Friday, December 8, 2023

OPINION AND ANALYSIS | 20-06-2020 09:26

Vicentin’s expropriation and how to break bad news

A Peronist expropriation, and maybe even nationalisation, sounds like the best way to burn a lot of money straight into inefficient bureaucracy and corruption.

There are several phrases about the best way to break bad news, generally resulting in that there is no good way to deliver it. Yet, there is a bad way to deliver news and it is easy to identify in retrospect: it generates an outsized reaction that puts the meaning not in the announcement itself, but in who said it and in what way. That, to a large extent, explains part of the story surrounding the announced expropriation of agro-giant Vicentin by President Alberto Fernández, and why it has become a rallying cry for his — and his vice-president’s — political opposition. As usual in Argentina, the underlying aspects of the issue aren’t the focus of the conversation, which becomes all the more relevant when one of the major players in Argentina’s most — and almost only — competitive sector was about to go belly up in the midst of one of the deepest global economic contractions in years and a major pandemic.

Vicentin is a major agricultural conglomerate that represented nine percent of Argentina’s grains exports last year, with some 8.4 million products and 10 million tons, according to data released by the government in the emergency decree by which it intervened the company. Revenue last year hit US$4.2 billion and the company had a headcount of some 4,000 employees spread across multiple industries, including its cashcow cereals and oilseeds, port terminals, cotton, biodiesels, agrochemicals, wine and grape juice production, cattle and honey. Its headquarters are located in Argentina’s breadbasket in northern Santa Fe Province, in the city of Avellaneda, and it was originally founded in 1929. Along with another 10 firms, five of which are Argentine (the rest, multinationals), they concentrate 91 percent of Argentina’s agro-exporting capacity, which in turn is one of the major sources of US dollars for the indebted and bankrupt South American nation.

The company and the sector became one of the big winners of the Mauricio Macri years, yet it was too leveraged, a fact that hit it hard after a series of aggressive devaluations that peaked with Alberto Fernández’s landslide victory in last year’s PASO primaries. Vicentin’ formally entered into a cessation of payments in December, days before Fernández and Cristina Fernández de Kirchner took power. Vicentin’s major creditors included public and private banks, multilateral institutions, and its providers, including some 2,600 agricultural producers. After failing to reach a settlement with its creditors, it filed for and received a Chapter 11-like status to restructure its debt. It had been a major donor to Macri’s electoral campaigns and had received plentiful funding from public banks.

When President Fernández announced his intention to expropriate the private company, it was clear that he wasn’t purely behind the idea. Senator Anabel Fernández Sagasti, Cristina’s dauphine, thanked President Alberto for “accompanying” their project, while Agricultural Minister Luis Basterra later revealed he wasn’t aware of the move. They spoke of “dietary sovereignty” and developing a national champion (“empresa testigo”) in the strategic grains and foreign exchange markets. The move was so unexpected that Alberto’s Cabinet Chief, Santiago Cafiero, wasn’t even in on it. Just Productive Development Minister Matías Kulfas, who had been working on a plan to “rescue” Vicentin which was trumped by the move to expropriate.

Seeing Alberto apparently played by his vice-president sparked the ire of a sector of society that had warmed to the president given his management of the coronavirus pandemic. At the same time, the move to expropriate a private company in the agro sector coming from  Fernández de Kirchner and her followers fed the anti-Kirchnerite fervour of a lot of people who were looking for an excuse to confirm their preconceived notion that she is in charge. It is worth noting that the expropriation of oil giant YPF was traumatic, and costly, as was Aerolíneas Argentinas’ during Cristina’s presidency. At the same time, the 2008 conflict between the agricultural sector and Fernández de Kirchner’s government — while Néstor lived and Alberto was Cabinet Chief — marked the beginning of the end of the Kirchnerite hegemony.

Thus, seeing Alberto outmanoeuverd by his VP – who is indicating her volition that the state take on a more interventionist role in the economy, and particularly in its most vibrant sector – sparked the immediate uproar that led to protests across Argentina’s breadbasket provinces and its major cities. Fernández immediately took notice, and began flip flopping around trying to find a way out. Just over the peak of his popularity, but with the attention still firmly focused on Covid-19 and quarantines, they slipped, giving the opposition the chance to unite a fragmented front and cover the explosive illegal espionage scandal that took over headlines in the past few weeks.

Regardless of one’s view of the role of the state in the economy, it was clear that something needed to be done with Vicentin, and that it required quick action. But a Peronist expropriation, and maybe even nationalisation, sounds like the best way to burn a lot of money straight into inefficient bureaucracy and corruption. Allowing the company to slide into bankruptcy, or be bought on the chopping block for pennies doesn’t sound like a great idea, in particular when public banks and international multilateral institutions are major creditors. Allowing an expropriation at the hands of a Kirchnerite sector of the pan-Peronist ruling Frente de Todos coalition is one of the worst things international bondholders can hear in the middle of a tense sovereign debt restructuring negotiation.

At the end of the day, the decision to backtrack with the expropriation and lead a government-based intervention in the Chapter 11 process, announced by Santa Fe governor Omar Perotti at press time, gives the government the same level of oversight and the capacity to lead the company toward a resolution that could include a “public-private firm” in the line of YPF, with professional management and a clear mission. Vicentin will become a black eye for Alberto, even after a pragmatic resolution.

Agustino Fontevecchia

Agustino Fontevecchia


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