Spooky...

Yesterday, Cristina Fernandez, a woman whom shall enter history as one of the most corrupt and despicable (in spite of the 54% of the votes which putted her in office) presidents of this poor country, decided to take a decisive step towards communism, and ruled expropriation of the shares held by Repsol in YPF, one of the most important oil companies of the world.  

YPF was privatized in 1993 by former (and also outrageously corrupt) president Carlos Menem. In 1998, Repsol, the Spanish oil company, bought the majority shares. A small percentage of the shares remained the national government's, the producer provinces' government's and the public, being listed in the Buenos Aires and New York Stock Exchanges.  

In 2007, a group of also very close friends of the Kirchner's regime, the Skenazis, bought almost 15% of the shares, becoming the second largest shareholder. The Skenazis are a family of well-known businessmen, whom totally fit the most basic description of crony-capitalism. The friends of Cristina and late (extremely corrupt also) husband Nestor proved to be not as good friends as to put their money where their mouths were, due to the small returns of the investments in YPF, causing the rage of the insane Cristina.  This rage expanded towards Repsol, and based upon accusations of breach of the upstream operations promised upon purchase of the shares, she decided to expropriate and putted us in the very same level as Venezuela is: enemies of the developed and peaceful nations of the world.  

Is not quite clear yet whether the investments were made or not. However, I tend to believe that they weren't actually. The question is why? Why Repsol and the Skenazis wouldn’t performed the upstream works? And the answer lies on a plain and simple reason: low returns.  

BUT, low returns are due to the fixed price policies ruled by the very same government, which fixed the selling price of the barrel at U$S 42, while Brazil is selling at U$S 109, for instance. Hence, the friendship between the two mafia families blurred, leaving us, former citizens now subjects of a illegitimate kingdom, hostess of the mafia war which has already started.  

Expropriation of the YPF shares owned by a very powerful Spanish oil company shall not be dismissed by the Spanish. Yesterday, The Telegraph of London said that the Spanish shall seek a U$S 10 Billion compensation from the argentine government. So, how all these impacts and affects us, the plain vassals? In a very sad manner... 

Argentines are prone and kin to accept whatever political turmoil you could imagine. Going back to  as recently as the 70’s, Argentina experienced perhaps the darkest times of its history. In 1973 Peron[ [1]  passed being in power, and his widow (sounds familiar??) took office as natural successor, given that she was Peron’s Vice President. 

A violent pro-leftist guerrilla developed, given the chaotic –both economically and politically- environment arouse after Peron’s death and during the widow’s term. This gave room to the bloody and shameful military coup, which ruled the country under a terror regime for 7 years [2]. 

After 7 terrible, sad, bloody and dark years of military regime, democracy was restored with President Alfonsin, whom although a human rights hero, had a lousy government which left Argentina in 1989 suffering a hiper inflation process. By July 1989, inflation rose to an outrageous 196%  [3].

Elected president Menem took power in July 1989, six months earlier than his due time. Ruled the country for 10 years, stabilizing inflation with a monetary policy which fixed the price of the peso to the price of the dollar, in a $1 – U$S 1 exchange rate. During his first term, he managed to amend the Constitution in order to shorten the presidential term from 6 to 4 years, and allow re-election in second terms. He privatized most of the utilities state owned companies, opened the economy to foreign investment, liberalized the international trade and stole as much money as possible. Corruption was rampant and the fixed exchange rate made it inconvenient to produce in Argentina, leaving many people unemployed. Nevertheless, people voted for him, again, in 1995. 

By the second half of 2001 President De la Rua (who took power as part of a multi-party coalition which presented itself as the anti-Menem decent candidates) faced the reality of being impossible to hold monetary $1-U$S1 policy, and ruled the “corralito” (small-farmyard)  which, in order to avoid a bank run forced the people to use debit cards instead of cash. This was the very first step of later worse measures which ended up with the “pesification” of all debts in dollars. In a nutshell, the corralito had the very opposite effects wanted by the government. People flew to the banks to withdrew their deposits, and took the streets banging pots, claiming the resignation of De la Rua [4]. The “good times” were over, and another economic turmoil took place. 

All these gave room to Nestor Kirchner’s first (and only) term which started in 2003 as the result of a very smart political move, with compliments from Menem. In ten days, between December 20, 2001 and January 2, 2012, Argentina had 4 (FOUR) different civilian presidents, all of them Peronist, of course. On June 2002 there was a massive protest of leftist groups, which ended up with the death of two activists and the end of Eduardo Duhalde’s presidency. 

