“Don’t buy from anyone who raises prices. Buy from other people. Defend your pocketbook and the country,” implore the advertising posters throughout the city of Buenos Aires. They were written by a group called “K Youth,” which backs the call of President Néstor Kirchner to carry out a boycott against Shell, the Anglo-Dutch oil giant, which has raised fuel prices in Argentina. This is only one example of the controversy that erupted last week. It now involves officials in Argentina and other countries, the news media, interest groups, business executives, protesters and consumers.
It all started on Wednesday, March 9, when Shell announced that it was raising fuel and oil prices by between 2.4% and 4.6% as a result of the global rise in petroleum prices. Faced with that prospect, Argentine President Néstor Kirchner emerged on the scene, calling for a boycott of the oil company. He called Shell “the worst of them all,” and asked consumers not to buy its products. According to Kirchner, “This is the best thing you can do when they want to charge more than they should,” reported Expansión, the Spanish business newspaper.
By midnight, two other companies had also raised their prices: Esso, which is American-owned; and Sol, which is owned by Ancap, a Uruguayan state-owned firm. However, Ancap, in response to pressure from Uruguayan President Tabaré Vázquez, reversed course, saying it would not support any price hikes. Meanwhile, Brazil’s Petrobras said that it intended to maintain its prices at current levels for the time being.
Almost immediately after Kirchner’s announcement, strikers known as ‘piqueteros,’ affiliated with the government, organized noisy protest demonstrations at Shell service stations. They carried signs and inscriptions that showed black fumes coming from gasoline pumps.
Federico Rey Lennon, professor of corporate marketing and business communications at Argentina’s Austral University, criticizes Kirchner’s approach on several grounds. “It shows an authoritarian attitude on the part of the government, almost like a gang leader launching loyal groups of picketers to pressure gas stations. In addition, these sorts of practices are not democratic, and they do not provide what the country needs, which is investment capital that is serious about rebuilding its economic structure.”
Arguing For and Against
The repercussions of the boycott have reached as high as Rodrigo de Rato, head of the International Monetary Fund. Rato came out against the boycott, and demanded that “Argentina respect foreign investment. For the IMF, it is essential that there are rules for investment, both domestic and international, which are clear and are respected when it comes to the functioning of the private sector.”
José Pablo Dapena Fernández, MBA coordinator at CEMA University, also opposes Kirchner’s demand. “The government has taken an approach that is completely negative because it incites public coercion. Within a framework that shows respect for the consumer, you assume that a private enterprise can set prices and that the consumer can decide what to do [in response].”
The news media have also come down hard on Kirchner. El Pais, the Spanish newspaper, said in an editorial: “The Argentine president loves to use these techniques of intimidation. Remember his visit to Madrid last year, when he accused Spanish companies of worrying more about negotiating price rises than about guaranteeing basic services in his country. Spanish banks and corporations are behaving with extraordinary patience in Argentina; they have tolerated the consequences of repeated economic depressions; suffered ‘peso-fication’ [forced conversion of their U.S. dollar accounts into Argentine pesos, at an unfavorable exchange rate], and they have accepted price freezes.”
Despite the flood of criticism, Argentina’s chief executive continued his attacks, and guaranteed that he would punish Shell and Esso both economically and in the courts.
According to Rey Lennon, these sorts of comments are “political harangues that respond to the current situation.” They reflect a populist style in an election year. But “that doesn’t mean they are not effective in a country where 40% of the people are poor.” Within a few months, legislative elections will take place in Argentina. Fernández agrees. “You get the feeling they are settling political scores. You don’t know what is really going on behind the scenes.”
Not everyone is critical of Kirchner. Shortly after the President called for a boycott, Argentina’s business association, known as the AEA, issued a statement backing the government’s concern for the impact of rising oil prices, given that prices of meat, wheat and other products have also risen. “Anything that can be done to fight inflation is good because every increase has a very significant impact on those segments of the population that have limited resources,” said a statement by the AEA. Nevertheless, the AEA said that the government has resources for resolving this problem, including “fiscal and monetary tools, as well as competition policies. It is a proven fact that the best way to stop inflation is to support competition.”
In that sense, Fernández notes that the government “has to act whenever it has reason to suspect negative market practices, such as oligopoly. It can make recommendations, but it cannot force people. The role of the government is limited to defending competition.”
For their part, consumer advocates have a different view of the situation. On the one hand, Argentina’s Association for the Defense of Consumers; and the Argentine Confederation of Midsize Enterprises have all denounced the “oligopolistic behavior” of Esso and Shell. On the other hand, Ana María Luro, president of Adelco, a consumer group, wrote in “La Nacion,” the Argentine newspaper: “It would be interesting if, in addition to these concerns, the authorities would consider the tax burden imposed on services and products. For example, in the case of gasoline, taxes comprise 60% of the price. Consumers are not stupid. At our consumer association, we don’t think we should have to resort to picketers to defend ourselves.”
Who Suffers Most
Those who defend gasoline retailers warn that the government’s strategy will hurt small businesses. It just so happens that of the 900 Shell retail outlets, only 160 belong to the company [Shell]; the rest are privately operated.
Despite all this turmoil, Shell has maintained a low profile, and it denies having any plans to abandon Argentina. “When you have nothing to say, it is sometimes better to say nothing,” said Rey Lennon. “I believe it must have evaluated the consequences of its behavior. Given a President who needs to demonstrate his strength and popularity, and a press that mostly repeats the official line, any company that decides to challenge the government must be aware of the risks involved.”
Nevertheless, the consequences for Shell are already visible. So far, it has shut down two service stations in the city of Córdoba because of plummeting sales (down about 70% nationwide). “We are small businesspeople who are bound by five-year exclusivity contracts,” complained the owner of one service station that experienced a 60% revenue drop. He had to lay off eight employees.
Economists and analysts are concerned about the impact of the boycott on the investment that Argentina must attract in order to keep growing. “The government’s attitude does not help attract investors, who need clear guarantees and clear rules of the game,” said Fernández. “Investments have to make a return, and this sort of conflict raises prices. This has generated negative publicity both for foreign and domestic investors.
“This was supposed to be a year when investment would recover,” Fernández added. “But several questions remain unresolved. There is no clear horizon regarding inflation or the exchange rate, and other matters. Yet, some investments continue to come in because, from the macro-economic point of view, the country is going through a stable period, and the ministry of the economy is taking a serious approach” under the leadership of economist Roberto Lavagna.
In that respect, Rey Lennon notes, nowadays “there are more serious reasons for deciding not to invest in Argentina than a stirring speech given by the President. These reasons include, for example, drug trafficking on Argentina’s Southern Winds airlines and the lack of an independent judicial branch.”
This much is clear: Kirchner is a popular figure. “The public has mixed feelings about the government. Some people agree with him, and others think that he behaves badly. In a democracy, people express these views,” says Fernández. “Perhaps all of this will be forgotten in a month, and it will be just a footnote.”
However, Carlos Malamud, chief researcher for Latin America at the Real Instituto Elcano, believes this case has greater significance. In addition to taking a populist measure, the government is “using picketing groups to put more pressure on Shell and other companies.” Malamud is referring to the privatized companies whose prices were frozen during the crisis of 2002. Ever since then, those companies have been trying to reach an agreement with the government to raise their prices. Malamud sees the Shell situation as a way to help the government “lower the expectations of those privatized companies that are about to renegotiate their contracts.”
