Criminally Bad Business Decisions in Argentina

During the 1974-2002 epoch in Argentina, it was a criminal offense for a business owner to make bad decisions. According to Ian Mount, author of The Vineyard at the End of the World, one victim ensnared by the law was a banker and investor in wine and grapes.

Owners of Argentina’s largest wine business, with almost half of the market, Héctor Greco and his associates were charged with monopolistic practices and the Orwellian crime of “economic subversion.” The three businessmen were bundled off to prison, and their empire, with its twelve thousand employees spread across forty-seven businesses (including a newspaper, three banks, and three dozen bodegas), quickly ceased to exist. Almost overnight, the Argentine wine boom ended.

“Economic subversion” may seem “Orwellian” to Ian Mount and others from rich countries, but it seems reasonable to Argentines. According to International Development Economics Associates,

On May 30, 2002, the Argentine senate voted to repeal the 1974 economic subversion law criminalising bad business decisions and capital flight in an effort to meet conditions set by the International Monetary Fund (IMF) for issuing new loans to the debt-ridden nation…. Of the many demands made by the IMF for renewed aid to Argentina, three had generated particular controversy and resistance from Argentine commentators, politicians and the public: changes in the bankruptcy law, a repeal of the law of economic subversion, and demands for a reduction of state spending in the provinces…. In fact, during the recent heated legislative debate on the bankruptcy and economic subversion laws, one legislator, Alicia Castro, raised the U.S. flag and said, “If you are going to pass these laws, you might as well take down the Argentine flag and put this one up instead.”

The IMF, whose most important member is the US, was emphatic that the economic subversion law must be repealed, leading to the heated debate in the Argentine legislature and the huge public protests across the country. The change in law is likely to bail out business and banks accused of playing a role in the veritable stampede of financial capital from the country at the end of last year….

The multilateral institution was against the economic subversion law because it could be used to prosecute bankers. The law was used by Argentine investigators to go after banks like Citibank who they claimed had illegally transferred large amounts of money out of the country, triggering last year’s economic collapse and wiping out the savings of thousands of middle and low income people when banks froze their accounts. Argentina’s Federal Police had begun an investigation into charges that the US-based Bank of Boston and Citibank had carried out massive and illegal looting of deposits from its Argentine branches. According to the charges made, the banks had organised the loading of some $26 billion in cash on to trucks that were taken to the Ezeiza international airport and then flown to the US just before the then-president Fernando de la Rua announced the corralito withdrawal restrictions on December 3, 2001.

Ian Mount offers another insight about a psychological difference between rich and middling countries:

There is a cultural reason for the mogul’s awkward position in the wine community. Argentina offered prosperity for many hardworking settlers, but with the rise of invasive and corrupt governments after the Great Depression, achieving real wealth often required unfair backroom deals. In this context, a growing fortune is often not seen as something to be respected; rather, for many it must be a fruit of something unfairly attained. That Catena bested his colleagues didn’t help, notes Miguel Brascó, the doyen of Argentine wine writing: “Acá no lo quieren mucho. Hay . . .” (“Here he is not well loved. There’s . . .”), Brascó says—and then he rolls out a word in English for emphasis—“envy.”

Laura Catena and Nicolás Catena Zapata, courtesy of Wikipedia.

Most other Latin Americans are also envious of rich people and assume that they became rich from corruption. Chile is an exception, electing a rich man as President, Sebastián Piñera. I can’t imagine Mexico electing Carlos Slim, one of the richest people in the world, as President. Rather than denigrating him, Argentina should celebrate Nicolás Catena as a national hero. According to Wikipedia:

He went to the United States as a visiting professor at University of California, Berkeley, and during his time in the San Francisco Bay Area was inspired by California wines.

Upon returning to his home country, he introduced modern European winemaking and viticultural techniques to Argentina, including small French oak barrels, drip irrigation and low yielding French Chardonnay and Cabernet Sauvignon cuttings, extremely low yields and plant-by-plant selection. He developed Argentina’s first patented selection of Argentine Malbec clones – the Catena cuttings – and dedicated himself to studying Mendoza’s high altitude vine growing conditions.

For his pioneering work and vision to elevate the stature of Argentine wine worldwide, Nicolás Catena has received numerous awards and has been compared to the likes of Angelo Gaja and Robert Mondavi.

According to Ian Mount, Argentina couldn’t compete before Nicolás Catena transformed the industry.

Inside the Argentine wine industry, isolation was exacerbated by complacency. Because the country had a government bureaucracy that regulated endlessly and a compliant and thirsty public that would quaff anything put in front of it, winemakers had little incentive to improve their product. “Until the 1990s, Argentina was a country where the influence of state regulation had an incredible weight,” says Juan Viciana, a longtime Mendoza grape grower. “We had twenty or thirty years of a captive audience. We didn’t have quality in mind; we had regulations in mind.” For winery owners, the goal had long been to produce more for less, which instead of increasing quality contributed to its inexorable decline.

Related Posts:
Vineyards in Mendoza, Argentina: A Profitable Hobby?
Terroir: Vineyards in Chile and Mendoza
Protectionism in Argentina
Electronics Manufacturing Lunacy in Argentine Patagonia

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