.

Argentina's ambassador to Madrid, Carlo Antonio Bettini, was due to visit the foreign ministry at midday (10:00 GMT), the ministry told the BBC News website.

Earlier, Spanish Foreign Minister Jose Manuel Garcia-Margallo said the "climate of friendship" between the two countries had been broken.

[…]

The nationalisation was announced to applause on Monday at a meeting between Argentine President Cristina Fernandez de Kirchner, her cabinet and provincial governors. Reading out a statement at the meeting, an official said YPF had been "declared a public utility and subject to expropriation of 51% of its assets".

The government took over the management of YPF with immediate effect while the bill on expropriation was sent to the Argentine Congress. Supporters of the nationalisation celebrated in Buenos Aires, waving placards that read "YPF – we're going for everything". Graffiti appeared on a city centre wall that read "Repsol, get out of YPF".

Mrs Fernandez de Kirchner stunned investors in 2008 when she nationalised private pension funds and she has also renationalised the country's flagship airline, Aerolineas Argentinas.”

 

(emphasis added)

Apparently things are going so swimmingly in Argentina following the pension fund seizure and the re-nationalization of the airline that more and more assets need to be seized to keep the placard-wavers in the streets of Buenos Aires pacified. Readers would do well to remember that the seizures of the Nazis and the Bolshevik revolutionaries were also accompanied by enthusiastic placard-waving mobs. Alleged 'popular support' for a bad policy doesn't magically make the policy any better.

As you can see, we  highlighted the term 'expropriation' a few times above. This is to make sure everybody fully understands what the government is trying to do. 'Expropriation' is definitely not the same as 'buying a stake' from Repsol. It is plain and simple theft.

Repsol has vowed to fight the seizure. As this article in the WSJ reveals, one reason for the action is that there is capital flight from Argentina. The government hopes it can cut down on oil imports by seizing YPF and forcing it to make investments that are clearly unprofitable due to its price controls (yes we know, it doesn't make a whole lot of sense).  Why is there capital flight from Argentina? Is capital fleeing because Argentina's economic policies are so good? Just asking. Maybe one of the placard wavers can explain.

From the WSJ article:

 

YPF accounted for about 35% of Repsol's 2011 consolidated earnings before interest, taxes, depreciation and amortization, and 21% of the group's after-tax income. Argentine price caps on YPF oil and gas sales have prevented Repsol from reaping the full benefits of high prices in global oil markets.

[…]

Compensation, to be determined by an Argentine tribunal, could take months or years to reach Repsol coffers, and in any case is likely to be far less than the company's preferred value.

Repsol YPF SA (REP.MC) Tuesday said the value of its Argentinian unit is worth $18.3 billion, leaving the value of its stake in the company at $10.5 billion. The company said the YPF valuation equates to $46.55 per share.

 

(emphasis added)

We can be sure that Argentina's government doesn't plan to pay anywhere near to that amount. The UK Telegraph reports:

 

Despite the threat of nationalisation, reports in the Chinese media suggested that China's second-largest oil company, Sinopec, was in talks with Repsol to buy YPF for more than $15bn. Mr Brufau declined to comment on the rumours, although he said that Repsol had received interest from foreign compaines over YPF.

Spain, which has several sizeable operations in Argentina, warned that it would take "clear and forceful measures" in response. "It's a hostile decision against Repsol, thus against a Spanish business, and thus against Spain," Jose Manuel Soria, Spain's industry minister, said on Monday.

In Madrid, Jose Manuel Garcia-Margallo, Spain’s foreign minister, said measures against Argentina would be announced in the next few days.

“This has broken the climate of friendship that existed between Spain and Argentina,” Mr Garcia-Margallo added. “Spain had worked with Argentina during its hardest hours.”

The Argentine government has been tightening the noose on Repsol over recent months, withdrawing operating licences and accusing the company of failure to invest adequately in its Argentine operations. Repsol has denied these claims.

Spain is one of the biggest foreign investors in Latin America. Banking groups Santander and BBVA, and telecoms giant Telefónica have operations in Argentina.”

 

(emphasis added)

It seems plain stupid to aggravate your biggest foreign investor, but there it is.  Argentina is firmly embarked on the economic road to hell and it seems it is not even paved with good intentions.

 


 

Argentina's president Fernandez-Kirchner: enjoying the applause of her political cronies following the seizure of YPF.  It may not be 'good for the country', but it is definitely going to be good for them. 

(Photo via Stringer/Argentina)

 


 

 

 

Charts by: StockCharts.com, Bloomberg


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “Argentina Update: YPF Repsol Seized”

  • thomas:

    who is john galt?

    • rodney:

      John Galt left this country long ago, my friend. He couldn’t stand watching the people in a standing applause of one socialistic leader after another, decade after decade, never aware of the corruption and looting of the public purse.

