Argentina's Great Phone Sale Stalls
LATIN AMERICA: PRIVATIZATION
BUENOS AIRES — ARGENTINA'S long-suffering telephone customers must go on waiting for deliverance. Monday's planned privatization of ENTel, the inefficient state phone company, had to be postponed. The delay is a setback for the government's economic policy, say businessmen and foreign diplomats here. The sale of ENTel was to be the largest privatization in President Carlos Sa'ul Menem's drive to trim the public sector.
Mr. Menem has made his privatization program the keystone of his economic recovery plan. Nearly 40 companies from Argentina's bloated state sector have been sold off so far. Though few observers believe the difficulties with ENTel are grave enough to change the direction of government policy, the confusion has proved embarrassing.
Putting off the privatization indefinitely ``has hurt the government certainly,'' one official admits. ``But it is not fair, because it is not our fault.''
Though trouble had been brewing behind the scenes for some time, the storm broke last Thursday when a consortium led by Bell Atlantic, which had won the bidding to take over half of Argentina's telephone network, refused to sign the purchase contract.
The price of the state-owned company included buying up a chunk of Argentina's foreign debt. Manufacturers Hanover, Bell Atlantic's bank, was unable to attract the $2.3 billion in Argentine foreign-debt paper that made up the bulk of the price. The bank does not hold that much debt itself and other banks refused to come in on the deal they were offered.
One businessman in the Bell Atlantic consortium criticized the bank for ``irresponsibility'' in its financial negotiations. But the consortium itself was also unable to come up with its share of the $100 million cash price and admitted at the Thursday deadline that it was not in a position to sign a contract to take over ``Northern Telco,'' on Oct. 8. This was a major blow to Bell Atlantic, which had invested about $3 million establishing operations in Buenos Aires.
The government refused to give Bell Atlantic any more time to find the money, however, and handed the northern zone to a European consortium composed of Italy's state-owned STET phone company and the French public company France Telecom, which lost the bidding in June. But France Telecom is asking ``for a month at least'' to sign a contract. The Spanish company Telefonica, which had won the rights to operate the the southern telephone network, is refusing to sign until STET does so.
Negotiations between the government and STET on the new contract will take ``between 15 and 30 days,'' Menem said this week. Officials of the company say they need at least that much time to study technical details of ENTel and are asking for 90 days in which to find the necessary debt papers.
The delay is politically damaging to Menem, diplomats say, because of the importance he attached to transferring ENTel into private hands by Oct. 8. He repeatedly insisted that, whatever the problems, the government would respect that deadline to show its determination to forge ahead with privatization. Only at the last minute did he accept that the deadline was unrealistic.
``He was unnecessarily stubborn about the date,'' argues one Western diplomat. ``That won't improve business confidence.''
``Menem made a mistake by insisting on Oct. 8. But this is only a setback,'' a government official says. ``It doesn't call into question the privatization program itself.'' As if to drive that point home, Menem signed a decree last Wednesday launching the privatization of water, gas, postal, and electricity services, among others, ordering that they be completed within six months.
The speed at which the government has pushed the ENTel sale ``was bound to make things messy,'' says a businessman involved in the deal.
And having got so far so fast, ``I'm surprised Argentina didn't do everything it could to accommodate Bell Atlantic,'' the diplomat added.
Neither Menem nor ENTel chief Maria Julia Alsogaray disguised the fact that they hoped Bell Atlantic would win the business. The president has promised the Argentines that the privatizations would inject private foreign capital into the country.
``It is ironic,'' points out a Western diplomat, ``that so far they have been able to sell their public companies only to other public companies.'' STET, France Telecom, Telefonica, and Iberia (Spain's national aireline and future owner of Argentina's airline) are state owned European firms.