Economy sought to offer a signal of confidence to investors
Tuesday, November 26, 2013
By Martin Kanenguiser
The stage of fine tuning has arrived, but at the hand of the least-thought of minister: it was not Amado Boudou nor Hernan Lorenzino, but Axel Kicillof, who yesterday helped seal the pre-agreement with Repsol for YPF to “offer a signal to investors” in particular from the energy sector.
Sources at the Palacio de Hacienda told LA NACION, without detailing the amount (on the market there is speculation of US$5 billion), that the payment to Repsol will be through bonds and stocks. It would seem there will be no “cash” payment nor a participation by the Spanish company in Vaca Muerta. Until Repsol and Pemex ratify their agreement, the government will not officially divulge the amount.
The sources point out that the main objective of this pre-agreement, which has to be confirmed tomorrow by the shareholders of Repsol, is “to close the conflicts and lower the amount of litigation that YPF was facing.”
In this sense, the company “cannot be seeking funds and partners while Repsol threatens to put a new injunction every moment,” said the official source.
Also, it was indicated that Kicillof has been working on this issue “for a couple of months” with the Argentine ambassador to Spain, Carlos Bettini, with the supervision of Legal and Technical Secretary Carlos Zannini. In fact, they were the three officials that, together with YPF CEO Miguel Galluccio, participated yesterday in the meeting with officials and businessmen from Spain and Mexico in the headquarters of the nationalized company.
While the efforts started quite a bit before Kicillof’s ascension was decided – as he is the state’s representative on YPF’s board and is part of a strategic planning commission from the sector in the Planning Ministry – his designation “sped up the timing,” according to the view in Economy. In fact, the statement from the Ministry on the matter said that “the present principle of the agreement contributes to normalizing and strengthening the historic ties between the three countries and their companies.”
This way, Kicillof went from a harder line, in which he practically planned to have Repsol indemnify the Argentine state, to a more negotiating one, as could be seen also in other areas of economic policy.
In Economy, and among financial traders, they denied that Gramercy, the investment fund that was part of the solution of the suits by foreign companies in the ICSID and which is negotiating a solution with the holdouts, had participated in the agreement. Another example, related intimately with the Repsol issue, is the authorization for oil companies that, with the price agreements expiring yesterday, they advance with new increases in fuel prices.
The other main points are the cuts in subsidies in public services – which resumes the “fine tuning” strategy of the period of Boudou as Economy Minister, halted after Cristina Kirchner’s re-election in 2011 – and the normalization of public statistics to avoid new IMF sanctions, among others. Nor is it expected that there will be, in the short term, a new injection of funds to the population, after the rise in the minimum income tax rate, already eaten up by inflation.
Kicillof, who tomorrow will finish naming the assistant secretaries that will join his team (and then he will work on the national regulatory directors at Economy), will try to consolidate his power by cutting off AFIP chief Ricardo Echegaray, to tax collection and oversight, and Industry Minister Débora Giorgi. Equally, for their good ties to the President, neither is expected to be removed.
Reserves run the risk of running out, says Bloomberg
Tuesday, November 26, 2013
If the recently named Economy Minister, Axel Kicillof, says that Argentina has to save dollars, the government is spending as much cash as it is lent to end up without reserves in foreign currency before the end of the current administration. The international reserves fell at a rate of US$1 billion per month until they reached US$31.7 billion, the lowest rate in almost 7 years. At that rate, the government will run out of its reserves at the end of 2015, when it will face bond payments abroad for US$13.2 billion, according to data compiled by Bloomberg that excludes dollar deposits by Argentines in the banks. “We are seeing the consequences of thinking that we could use the reserves like a government piggy bank and that we could survive in total isolation from the world,” said Martin Redrado in a phone interview, the former BCRA president who now leads the Fundación Capital. Kicillof “probably will continue implementing the same policies that brought us to this situation, despire their clearly being unsustainable.” Argentina’s reserves today cover 5.3 months of imports, the lowest proportion since 1981, compared to 18.9 months covered by Brazil’s.