  • You can bet the people she is taking this operation for aren’t the people that think they are the people. The people will get their gasoline in a gallon can, not the tanks of their cars. Fernandez-Kirchner will travel in the world socialist circles and grace the cover of pinko glammor magazines. She and her pals will get their fuel in airliner tanks. Socialist trickle down rarely includes enjoyment of the good seized.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold - Ready to Spring Another Surprise
      Sentiment Extremes Below is an update of a number of interesting data points related to the gold market. Whether “interesting” will become “meaningful” remains to be seen, as most of gold's fundamental drivers aren't yet bullishly aligned. One must keep in mind though that gold is very sensitive with respect to anticipating future developments in market liquidity and the reaction these will elicit from central banks. Often this involves very long lead times.   Blackbeard's...
  • Modi’s Great Leap Forward
      India’s Currency Ban – Part VIII India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI and Part-VII, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.   India’s Pride and Joy   Indians are...
  • Global Recession and Other Visions for 2017
      Conjuring Up Visions Today’s a day for considering new hopes, new dreams, and new hallucinations.  The New Year is here, after all.  Now is the time to turn over a new leaf and start afresh. Naturally, 2017 will be the year you get exactly what’s coming to you. Both good and bad.  But what else will happen?   Image of a recently discarded vision... Image by Michael Del Mundo   Here we begin by closing our eyes and slowing our breath.  We let our mind...
  • The Great El Monte Public Pension Swindle
      Nowhere City California There are places in Southern California where, although the sun always shines, they haven’t seen a ray of light for over 50-years.  There’s a no man’s land of urban blight along Interstate 10, from East Los Angeles through the San Gabriel Valley, where cities you’ve never heard of and would never go to, are jumbled together like shipping containers on Terminal Island.  El Monte, California, is one of those places.   Advice dispensed on Interstate...
  • A Trade Deal Trump Cannot Improve
      Worst in Class BALTIMORE – People can believe whatever they want. But sooner or later, real life intervenes. We just like to see the looks on their faces when it does. By that measure, 2017 may be our best year ever. Rarely have so many people believed so many impossible things.   Alice laughed. "There's no use trying," she said: "one can't believe impossible things." "I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for...
  • Pope Francis Now International Monetary Guru
      Neo-Marxist Pope Francis Argues for Global Central Bank As the new year dawns, it seems the current occupant of St. Peter’s Chair will take on a new function which is outside the purview of the office that the Divine Founder of his institution had clearly mandated.   Neo-Papist transmogrification. We highly recommend the economic thought of one of Francis' storied predecessors, John Paul II, which we have written about on previous occasions. In “A Tale of Two Popes” and...
  • Trump’s Trade Catastrophe?
      “Trade Cheaters” It is worse than “voodoo economics,” says former Treasury Secretary Larry Summers. It is the “economic equivalent of creationism.” Wait a minute -  Larry Summers is wrong about almost everything. Could he be right about this?   Larry Summers, the man who is usually wrong about almost everything. As we have always argued, the economy is much safer when he sleeps, so his tendency to fall asleep on all sorts of occasions should definitely be welcomed....
  • Where’s the Outrage?
      Blind to Crony Socialism Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed”...
  • Money Creation and the Boom-Bust Cycle
      A Difference of Opinions In his various writings, Murray Rothbard argued that in a free market economy that operates on a gold standard, the creation of credit that is not fully backed up by gold (fractional-reserve banking) sets in motion the menace of the boom-bust cycle. In his The Case for 100 Percent Gold Dollar Rothbard wrote:   I therefore advocate as the soundest monetary system and the only one fully compatible with the free market and with the absence of force or fraud...
  • Silver’s Got Fundamentals - Precious Metals Supply-Demand Report
      Supply-Demand Fundamentals Improve Noticeably Last week was another short week, due to the New Year holiday. We look forward to getting back to our regularly scheduled market action.   Photo via thedailycoin.org   The prices of both metals moved up again this week. Something very noticeable is occurring in the supply and demand fundamentals. We will give an update on that, but first, here’s the graph of the metals’ prices.   Prices of gold and silver...
  • Trump’s Plan to Close the Trade Deficit with China
      Rags to Riches Jack Ma is an amiable fellow.  Back in 1994, while visiting the United States he decided to give that newfangled internet thing a whirl.  At a moment of peak inspiration, he executed his first search engine request by typing in the word beer.   Jack Ma, founder and CEO of Alibaba, China's largest e-commerce firm. Once he was a school teacher, but it turned out that he had enormous entrepreneurial talent and that the world of wheelers, dealers, movers and...
  • Side Notes, January 14 - Red Flags Over Goldman Sachs
      Red Flags Over Goldman Sachs Just to prove that I am an even-handed insulter, here is a rant about my former employer, Goldman Sachs. The scandal at 1MDB, the Malaysian sovereign wealth fund from which it appears that billions were stolen by politicians all the way up to the Prime Minister, continues to unfold.   The main players in the 1MDB scandal. Irony alert: apparently money siphoned off from 1MDB was used to inter alia finance Martin Scorcese's movie “The Wolf of...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com