Wednesday, May 16, 2012

Argentina is not making many friends internationally

When a nation's government does not respect property rights of foreigners, international courts, or even its own domestic laws - all in an effort to garner popular support, it will end up paying a high price in the long run. We are talking about Argentina, whose pain after the YPF fiasco has only just begun. Here is a list of 5 "unintended consequences" giving Argentina a fresh headache:

1. Those silly shippers are so expensive...
Bloomberg: - Argentina must compete for liquefied natural gas with Asian buyers paying 38 percent more as Repsol SA cancels shipments after the government’s takeover of its YPF SA unit, according to Drewry Maritime Services Ltd.

Argentina will struggle to find replacement cargoes amid a global shortage of LNG, said Navin Thakur, research manager at shipping consultant Drewry in Gurgaon, India. The South American country will have to match the Asian price of about $18 per million British thermal units, he said. Argentina had agreed to buy LNG from Repsol for an average of $13 per million units, Julio De Vido, minister of federal planning, public investment and services, said in a statement May 6.
2. Those ridiculous credit agreements...
Fox Business: - Argentina's state-run oil company, YPF SA, said Wednesday that its management is pursing waivers from creditors to avoid the accelerated repayment of more than a billion dollars in debt.

In its 20-F filing with the U.S. Securities and Exchange Commission, YPF said that its recent nationalization by the Argentine government might constitute a default on about $1.6 billion of its debt, which would trigger early repayment.
3. Who cares about those annoying US courts...
Reuters: - Repsol YPF SA, the large Spanish oil and gas company, on Tuesday sued Argentina for seizing control of formerly state-owned energy company YPF SA, in which Repsol held a majority stake.

The lawsuit, filed in the U.S. District Court in Manhattan, is part of Repsol's effort to recover more than $10 billion from Argentina over the seizure in a case that could drag on in arbitration and the courts for years.

Argentina also faces tens of billions of dollars of other U.S. litigation, largely tied to its sovereign debt default one decade ago.
4. The European Union? WTO? What's that?
Reuters: - The European Union has agreed to file a trade suit against Argentina's import restrictions with the World Trade Organisation (WTO), a senior Spanish government source said on Monday.

The suit is not directly linked to Argentine President Cristina Fernandez's decision to seize control of its biggest oil company, YPF, a subsidiary of Spain's Repsol.

But the move last month played a role in the EU's decision, the source told Reuters.

"The European Union has decided to file a complaint (with the WTO) which will mean, if the EU wins, very serious trade sanctions for Argentina," the source said.

"The EU's decisions follow from all the non-fulfilments which Argentina has built up before the WTO. The Repsol problem has really just been the straw that broke the camel's back."

According to international newswires, The European Union will in the next few days move to file a formal trade lawsuit at the WTO against the Argentine government for the recent implementation of a number of non-tariff trade restrictions. The move is reportedly not related to the recent nationalization of 51% of YPF out of the Repsol’s 57% stake in the company, but the nationalization might have encouraged the European authorities to move ahead with the trade lawsuit.
5. And then there are those pesky US senators...
Senator Lugar's press release: - Last Friday, U.S. Sen. Dick Lugar (R-IN) introduced S.Res.457, which expresses the sense of the Congress that the Republic of Argentina’s membership in the G20 should be conditioned on its “adherence to international norms of economic relations and commitment to the rule of law.”

“Argentina has failed to respect the property and rights of U.S. and other foreign investors. It has failed to respect judgments against it by U.S. courts and international arbitral tribunals, refused standard IMF inspections, and expropriated property from investors. As long as this “outlaw behavior” continues, Argentina does not deserve membership in the G-20,” Lugar said.

“The G-20 is for nations that respect the rule of law, and Argentina clearly has not. As a nation that mocks the law and declines to respect the property and interests of foreign investors, Argentina should not have a world leadership role in the G-20. Argentina’s behavior is unique in the world today. Unlike countries facing genuine challenges, Argentina has a productive economy and over $45 billion in reserves. It could easily live by the rules and pay its bills—but the current government chooses otherwise,” Lugar continued.
Needless to say, Argentina is not making any friends internationally. And at home this is translating into a severe capital flight out of the country, as evidenced by the shadow FX rate breaking away from the official number.
WSJ: Concerns over the economic direction taken by Argentina's government has sent the gap between a tightly controlled official exchange rate and a parallel rate—largely set by businesses conducting complex transactions in stock and bond markets to secure dollars—to multiyear highs.
This is not a sustainable situation for Argentina over the long term.

Source:  WSJ  (click to enlarge)
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