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Buying time

Though the IMF stepped forward with a much-needed $40 billion bailout, the peso remains yoked to the dollar and the threat of a new debt crisis remains.

Though the IMF stepped forward with a much-needed $40 billion bailout, the peso remains yoked to the dollar and the threat of a new debt crisis remains.

By Jonathan Kandell
March 2001
Institutional Investor Magazine

Though the IMF stepped forward with a much-needed $40 billion bailout, the peso remains yoked to the dollar and the threat of a new debt crisis remains.

In December, Argentina received quite a Christmas gift: a $40 billion International Monetary Fund rescue package all done up in festive red tape.

Unlike many past IMF bailouts, moreover, this one materialized before the beneficiary had suffered economic collapse. Yet with some $124 billion in foreign debts and a recession grinding away in its third year, Argentina was at palpable risk of default - an event that would have sent (and might yet send) shock waves through the world's financial markets. Now, with the IMF's imprimatur, the country has been able to reenter foreign capital markets to raise critically needed funds, including $700 million through a treasury bill auction on February 6. But the threat of default has merely been deferred: Argentina must grow its way out of a debt crisis that is barely in abeyance.

This is the intent of the bailout. A mix of fresh loans and rollovers to be doled out over the next two years by the IMF, the World Bank, the Inter-American Development Bank, the Spanish government, private foreign banks and Argentinean financial institutions, the package is aimed at reducing the government's borrowing and thus lowering interest costs for Argentinean companies. In turn, this should stimulate investment and growth. Fortuitously for Buenos Aires, the package coincided with the U.S. Federal Reserve Board's interest rate cuts and the euro's strengthening against the dollar. Argentina, whose peso is pegged to the dollar, exports as much to Europe as to the U.S.

As a condition of the bailout, Buenos Aires has pledged to clamp down on public spending, especially at the provincial level, where graft and patronage are rampant. To achieve further savings, the government is deregulating the health care system so that employees can opt for private plans, phasing out what remains of Social Security in favor of private pensions and raising the retirement age for women to 65, from 60.

"Investors can have full confidence that the country is financially secure," asserted President Fernando de la Rúa in a January interview with Institutional Investor one month after the bailout was announced (see box below). Minister of the Economy José Luis Machinea was even more emphatic. "This is an economy that is growing," he announced the following day at a press conference.

Scarcely anybody else seems to believe a turnaround is already evident. "The bailout gains time for Argentina, but a lot less than the government is betting on," says Pedro Lacoste, a Buenos Aires economist and the head of Pedro Lacoste y Asociados, whose credibility has risen because he predicted the debt crisis more than a year ago. "If by April or May at the latest, Argentina fails to show clear signs of economic reactivation, we are going to be in deep trouble again."

This tough-minded assessment is shared by leading emerging-markets analysts. "We're raising Argentina to a neutral rating for the first time in 15 months," says Joyce Chang, head of emerging-markets research at J.P. Morgan Chase Securities in New York. "But if we don't see growth by the end of the second quarter, then everybody will price them out in the second half of the year." Even with the huge bailout, adds José García-Cantera, the Madrid-based managing director of Latin America equity research at Salomon Smith Barney, "nothing has fundamentally changed because the main issue Argentina needs to resolve is its overvalued currency."

Paradoxically, though, the country's system of dollar convertibility is the key element of investor confidence in Argentina. How to free the peso from the dollar without igniting an uncontrolled devaluation is a conundrum for which few people in Argentina or abroad venture to offer solutions. One of the exceptions is Domingo Cavallo, who fathered convertibility in 1991 while he was minister of the economy under then-president Carlos Saúl Menem. By linking the peso to the dollar by law, Cavallo vanquished hyperinflation and became the darling of the investment community. (Technically, Argentina must keep in reserve $1 or the equivalent in gold for each peso in circulation.)