As of 2003, Kirchner paid in full the debt held with the IMF, but took loans from another “friend” –Hugo Chavez-. While the IMF charged 3%-4%, Chavez charged 12% for his friendly loans, but people were ecstatic with the idea of a strong president, whom stood up to the US, the IMF and other “foreign imperialists”. A small note on this: Kirchner default U$S 18.300 Million of unpaid bonds held by dissatisfied creditors whom didn’t accept the payment plan offered by Kirchner in 2005. 

In October 2010 Kirchner passed. His wife, Cristina, was already in power (as of 2007). In 2008 a major civil –peaceful – revolution took place, led by the countryside producers of soy and other agricultural products, which were intended to be imposed with a new export duty, on top of the many taxes already affecting the production. 

In October 2010 Kirchner passed. And in October 2011 his widow, Cristina Fernandez, won the elections for her second term. 

The Kirchners were lucky to rule the country with an amazingly good international price for Argentina’s one of top products, the soybean, and a simultaneous lack of scruples. Kirchner’s rampant corruption differs from Menem’s in the sense that the Kirchners had (have) a strong leftist ideology. However, Nestor’s ideology was clearly superficial and fake, given that even though he cried out against the corporations, business and international investors “whom took all our resources”, in the back he was always prone to do business (in his favor, of course), and knew that he could go up to a point, and not farer than that, in order to keep everybody happy: the mass and the crony-capitalist friends. Unfortunately, is not the same with his widow. 

While he shouted out loud against the US and capitalism, him and his wife unexplainably raised their fortune in U$S 26 million in a four years term!!! While, by the way, they were public servants… 

Upon his death, the barriers of pragmatism disappeared, giving room to the worsening of ideology and “21^st Century Socialism” ideas. The millions pouring into the country due to the taxes imposed on the producers of soy and other beans gave them room to move forward with populist ideas, and so, aside taking part in outrageous corruption episodes, they stated welfare benefits such as monthly payments to poor people, in exchange for nothing. The problem of the policy is not a philosophical one. Who would want the poor to be poor? Or even worse, who would want more people being poor. 

The problem lies on the fact that the money gave away in exchange of nothing, for so long time, had two major consequences: clientelism (poor people voting for them in order not to lose the welfare benefit), which brings along corruption; and incentives to remain unemployed, since working people does not qualify for the benefit…. Among many other undesirable, from the political AND philosophical perspectives, consequences. 

In brief, the Kirchners welfare system caused more poor people, less educated and more willing and able to cover their material needs exchanging supplies and money for their votes. 

So, what does all this have to do with the expropriation of YPF shares? It relates to the next upcoming crisis. 

In my opinion, the next crisis won’t be as easy to get out of as the previous ones were, due to the following reasons:

 ·       Argentina is not longer the rich, appealing, and interesting to invest country as it was in the past. This will leave Argentina alone, and isolated in a more and more globalized world.
·       Too many attacks to private properties and to institutionalism turn the country absolutely not desirable to invest.
·       Under this scope of expropriation and lack of the rule of law, there are no incentives whatsoever to invest in any production. Foreign capitals would never come and settled, and domestic capital will keep on fleeing.
·       Protectionist is rampant. Not a single pin could enter the country without the “permit” of a very sinister character appointed by Cristina as the “guardian of the argentine consumer”. This closing of international trade (particularly imports) left many industries unable to produce due to the lack of imported spare parts. Even worse, many patients can’t get the drugs they’re in the need to take, since imports of the drugs are also forbidden.
·       Such protectionism is leading to monopolies, and monopolies are deemed to offer low quality products at high prices, due to –precisely- the lack of competition.
·       Together with high prices shortage of supplies will also come along. Crony capitalism will regain strength, but as Cristina herself noted, not even close friends and business partners (as the Eskenazis) are willing to lose money for the “National and Popular” political project.
·       Violence is at the highest rates also. People dies daily to the hands of thieves who are, most of the times, on drugs. Even though the police and specialists advice not to challenge them, in the event of being the victim of a robbery, and give them everything, criminal acts are really violent and people still gets murdered even though they give away everything. On March 19^th, I was driving along a street next to a highway, bringing my kid back from school when two criminals came out of nowhere, and taking advantage of a bump which made me slow down, runned towards me waiving what seemed to be a gun. Fortunately, I noticed it was a piece of something different from a gun, so I decided to speed up. When I passed him by, he banged on my windshield so violently that he broke it to pieces. My kid, and me too, got terrible scared. But, thanks God, it was a VERY cheap outcome.
·       Back in 2008, three young men appeared dead in a nearby location. The bodies were handcuffed in the back, and there was tape in the mouths. It was obviously a mafia crime. Not long after, two Colombian men were caught after acting as hit-men in a major mall parking lot. They had killed a man getting off a car. As I write this, in plain downtown, a couple of blocks away from the Court House, last night a colombian man was killed by a hit man, who shot the colombian 3 shoots on the back and 2 on the head, and fleed. The first two episodes mentioned (particularly the first one) showed the fact that Mexican Sinaloa Drug Cartel is already operating in Buenos Aires. As of then, plenty of journalists’ reports proved the fact that Argentina was not longer a “transit” country, but a “producer” country. Drug mafias are already performing here. That’s a fact. And social environments where there’s a lack of republican institutions and the Judiciary power is not independent and corrupt are the breeding ground for drug cartels and other organized crime groups.
·       Demography has dramatically changed. The welfare benefits of giving away pesos for each child born, in spite of the fact that the child’s family were really in need of receiving the funds cause a whole set of incentives. For instance, in the greater Buenos Aires area, there are teen-age moms whom have found the way to have money without working, and that is getting pregnant. I live in a Greater Buenos Aires area named Tortuguitas, and it’s amazing to see young girls carrying babies in strollers… already pregnant. These girls most likely haven’t finished high-school and they don’t work either. They live with their families (which are very large), in small places and all together can make a decent amount adding up the welfare benefits paid by the government to each of them. In 10 years time there will be more people in need to be supported by the government than people producing and paying taxes for the government to distribute among the first mentioned. Most of the people in need won’t have any education nor working skill, since teachers of public schools are nowadays most of the time on strike. Children attending public school can finish elementary school… and barely write and read! I’ve seen it! It is true!.



