Mexicos oil monopoly

1
Mexicos oil monopoly

• Pemex, government run energy company, leading
  supplier of foreign oil to U.S.
• Symbol of Mexican nationalism since Govt
  nationalized U.S and British oil companies in
  1938
• Charges that union at Pemex helped funnel
  millions of dollars from the company to the PRI
  party, in return for favors in assigning drilling
  contracts political graft

2
Turkey

• Justice and Development party led by
  controversial leader comes to power
• Convicted in 1998 for reading a poem that incites
  religious hatred
• Opposed joining the EU
• Committed to a moderate secular Turkey, and to
  joining the EU
• EU enlargement

Source NY Times
3
Free Trade Area of the Americas

• Views of the trade ministers
• More trade, foreign investment, open borders are
  better (specifics to be worked out)
• Views of indigenous, antiglobalization groups
• Impact of foreign oil and mining companies on
  rainforest)
• Farmers that could be wiped out by foreign
  imports
• Local companies that cannot compete
• FTAA goes beyond trade (rules for doing business,
  labor and environmental rules)
• Mexico and Chile

Source NY Times
4
YPF Sociedad Anonima

• Discuss the problems existing at YPF when
  Estenssoro and his team took over in 1990
• Evaluate the transformation process at YPF and
  the outcomes it achieved
• Should YPF become a multinational firm? Why or
  why not?
• Examine the opportunity to acquire Maxus Energy
  pros and cons. Should YPF pursue this opportunity?

5
Problems at YPF

• Characteristics of poorly managed state owned
  firm
• Overstaffed
• Loss making operations
• Unfocused Operated unrelated activities like
  hospitals, schools, housing and utilities
• Bureaucratic culture Leaders not cost/profit
  oriented, centralized and hierarchical structure
• Deteriorating assets underinvestment in plant
  and equipment, delaying maintenance

6
Transformation at YPF

• Redefinition of core businesses and elimination
  of non-core activities (obsolete refineries,
  schools, hospitals) McKinsey prescription
• Restructuring Downsizing through generous
  severance packages, mandate from Menem (reduced
  labor opposition), creating new structure
  (autonomous SBUs)
• Positioning of the firm for sale Involvement of
  CSFB, Merrill Lynch
• Government role legal framework to permit
  privatization and deregulation of the industry,
  identification of key pressure group and defusing
  their efforts to oppose

Source AME
7
YPF acquires Maxus Energy

• April 1995 YPF acquires Maxus
• Deal seen as vital to establishing YPF as an
  international oil and gas company
• Maxus assets in Indonesia (divested last year),
  Venezuela, Ecuador, Bolivia and the U.S.
• Repsol acquired YPF in 1999
• Breaks notion that oil giants are off limits to
  outsiders

8
Populist Pat

• Pat Buchanan preaches
• America First economic patriotism (Defender of
  American workers and protectionist trade hawk)
• Rails against corporate executioners (ATT, GM,
  Wal Mart)
• Stock portfolio
• YPF, China Light and Power

Source Boston Herald
9
Argentina

• Prospect of default to World Bank and private
  creditors (already defaulted on loans to private
  creditors in Jan)
• After first default, instituted exchange
  controls, froze bank assets, to avoid capital
  flight
• Currency has lost 70 of its value, banking
  system has collapsed, unemployment is more than
  20
• Wave of violent crimes social instability,
  riots outside parliament
• Negotiating with the IMF to roll over payments
• If you owe the bank 100 it is your problem. If
  you owe the multilateral institutions 13 bn., it
  is their problem

Source Financial Times, Economist
10
Argentinas currency board

• Problems in turning closed, ill-managed emerging
  economies into sturdy free market economies
  Russia, Indonesia,
• Currency Board Fix the value of the currency to
  the (at parity), Back all pesos with dollars
  held in reserve (halts inflation)
• Political issues - Provinces allowed to run big
  deficits and shelved reforms to make companies
  more efficient
• How to fund deficit spending? New dollars via
  exports, investment or debt

11
Argentinas currency board

• 1999 Brazils devaluation (Argentinas largest
  trading partner)
• Imports soar, while exports plunge, creating
  trade deficits
• Growing public debt aggravated by irresponsible
  spending at provincial level, corruption and tax
  evasion
• Severe recession and increasing unemployment

12
Are currency pegs good?

• Control hyperinflation
• Create confidence in foreign investors
• Increase capital and debt inflows promoting
  economic growth
• Can work with fiscal discipline and no political
  constraints

13
Is it good to be big in a globalizing economy?

• Oil sector Exxon Mobil, BP Amoco,
• Automobile Daimler Chrysler, Ford Volvo,
  Renault Nissan
• One capitalist always kills many Karl Marx
• Emphasis on growth, exploiting stock prices, herd
  behavior

14
Lessons from late movers

• Competing against established giants from Europe,
  Japan and U.S.
• Crippled by a vision of themselves as second
  class citizens
• Breaking out of the marginal mindset
• Stan Shihs smiling curve

15
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