But even Cavallo thinks the rigid dollar-peso link has outlived its usefulness. He suggests that if during the next year Argentina shows moderate growth of 2 or 2.5 percent - after barely 0.5 percent in 2000 - and the euro continues to strengthen, then the peso could be pegged to a "basket" of dollars and euros. "This would help absorb external shocks," says Cavallo. A true floating rate would only be allowed after five years or more, he adds, "when it's clear to everybody that our currency inspires confidence."

Once friends, later political rivals, Cavallo and President de la Rúa have been carrying on a public flirtation in recent weeks that may open the door for Cavallo to replace Machinea should the economy continue to stagnate. Cavallo certainly sounds eager to assume the mantle of Argentina's economic savior for the second time in a decade. "The president knows that I'm willing to help the country try to solve its economic problems," he says. "This doesn't mean I'm about to join the government. That would depend a lot on circumstances."

Cavallo may be willing to tamper with his own convertibility plan, but fixed parity between dollar and peso continues to enjoy almost unanimous public support because of vivid memories of the hyperinflation that rendered the local currency worthless a dozen years ago. Blame for the country's economic troubles has instead fallen on de la Rúa, who succeeded Menem in December 1999. De la Rúa's popularity ratings, once well over 50 percent, have nose-dived below 30 percent.

"There is impatience and even anger with his style, which is widely perceived as dull and indecisive," says Manuel Mora y Araujo, a leading political analyst and pollster. Opponents ridicule de la Rúa's lack of leadership. "He thinks that all you have to do is announce reforms," says Jorge Remes Lenicov, an economist and legislator with the Partido Justicialista, as the Peronists are formally known. "But there is no follow-through. And he's not going to change, because he has been the same for 30 years."

Among business executives, bankers and government officials, there are fears that ending the parity between dollar and peso might lead to a panic and that, in any case, even a controlled devaluation, if it were possible, would bring few advantages because the vast majority of savings, debts and contracts are denominated in dollars, not pesos. Arguing that an end to a fixed exchange rate is simply not on the table, government officials insist there are other ways to increase competitiveness. "We can beat comparable countries on the costs of energy and skilled labor," says Daniel Marx, the undersecretary of finance. "Argentina's economy and companies are much more flexible than many people imagine."

Flexibility only goes so far. Companies like the Old Economy Perez Companc, a oil-and-gas producer, and New Economy Impsat, a data transmission company, are the kinds of enterprises any emerging-markets country needs: nimble outfits offering goods and services that the rest of the world wants. But even the best-managed, most desirable companies suffer from their association with Argentina (see boxes below and next page).

The strong dollar has hurt exports, and local financing is scarce. Like other Latin American bourses, the Buenos Aires stock market, the Merval, is contracting, making local equity financing difficult. The Merval jumped 25 percent in January, to 527, thanks to the lift provided by the IMF-led bailout and the decline in U.S. interest rates. But it slipped back to 485 in February and remains well off its record high of 750 in 1997. The number of listed companies on the stock exchange has fallen from 600 or so during the 1970s to about 200 today. Last year the Merval lost its two largest companies - YPF and Telefónica de Argentina, Argentina's leading hydrocarbon producer and telecommunications provider, respectively - when they were reorganized and delisted by their Spanish owners. Average daily turnover in shares reached $150 million in 1997; now, on a good day, only $30 million in stocks are traded. Perez Companc shares account for about one fifth of that total. "Globalization has certainly not favored the Merval," says its director, Eduardo Santamarina.

Argentinean private pension funds, created in the mid-1990s to eventually replace the bankrupt social security system, have sustained the market. Santamarina estimates that they account for about half of all stock transactions. But new regulations will soon permit the funds to buy foreign securities, making it harder for companies to attract local investors.

