Will Fernández nationalize grain exporting giant Vicentin?

11th June 2020

By Ignacio Portes

Will Fernández nationalize grain exporting giant Vicentin?

After a few weeks of subdued political discussion with the pandemic taking most of the attention, Argentina’s Peronist government’s surprise announcement of the nationalization of a major grain-exporting company shook the scene last Monday, with consequences and ramifications that are still hard to fully process.

The decision to take over Vicentin, a 90-years old agro-industrial firm based in Santa Fe province that competes with international giants ADM, Bunge, Cargill and Dreyfus for Argentina’s massive soy crushing market, came as a surprise not only to its owners, but even to some of President Alberto Fernández’s closest advisors, with even Cabinet Chief Santiago Cafiero and Economy Minister Martín Guzmán reportedly left out of the loop until shortly before Monday’s press conference.

</p> <p>But Vicentin was already in the eye of the storm, after flirting with <a href="">bankruptcy</a> since the final days of Mauricio Macri’s government despite getting massive loans from the state-owned Banco Nación. With some of its foreign competitors (as well as its Switzerland-based partner Glencore) in talks to buy the distressed firm or part of its assets, the government took its own initiative instead and drafted a bill behind closed doors to nationalize the company, although negotiations about the exact details of how Argentina will proceed are still ongoing.</p> <p>So far, Fernández announced that the Executive Branch would intervene the company for 60 days, and send a bill to congress for its nationalization. But many believe the government is overstepping its powers by intervening without prior judicial authorization (which could be eventually granted, given that state-owned banks are Vicentin&#8217;s main creditors), and others even argue that there&#8217;s still room for the government to backtrack given the strong reaction against the take over seen in multiple quarters.</p> <p><iframe title="Alberto Fernández anunció la intervención de Vicentín - Telefe Noticas" width="1778" height="1000" src="" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe></p> <p>For the most Kirchnerite wing of the ruling coalition, Monday&#8217;s announcement was celebrated as a win, as the decision was comparable to Aerolíneas Argentinas and YPF’s nationalizations in 2008 and 2012, adding state control in another strategic sector of the economy. For the Cambiemos opposition coalition and many in the private sector, however, it was seen as another unjustified attack on private property.</p> <h2><strong>Shady loans</strong></h2> <p>To understand the conflict, one must inevitably look at the recent history of Vicentin first. The company had undergone a process of debt-backed expansion during Macri’s presidential years, but like many others found itself in <a href="">debt trouble</a> by the end of Macri&#8217;s term.</p> <p>As an export-oriented firm, Vicentin is one of the few firms that can take loans denominated in a foreign currency according to Argentine <a href="">regulations</a>. But that credit became scarcer in the latter months of Macri’s administration, and Vicentin began to struggle to renew its maturities. Only the state-owned Banco Nación continued to facilitate millions of dollars in loans after Macri’s landslide election loss in August, when the company was already under financial distress. This sounded alarms that it might be doing so due to political allegiances, as Vicentin was the main (declared) financial contributor to Macri’s electoral campaign fund.</p> <p>With multiple other debts outstanding, including millions to foreign banks and to local grain producers, Vicentin admitted that it was under “financial stress” on December 4, 2019, and started insolvency proceedings early in 2020. Overall, the firm’s debt is estimated to be in the region of USD 1.5 billion.</p> <p>Former Banco Nación president Javier González Fraga is <a href="">facing a criminal case</a> against him over the credits approved for Vicentin near the end of his term, which according to González Fraga’s replacement at the state-owned bank, Claudio Lozano, represented <a href="">15 percent</a> of the banks’ total portfolio.</p> <h2><strong>Lufthansa or Sidor?</strong></h2> <p>The massive debts with Banco Nación were among the reasons behind the decision to intervene the company and draft a bill for its nationalization. President Fernández argued that this was not part of a larger scheme to nationalize companies, but something more comparable to the bailouts of strategic firms under duress seen in other developed countries.