international business aspects of Argentina

international business aspects of Argentina

The present paper aims to discuss the international business aspects of Argentina. It will start by explaining the costs and benefits of foreign direct investments (FDI) inflows. Then deeply describe the expatriation of YPF.

FDI inflows in Argentina result in several benefits and costs. The inflows lead to growth and investments, which has an impact on labor productivity, innovation, and trade. After the acquisition of a domestic organization, reinvested earnings expand the organization, thus gradually growing productivity. The expansion also increases the export propensities and the introduction of new products in the market. According to Chudnovsky and Lopez, FDI also affects the social and environmental aspects. Unemployment is decreased, due to that, the economy stabilizes as the GDP increases. The specialized workers are favored as their wage is seen to upsurge. However, there are certain limitations; wage inequality deteriorates, which is evident from a survey report on wages, the status of employment, and family features. The commercial systems created by these inflows partake in management activities of the environment. With time, they, in turn, generate environmental spillovers that are positive and subsequently advocate for modest, clean production management approaches. On the other hand, negative FDI inflows result in costs such as substantial shifts of FDI origins. For instance, in the commencement of 2000, the investors’ portion of the United States and Europe contracted drastically (2008).

Repsol vs Argentina

In 1999, Repsol, a multinational corporation headquartered in Spain, acquired YPF (an Argentina based oil company that specializes in exploration manufacturing, refining, and commercializing oil products) by buying roughly 98% of its shares at $15 billion. In 2011, Repsol-YPF revenue international trade decreased for the first time since its acquisition. It resulted in the breakdown of the relationship between the resident government and the firm. However, reports state that this was a conspiracy action by the government due to the newly identified vast hydrocarbon reserves in Vaca Muerta. From accounts of Repsol, the reserve had 12 billion barrels of oil, thus increasing Argentina’s resources by 1000%. Due to this, the government initiated action to expropriate YPF.

The President, Cristina Fernández, spearheaded the expropriation process. She introduced a bill in April 2012 that would carry out the renationalization. The bill stated that 51% of Repsol-YPF shares would be distributed to the federal government and provincial governors, with each having 26.01% and 24.99%, respectively. These forced Repsol to initiate legal proceedings meant to demand compensation, which the government was reluctant to do. They received support from entities like High Spanish Civil Service, the U.S. Securities and Exchange Commission, and Southern District Court of New York. Corresponding to the judicial course and the lack of investors, the Argentine government struck an agreement with Repsol. They would compensate them with different varieties of bonds and offer a nominal amount of $5 billion. Repsol agreed to this as the lawsuits were expensive. On May 9, 2014, the agreement was finalized, and on 23rd of the same month, Repsol had sold all its shares (Fernández et al., 2019).

Bestowing to this act, I do not think Repsol can make decisions that offer reasonable interest to Argentina.

Manager Positions

If I was a Spanish manager and had to act on the issue of expropriating our company, YPF. I would seek help from international bodies to make a common cause with the Argentine government. The bodies include the United Nations Commission on International Trade Law (UNCITRAL) and the International Centre for Settlement of Investment Disputes (ICSID). Nonetheless, if I was an Argentine Manager, I would have sought help in The Supreme Court of Argentina.

Renationalization bill for YPF

Since the 1990s, the leading foreign investors in Argentina were Spain and the U.S., with interests toward banking sectors, privatized public services, and energy territory. During 2001 when they suffered an economic crisis, their direct investment drastically decreased from $34 billion to $2 billion, and they had to wait up to 2007 for the FDI boom.

After the nationalization of YPF, detrimental effects happened to the nation’s business area. FDI depreciated rapidly. FDI fell to $9 billion from $ 12 billion in 2012-13. Additionally, the degree of acquisitions and mergers by foreign firms dropped. Transactions of this type were only two in 2012. Both related to the energy sector (Fernández et al., 2019).

The Argentine Congress responsible for passing the Fernandez’s renationalization bill for YPF was the Senate of Argentina and the Chamber of Deputies. If I were one of these members, I would not have supported the bill. I could have reflected on the crisis of 2001, then applied it in making the judgment. The most apparent consequence was that the country would lose credibility, thus chasing away the investors as highlighted above.

Compensation to Repsol

Repsol was compensated with a nominal amount of $5 billion. It is because the market capitalization of YPF was $ 10 billion, and the state sought 51% for renationalization (Moreno et al., 2013). In my view, this amount is fair as they were also compensated with different types of bonds – BONAR X, DISCOUNT 33, BODEN 2015, and BONAR 25- valued more than $320 million. On top of it, the government claims to have spent $9 billion the previous year on the fuel imports of YPF.