Bank financing has been all but unavailable even to the best private credits. Unable to control spending, national and provincial governments have sopped up all local bank credit to finance the country's huge debt service. Indeed, the entire increase in bank deposits last year was lent to the public sector. This crowding out of the private sector will probably continue in the near future because about $10 billion out of the total $39.7 billion bailout is supposed to come from local banks and private pension funds. "The key question is whether new deposits will be enough to compensate for the amounts required by the government," says Salomon's García-Cantera.

Bankers say that the talk of crowding out the private sector is exaggerated. "Last year we were forced to lend to the government because there was no demand from the private sector," says Daniel Llambías, senior managing director at Banco de Galicia, the largest private bank. "The healthier companies didn't want loans, and other potential clients were just too risky." He adds that most local bank commitments to the IMF-led bailout involve rollovers, not new loans to the government. "So there will be enough left over for the private sector," he says.

What part of the private sector is the question. Consumer lending isn't likely to revive soon because the unemployment rate remains high and wages keep falling. Banco de Galicia was founded in 1905 mainly to serve the needs of the huge wave of Spanish immigrants. Today many of their descendants are applying for visas to move to Spain - part of the 20 percent of Argentineans who say they would like to emigrate to Europe or North America, according to a Gallup poll taken last July. The small and medium-size businesses that create most jobs aren't likely to see interest rates for bank loans drop below 20 percent this year. That's an enormous margin in a zero-inflation country.

So resumption of credit to the private sector - a hopeful indicator of a return to economic growth - will probably be confined to larger corporations this year, according to Llambías. "Big businesses will start borrowing once the annual interest rates at Argentinean banks drop to 11 percent on a five-year loan," he predicts.

For companies like Impsat that's still too steep. "We don't see the Argentinean banking system as a potential source of financing for us," says the company's CFO Guillermo Jofré. "In fact, we have borrowed almost nothing here."

De la Rúa and the Duke: The view from the Casa Rosada

Tall, slim and courtly, Argentinean President Fernando de la Rúa makes the same impression in a one-on-one interview as he does in the larger public setting of a press conference or televised speech. He is soft-spoken, articulate, cautious, rarely passionate and never rattled. After almost four decades in politics, the 63-year-old president insists that his subdued personality - during his 1999 election campaign he candidly described himself as "boring" - is just what Argentina needs after his flamboyant predecessor, Carlos Saúl Menem.

Nonetheless, during a 90-minute talk with Institutional Investor correspondent Jonathan Kandell in the gilded grand salon of the Casa Rosada, the pink-hued presidential palace in Buenos Aires, President de la Rúa combined predictability with the occasional surprise. He reiterated his commitment to the austerity imposed by the $39.7 billion bailout led by the International Monetary Fund, his belief that Argentina would soon emerge from its long recession and his loyalty to Minister of the Economy José Luis Machinea. More unexpectedly, the president expressed great warmth toward former minister of the economy Domingo Cavallo, architect of the fixed exchange rate, and his comments are sure to feed speculation among many Argentineans and Wall Street analysts that he may be courting Cavallo just in case the economy fails to recover in the next few months. De la Rúa also said he drew inspiration from John Wayne, whose high-in-the-saddle screen image probably isn't one that most Argentineans associate with their president.

Institutional Investor: Have you discovered any major surprises about the job since assuming office more than a year ago?

De la Rúa: My father was in politics, working for a governor of Córdoba [a key province northwest of Buenos Aires] whose greatest concern was a balanced budget. As a young man I was the private secretary of a president who worked hard to keep the deficit under control. And as mayor of Buenos Aires, I took great pride in cleaning up the city's financial mess. You might say I was schooled in fiscal prudence. So for me, the biggest surprise upon becoming president was inheriting a budget deficit that was more than twice as large as the official statistics [of the Menem government] indicated. This had a tremendous negative impact on our economy, making last year extremely difficult. But the world has seen how this government has demonstrated firmness and courage in applying tough measures to cope with the deficit. Some say that raising taxes for wealthier people undermined growth, and maybe that was true, because it soured their mood. But I'm confident we will grow this year, thanks to measures we have undertaken to cut spending and to reform the tax structure. Since a commission will shortly be studying what to do about taxes, I don't want to offer any opinions on who will be paying less, so as not to encourage evasion. But the more we can reduce taxes, the more competitive our economy will become.