</p> <p>“I am rescuing a company. When people talk about expropriation, which indeed this is, they say it like this was a successful company we took over, but it was not. The Argentine economy is upside down and this is an absolutely exceptional case. Those who know me well know that I’m not an enemy of capitalism,” Fernández <a href="">said</a> yesterday on a radio interview.</p> <p>But while the government tried to compare the Vicentin case with Germany&#8217;s bailout of <a href="">Lufthansa</a>, to the opposition this was <a href="">closer</a> to Venezuela’s late Hugo Chávez nationalizing of Sidor, a local subsidiary of Argentina’s multinational Techint that the Caribbean nation took over in 2008 during a flurry of expropriations that did not end well for Venezuela&#8217;s economy.</p> <p>The truth is probably somewhere in the middle. Fernández clearly is not interested in mass-scale nationalizations comparable to those of Chávez, and the same could probably be said of his Vice President Cristina Fernández de Kirchner, but the latter’s camp is undoubtedly interested in controlling certain firms in key areas of the economy, including grain exporting, Argentina’s main source of hard currency.</p> <p>One of the many signs of this is the fact that the Kirchnerite youth organization La Cámpora owns a consultancy agency (Analogías) which is currently surveying how much public support there is for nationalizing electricity and gas companies. More than 60 percent of Argentines think these firms <a href="">should be public</a>, those polls argue.</p> <p>And although Fernández de Kirchner is generally cautious when speaking of sensible issues such as the potential state takeover of firms,  most Kirchnerite politicians and sympathizers are happy to admit they want more public ownership and control of companies that are currently private. UK’s opposition leader Jeremy Corbyn’s plans to nationalize key industries would perhaps be a reasonable comparison to many Kirchnerites’ ambitions in terms of public ownership, with the added twist that Kirchnerites are also generally favorable to twisted exchange rate regulations that make private trade even harder.</p> <h2><strong>Backtracking?</strong></h2> <p>The President and the Kirchnerite wing of his party don’t see fully eye to eye in this matter. For Fernández, Vicentin’s bankruptcy was an opportunity to throw a bone to the Kirchnerite wing of his coalition without going too much off track from his plans of being a center-left social democrat. The meetings to decide on the intervention and nationalization of Vicentin were done behind closed doors between Anabel Fernández Sagasti, a Mendoza Senator of the Kirchnerite wing of the party, and other advisers closer to the President such as Matías Kulfas, looking for a consensus between the sides.</p> <p>But the situation may have spiraled a bit out of control for the President, with his Kirchnerite allies taking too much control over the Vicentin project. After Monday’s press conference announcing the bill to nationalize the company, the Kirchnerite wing of the party was exuberant, but Argentines in Vicentin’s home province of Santa Fe didn’t take it as well.</p> <p><iframe title="Intervención de Vicentin | Protesta frente al hotel en el que se hospedaron los interventores" width="1778" height="1000" src="" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe></p> <p>Protestors gathered outside the hotel where the government officials tasked with intervening Vicentin where staying, hurling insults and throwing objects to make it clear that they were not welcome. The mayor of Avellaneda, Santa Fe province, said he supported the protesters, and pots and pans were banged in Buenos Aires City and other districts in solidarity with those in Santa Fe.</p> <p>Santa Fe’s Peronist Governor Omar Perotti, a centrist, was initially in favor of the nationalization, given that it would ensure that local producers (that are owed hundreds of millions by Vicentin) would end up getting paid. But many in Santa Fe took it differently, seeing it as a new Kircherite attack on private property.</p> <p>Given the strong reactions this incited, Perotti and President Fernández are now trying to find a middle ground which placates protesters but doesn’t show political weakness. As this story goes to press, the bill to nationalize Vicentin has not been officially presented yet despite Fernández’s Monday announcement, and negotiations with the owners for a friendly transition are still ongoing behind the scenes.</p> <p>

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Ignacio Portes

Ignacio Portes is The Essential's General Editor. Former Economy editor at the Buenos Aires Herald, he has also written for publications such as Naked Capitalism, NSFWCorp and Revista Debate.