Once Kindred Spirits, Brazil, Argentina Diverge on Economic Management

Once Kindred Spirits, Brazil, Argentina Diverge on Economic Management

Two weeks ago, the government of Argentinian President Cristina Fernandez de Kirchner announced the seizure of two rail lines operated by Latin America Logistics (ALL), Brazil’s largest private transportation company. Florencio Randazzo, Argentina’s interior minister, echoed a 2012 government report that cited “grave” violations of a 1999 railway contract with the company, including failure to invest sufficient resources in Argentina and refusal to pay large fines, as the reason for the nationalization.

The railway seizures mark the latest in a string of nationalizations in Argentina that includes a $24-billion pension fund, Argentina Airlines and, last year, the government’s seizure of the largest privately run natural gas company in the country. The nationalizations appear unlikely to stop: “If the government has to take over more railways we are willing to do so,” noted Randazzo. “We want to reduce our freight costs.”

The quickening pace of the nationalization drive also seems to vindicate the December 2012 decision by Vale, a Brazilian mining giant, to shutter its $6-billion project to mine potash in Argentina because of the unpredictable business environment under Fernandez. In that case, the ensuing spat included an Argentinian court ruling that required Vale to continue paying its 6,500 Argentinian employees. Significantly, Vale stuck by its decision, despite the fact that Brazil, unlike with so many other commodities, relies on imported potash.

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