Abroad, the IMF-led rescue plan is known as a bailout, yet here the plan has been sold to the public as blindaje ["financial armor"]. Who came up with that idea?

I think it's a term that accurately describes our situation, because the plan is intended to protect us from an economic crisis rather than rescue us after one has occurred. And we are already seeing its positive effects. Interest rates have fallen. We are exchanging short-term for longer-term debt. Investors can have full confidence that the country is financially secure.

What makes you confident that Argentina will not have to ask for another bailout next year?

Because we don't consider the financial package we have received as the ultimate solution to our problems, but rather as a starting point. I think the whole political class - not just my government - recognizes that we must act responsibly. Both the federal and provincial governments have committed themselves to rein in their spending for the next five years. And I want to point out that under Menem there was no attempt to control spending in the provinces. The struggle against corruption will be of fundamental importance. We will have a leaner, more efficient state. And those savings will be passed on in one form or another to the private sector and the citizenry. Also, external factors are favoring us. Interest rates in the U.S. are falling and the prices for our agricultural exports are improving.

Almost everybody in this country believes that convertibility - the linking of the peso to the dollar - cannot be abandoned. But do you believe it can again become an effective tool for economic growth, the way it was in the early '90s?

Convertibility ended the hyperinflation that was afflicting us, and that is the main reason nobody wants to abandon it. We value the stability of zero inflation. But the growth that you refer to came about because of a huge influx of foreign investment to buy former state enterprises that were being privatized. Those capital inflows also helped balance the budget for some years. But that era also created a paradox: economic growth alongside rising unemployment. It's a phenomenon that we see even in neighboring Chile, where the economy is growing at more than 5 percent and yet the jobless rate is still high.

Is there reason to be concerned that your use of presidential decrees to pass controversial economic reforms is vulnerable to challenge in the courts and Congress?

There have been a few instances where judges have suspended decrees. But they get reversed on appeal. The measures passed by decree have wide support because they are viewed as necessary. For instance, the labor unions at first fought hard against the privatization of the health system and cutbacks in retirement pensions, but they have come to understand the necessity of these measures.

What qualities do you most value in Economy Minister José Luis Machinea?

His solid economic background and his level-headedness. It was he who first proposed to me the necessity of the blindaje. I then spoke with the leaders of the U.S. and Europe to ask for their support and was gratified to get an immediate, positive response from all of them.

Then what is behind the recent public displays of affection between you and former economy minister Domingo Cavallo?

Cavallo is an important, positive figure for our country. He fully understands the necessity of the economic measures we are taking. On a personal level, we have known each other for many years. We are both from Córdoba. We worked together in Fundación Mediterranea [a leading private foundation and think tank]. Unfortunately, we have competed against each other in the political arena, and inevitably that produced frictions. Perhaps his recent declarations comparing me to Domingo Sarmiento [a 19th-century president who is considered one of the great Argentinean statesmen and intellectuals] were a bit excessive. But, and I say this jokingly, maybe Cavallo just meant that even Sarmiento had to suffer stiff criticism when he was president.

Is there a place for Cavallo in your government?

He will play a role in the tax reform commission, for example, and that can lead to other things. But we are not talking about a Cabinet post, because that would have a whole other meaning and impact.

How do you answer widespread criticism both in Argentina and on Wall Street that you haven't demonstrated more energetic leadership and that your presidential style is too aloof?

I've said it before: Reforms should be carried out without raising thunder or dust. Do you remember that great John Wayne movie, The Quiet Man? He seems to be detached and lacking passion. But when it counts, he fights to get what needs to be done. It's a character I've always identified with. People often ask me why I don't raise more hell. I prefer a serene forcefulness. That's a phrase I first heard from [the late French president] François Mitterrand.

