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Argentina Leaves Door Ajar to Soy Nationalization Back-Flip

Jonathan Gilbert and Patrick Gillespie

(Bloomberg) -- Days after shocking investors and farmers with a plan to nationalize the nation’s top soybean processor, Argentina is opening the door to a less dramatic rescue strategy.

After meeting with President Alberto Fernandez late Thursday, Vicentin SAIC said the government is at least willing to consider other ideas to avoid expropriation.

While the government still plans to take control of the bankrupt firm, the fact that it’s now open to alternatives is a breakthrough for Vicentin. Monday’s nationalization announcement has been slammed by the agriculture industry, businessmen and even pot-banging protesters from Buenos Aires to Avellaneda, the town in Santa Fe province where Vicentin is based.

“The president has been very clear,” Santa Fe Governor Omar Perotti, who was at the meeting, told reporters. “His objective is rescuing the company. He’s in a process where expropriation is one mechanism, but what’s emerged from the talks is that if better proposals are put forward, the president is willing to listen.”

In a statement, Vicentin said the government would analyze other types of public-private partnerships to save it from nationalization. On Friday, Fernandez said the government isn’t seeking to nationalize more businesses, but didn’t want to see Vicentin go into foreign hands.

“We’re rescuing a business that if it went on like this, it would cease to exist or fall into hands and capital that aren’t Argentine,” Fernandez said on a visit to La Rioja province.

Opposition leaders, farmers, economists and even a close former ally of influential Vice President Cristina Fernandez de Kirchner said nationalization would only complicate the country’s critical debt negotiations with private lenders.

Because a court is overseeing Vicentin’s bankruptcy, the executive branch is also being criticized for encroaching in judicial matters in a nation with a long history of such tensions.

“There’s no need to expropriate Vicentin,” said Marcos Buscaglia, an Argentine economist and co-founder of consulting firm Alberdi Partners. “The nationalization could cost the government dearly and derail debt-restructuring talks.”

Fernandez announced the nationalization Monday without notifying Vicentin executives beforehand.

A nationalization may curtail his recent surge in the polls, boosted by Argentines who didn’t vote for him in last year’s election. In March, he implemented one of the strictest Covid-19 lockdowns in Latin America, earning praise as neighboring Brazil became a hot spot of the pandemic.

However, the Vicentin takeover is reviving unpopular memories of the second term of now-deputy Kirchner’s presidency. After expropriating oil company YPF SA in 2012, the following years saw her approval ratings slump and her party voted out of office.

Read More: New State Soybean Giant Eyed Suspiciously by Argentine Traders

Indeed, the plan to nationalize Vicentin is reigniting debate about who really is in power in Argentina: President Fernandez or Kirchner.

A poll by Buenos Aires-based pollster Management & Fit shows 47% of Argentines believe the decision was Kirchner’s, with only 23% saying Fernandez made the call on his own. Forty-seven percent also disagreed with the expropriation; just 21% approved.

“The government’s biggest challenge is gaining the public’s trust,” said Mariel Fornoni, Management & Fit’s director. “The ability to start building trust has been fundamental for Fernandez, and these types of things lose it.”

Kirchner’s second term, from 2011 to 2015, also saw contentious policies to reform Argentina’s judiciary in what critics labeled a move to amass power in the executive. Now, the constitutionality of the Vicentin nationalization is being questioned because a judge is already in charge of the company’s bankruptcy.

“We express the importance of respecting the division of Argentina’s republican powers,” the country’s grain exchanges said in a statement.

Production Minister Matias Kulfas said in an interview that provincial Judge Fabian Lorenzini’s rulings will be respected.

Read More: Panic Sweeps Argentine Pampas as Farmers’ Old Nemesis Returns

The planned takeover of Vicentin has realized the farm industry’s worst fears under Fernandez: state meddling in its business and the potential to unbalance grain markets.

“State intervention implies the risk of distorting equilibrium prices,” Argentina’s main crop associations said in a statement. “State-run companies have different priorities to private companies; they don’t necessarily need to be profitable.”

That sort of negative reaction may be scaring Fernandez, who’s well aware of the risks of fueling a feud with the country’s farmers.

Back in 2008, when Kirchner was in charge and Fernandez was her chief of staff, a move to hike export taxes during a commodities boom turned into a political crisis after farmers across the country protested and blocked roads. Kirchner eventually lost a vote in congress and Fernandez resigned, staying out of public office for more than a decade until he became president in December.

Read More: A Default Rocks the Argentine Brokers Who Sell Soy to the World

Vicentin defaulted on debt at around the same time after over-stretching itself with credit to farmers. Ironically, it was the figure of Fernandez who precipitated the firm’s downfall. After it became clear he’d become president and probably raise export taxes, farmers rushed to tie in contracts.

It felt, some said, like a bank run. And in the end, it led Vicentin, the 91-year-old firm specializing in exporting soy meal and oil, to file for bankruptcy, saying it couldn’t meet a $350 million payment owed to suppliers and that it’d seek to restructure about $1 billion in debt.

Judge Lorenzini said in March that the company’s defaulted obligations totaled 99.3 billion pesos ($1.4 billion).

(Adds comments from president in sixth paragraph)

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