Argentina's YPF Seizure Rattles Nerves in Brazil

The decision by President Cristina Kirchner of Argentina to seize a majority stake in the oil and gas company YPF SA from Spain's Repsol YPF SA shocked analysts and investors around the world, worsening confidence in Argentina's energy market.

Global leaders were quick to condemn it. Spanish Prime Minister Mariano Rajoy said: “This seriously damages Argentina's international reputation.”

Mexico’s president, Felipe Calderon, warned: “We all need investment, and nobody in their right mind invests in a country that expropriates investments."

The April 16 move also had its critics in Argentina. Joaquin Morales Sola, a prominent political columnist for Argentina’s La Nacion newspaper, wrote an April 17 column headlined: “The president slammed the door on the world.” In it, he raised a big question: Who would now pay to exploit Argentina’s huge reserves of unconventional shale gas, potentially the third-biggest in the world? Sola wrote:

The unconventional gas reserves of Vaca Muerta, the third-largest in the world, require investment of many billions of dollars. Where will Kirchnerism get those resources? Who will invest in a country where the government changes its private property like it changes its wardrobe?

On April 22, the Brazilian O Globo newspaper published an interview with Buenos Aires Mayor Mauricio Macri, one of Kirchner’s most outspoken critics, who argued that the YPF seizure would decrease confidence in Argentina:

Of course, there is fear and that’s why I opposed the expropriation of Repsol-YPF. To fail to comply with our word causes enormous damage to our relationship with the world. In addition, we are going to indebt ourselves by borrowing billions of dollars for many years, when our priority is to invest to have more energy.

The prevailing mood in Argentina was more positive: Six out of 10 Argentines supported the YPF seizure.

But the move has unnerved other companies -- and led many to wonder if it's part of a trend as Argentina pressures energy companies to increase output. Weeks earlier, Argentina's Neuquen provincial government had unexpectedly revoked a license granted to the Brazilian energy corporation Petroleo Brasileiro SA to explore there, saying the company had failed to boost investment sufficiently. That was the same rationale used to justify the YPF seizure. Petrobras Chief Executive Officer Maria das Gracas Foster said the revocation happened without warning.

On April 20, Foster and Edison Lobao, Brazil's mines and energy minister, met with Argentina's minister of planning and public investment, Julio de Vido. They made reassuring comments afterward, suggesting that Petrobras still had an interest in investing in Argentina.

But as journalist Ilimar Franco argued in his April 24 O Globo column, Argentina and Brazil were already quarrelling over trade, and Petrobras wouldn’t be the only Brazilian company to come under Kirchner’s pressure:

Neither Spain nor YPF is the only victim of the president of Argentina, Cristina Kirchner. Brazil and the companies that are installed here also are. Agricultural machinery, footwear, furniture and pork produced in Brazil and exported to Argentina have been blocked by the ‘brother country’ customs for about a year now. The Dilma administration and the Ministry of Foreign Affairs have taken a blase position in the face of pressure that is creating unemployment and could shut factories in Brazil.

Franco said companies such as agricultural-machine manufacturers Deere & Co., AGCO Corp. and CNH Global NV were coming under pressure in Argentina -- just like Petrobras. “Kirchner is sucking industries and jobs out of Brazil,” Franco concluded.

But in the wake of YPF, the confidence of many companies will be further shaken. Following an Argentine request for Petrobras to increase its investment in the country from 8 percent to 15 percent, O Globo reported April 20 that Lobao said Petrobras investments would probably remain the same as last year. Days later, at a public hearing at the Mines and Energy Commission, Foster stated: “We mustn’t put all our eggs in one basket."

Kirchner may have done a lot for her government’s popularity in Argentina by nationalizing YPF. The consequences for investment, on the other hand, may be a very different story.

(Dom Phillips is the Rio de Janeiro correspondent for World View. The opinions expressed are his own.)

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