What's your greatest source of disappointment as president?

The growth of pessimism among Argentineans. I think that to regain our health we have to rediscover our old sense of the joy of life.

Impsat: The view from the new

The Buenos Aires offices of Impsat Fiber Networks, a broadband data transmission company, have a distinctly New Economy buoyancy about them. The building itself is a mirrored-glass tower in a hip, new business-and-restaurant district that rises beside long-abandoned docks on the coffee-colored Río de la Plata. Among the employees, skirts are short and ties are nonexistent. Senior executives wear blue factory-floor shirts with the company logo, chinos and Top-Siders.

The relaxed, confident attitude isn't entirely an affectation. Impsat operates Latin America's most extensive fiber-optic network, providing a full range of corporate communications for 2,500 clients, many of them blue chips. Its biggest backers include Morgan Stanley Dean Witter and British Telecommunications. It is even incorporated in the U.S.

But Impsat's position didn't protect it from last year's savage tech markets. The company's share price has plummeted to less than $5 - compared with $17 for its IPO on Nasdaq in February 2000 and a high of $40 shortly thereafter. "Part of the drop is attributable to the weak market performance of telecoms everywhere," says Guillermo Jofré, Impsat's chief financial officer. "Of course, it doesn't help that we're still viewed as an Argentinean company."

Impsat provides a textbook example of how to finance a start-up in a troubled economic environment like Argentina's. The company began operations in 1990, renting a satellite for corporate data transmissions. It focused on large companies, such as Citibank and Royal Dutch/Shell, servicing their internal communications needs as well as their transmissions to customers that were fed up with the shoddy Argentinean state telephone monopoly. Success came so swiftly that Impsat decided to expand to other countries in the region, including Brazil, Colombia, Ecuador, Mexico and Venezuela.

But the company just as quickly began to suffer from the lack of long-term credit in Argentina and elsewhere in Latin America. By 1995 Impsat was in a bind: Revenues were rising 40 percent a year, but there was not enough financing to sustain that rate of expansion. "We were becoming a classic case of grow-till-you're-broke," says Jofrâ.

Impsat had to radically shift its financial strategy. It incorporated in Delaware as a U.S. holding company and decided to plunge into the global capital markets. "We have borrowed almost nothing here," notes Jofré.

Impsat began by issuing a small Eurobond - for $30 million - in 1995. The company, rated A by Magister, made a $125 million bond offering in New York at 12.125 percent over seven years the following year. In March 1998 it sold 25 percent of its shares to the private equity arm of Morgan Stanley Dean Witter for $125 million. With one of Wall Street's top firms on board, Impsat returned to the markets later that year with an additional high-yield offering for $225 million at 12.375 percent over ten years. In 1999 British Telecom purchased 19 percent of the company for $150 million. Morgan Stanley's share was diluted to 16 percent by the issue of new stock to British Telecom and the launch of Impsat's IPO a year later. (Impsat founder and chairman Daniel Pescarmona retains 46 percent of the company.) With this kind of backing, the barely known Argentinean company raised $248 million when it went public in February 2000, just before the market began to slide. Then it issued another $300 million in high-yield bonds at 13.75 percent over five years.

"These guys are either extremely lucky or smart - they timed the markets perfectly last year," says Bruce Stanforth, Latin American corporate debt analyst at BNP Paribas in New York.

Impsat is using this considerable capital to build a 6,000-mile fiber-optic broadband network that will replace its narrowband satellite technology. The fiber-optic network will stretch across eight Latin American countries and connect to the U.S. The backbone of the network, which runs through Argentina, Brazil and Chile, has already been completed, giving Impsat a clear lead over its competitors.

