Repsol looted Argentina, privatization falters

Repsol Played the Derivatives Game to Loot Argentina


Richard Drayton, a professor of imperial studies at Kings College in London, penned a detailed and revealing expose in the May 2 London Guardian of exactly how the "Spanish" Repsol oil company looted Argentina through extensive speculation in financial derivatives. As one commentator put it, a more apt name for Repsol would be "reptile" (with apologies to the reptiles).


Argentina's expropriation of 51% of Repsol's holdings in YPF wasn't just a display of populist demagoguery, as Wall Street and London assert, Drayton notes. 


In reality, it was a response to "the failures of privatization and its toxic connection to complex forms of financial speculation." Drayton points out that both in the case of Bolivia, which just nationalized the Red Electrica Espanola (REE) company, and Argentina, there was an extraordinary process of asset-stripping "driven by the priorities of bankers in London and New York."


In both countries, investment was nil, as the priority was repatriation of dividends. In Bolivia's case, only $81 mn. had been invested in the electricity grid since lunatic free-marketeer President Sanchez de Losada privatized it in 1997!



And, Drayton charges, "behind the Repsol-YPF affair, in particular, was something very close to the sick capitalism that caused the 2008 crisis: high-yield, high-risk assets, sliced and diced via complex derivatives."


In essence, Drayton shows, Repsol led a double life. One involved producing, transporting, refining and marketing oil; in the other it served as "a proxy for gambling on oil as a commodity and, through derivatives, for speculating on that speculation." Over the past decade, Repsol saw YPF's main value "as collateral on the basis of which debt could be contracted." Forget about oil and gas production and sales.


Under Repsol, YPF paid incredibly high dividends to its foreign owners, which it paid for by {borrowing.} Debts soared, and Argentine oil went undrilled. Yet, as Drayton shows, "Repsol banked huge profits and `invested' Argentine capital elswhere in its corporate structure.... Madrid got the juice, but the liabilities all fell on Buenos Aires." 



Because of its high dividends, Repsol was able to cash out of 25% of its YPF holding by selling it to Argentina's Eshkenazi family, with the capital coming from Credit Suisse, Goldman Sachs, BNP Paribas, Standard Chartered and Citibank. Banks then made money buying and selling derivatives contracts on Repsol and YPF debt.


Drayton correctly asserts that what enraged the City of London, Wall Street and their various media outlets about the YPF nationalization wasn't profits, or the precedent that YPF's nationalization might set for future nationalizations. 


Rather, it was "provoked by Argentina having interrupted a chain of securitization anchored in the real world by its oil at one end, but with investment banks in London and New York, the holders of swap and other derivative liabilities on Repsol and YPF debt, at the other."