 So, how all this YPF situation affect us, the common citizen who works, study, buy, pay taxes and live decently, without hurting anybody and doing his/her best to raise his / her family? Well, basically expropriation involves a major break of the rule of law. This, of course, discourages greatly any productive investment, fearful of –eventually- becoming “the enemy” and being expropriated. Given this fact, only very few extra addict to risk and/or friends of Cristina will be willing to invest, knowing that they’d be granted (either formally or informally) with a monopoly which –at the same time- will allow them to produce low quality items and sell them at expensive prices. 

On the macro side, even though the soybean remains a good business due to the international prices, it is possible that producers (whom are in large number investors not attached to the farm itself) decides to fly-to-quality and leave the country. If so, production would lowered and so would taxes and export duties. The government shall continue to use the reserves deposited at the Central Bank, which By-Laws were recently amended as to allow Cristina the discretional use of the money, but even almighty powerful state runs short of cash sometime… and if the cash supplier (the tax payer) lose weight, most likely the cash consumer will too. So, at some point Cristina won’t have the money to support YPF’s activities, pay pensions and retirements, support the outrageously amount of (roughly) 2.5 Million public employees (at national government level alone), and the many million benefits and welfare subsides which keeps people in poverty. Without jobs, education and development opportunities, it’d take strong decent spirits not to fall for the drug production –marketing alternative. And this may bring nothing but violence, death and suffering, for a large amount of people.



 YPF expropriation is not a matter of sovereignty or nationalism. It’s a matter of a personal, insane project of a crazy woman, whom was diagnosed as a bipolar patient, surrounded and seduced by a group of young, unscrupulous people whom noticed that the suffering widow needed someone to drive her government. This is barely starting. I’m very pessimistic about the near future, since this is not longer the very same Argentina which had the skills to overcome economical and political crisis, over and over and over again…

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[1] A populist leader which started his political carreer as a prominent military officer of the group of military men which took power in 1942

[2] Not a matter of this post, but just a short mention regarding the guerrillas and the military. I was 9 years old when the coup took place. My parents were not involved in any politics whatsoever. My dad was a small businessman and my mom a housewife, pretty busy taking care of my younger brother whom, by them, was recovering from a very bad cancer. I quite vividly I remember my dad in the mornings, shaving and listening to the radio. His commonly asked question, to himself, was, “when are “they” going to take power?” By “then” he meant the military. My dad’s expectations were not moved by any other desire of living in a pacified society, not scared to be caught in the middle of a shooting between the police (and para-military forces) and the guerrillas. This same expectation and consent for the military to rape the Constitution and to take power was pretty much shared by the civil society. No military coup was ever able to happen without the civilian consent.

[3] Again, a brief comment on this. By 1989 I was 21years old. I have VERY CLEAR memories of those times. Given that the Austral (the argentine money at the time) was worth nothing, people rushed in the mornings to the supermarkets to purchase food, knowing that by the very same afternoon, with the very same amount, they could buy half what they’ve got in the mornings. This, of course, led to a shortage of supplies, so supermarkets decided to sell, for instance, just a pack of sugar per person. I remember my mom, my brother and myself getting on line so we could have three packages of sugar and other items

[4] This wasn’t  way too different from what “people” claimed in 1976. The difference laid in the fact that by 2001 no military was willing nor able to took power, neither the people supported them. This time, people wanted an institutional way out of the terrible De la Rua’s government.