Revenues have shot ahead, reaching an estimated $300 million last year, up from $228.5 million in 1999. But meanwhile, Impsat sustained a net loss of more than $120 million in 2000 and isn't likely to show net income before 2004. Its debt-to-equity ratio is also wobbly, with a total debt of $900 million (including $250 million in buyer financing and bank credits) and a market capitalization of $675 million. Another negative for investors: Impsat's largest markets - Colombia (30 percent of revenues) and Argentina (40 percent) - are in recession.

But Impsat is confident that it has a product that is in demand. According to Cambridge, Massachusetts-based Pyramid Research, the corporate communications market in Latin America will grow by an estimated 30 percent annually through 2004, and only broadband data transmissions can handle this sort of increase. Impsat also benefits from the fact that the bulk of its debt is well-structured, with $125 million due in 2003, $300 million in 2005 and $225 million in 2008. "We don't foresee going back to the capital markets for several years," says Jofré.

In its bid to reach profitability within the next three years, Impsat's biggest challenge will be the Brazilian market, which now accounts for only about 8 percent of its revenues. Brazilian revenues climbed from $8 million in 1999 to $25 million last year, and are expected to reach $50 million this year. But analysts are skeptical of Impsat claims that Brazil will account for 45 percent of the company's revenues by 2004.

At the very least, though, a stronger client base in Brazil to go along with its regionwide fiber-optic network would make Impsat an attractive takeover target for a company like AT&T Corp., which wants to increase its presence in Latin America and hasn't yet started to build a broadband fiber-optic network of its own. Some analysts suspect that Impsat has had this sort of exit strategy in mind all along. "I think they want to hold out until their share price rises again and then get bought out," says BNP Paribas's Stanforth. Jofré concedes that Impsat is willing to listen to offers. "But the price would have to be right," he says.

So what lessons does Impsat offer to struggling Argentinean companies? "You can't separate your market focus from your financing strategy," says Jofré. "If you want to tap global capital, then you have to sell your product internationally."

That sounds a lot like the kind of macroeconomic advice Argentina is hearing on Wall Street and from the International Monetary Fund: In the long run, to keep foreign capital flowing into the country, Argentinean products are going to have to become a lot more competitive abroad.

Perez Companc's Separation agreement

Located in the heart of Buenos Aires's financial district, the headquarters of Perez Companc exude old-fashioned values. Conservative suits are de rigueur. The lobby is graced with a statue of the Madonna and child. Chairman Jorge Gregorio Perez Companc, a member of Opus Dei, the conservative Roman Catholic lay society, often ends his letter to shareholders in the annual report with a religious invocation ("Entrusting ourselves to the protection of Our Lord").

Yet for all its apparent piety, this oil-and-gas production company emphasizes a down-to-earth financial approach, with a dedication to transparency and hard figures. And as Wall Street analysts learned during a recent conference call to discuss 2000's results, those figures look pretty solid: The company's prospects for greater output, revenues and profits are bright.

There was, however, one dissonant note. One of Argentina's most venerable and ably run companies, Perez Companc must separate itself from its country's woes to win favor from investors and secure needed capital. Chief financial officer Mario Lagrosa told analysts: "We understand that the difficult economic situation that Argentina continues facing is a concern to the international investment community. We are building a position in an attempt to differentiate the company from a pure Argentina country risk."

As Lagrosa pointed out to the analysts, Perez Companc has promising projects coming onstream in Brazil, Ecuador, Peru and Venezuela. And last year total revenues climbed to $1.6 billion, from $1.24 billion in 1999. Net income rose to an estimated $244 million, from $175 million.

But investors remain cautious. The company's American depositary receipts have recently hovered at about $18.50, after swinging between $12.81 and a high of $21.44 over the past year. And Perez Companc was among the 16 (out of a total of 17) Argentinean companies with investment-grade ratings that were placed on a negative credit watch by Standard & Poor's at the end of last year.

Named after the family that has always controlled it, Perez Companc began after World War II as a shipping company transporting heavy machinery and other goods from Buenos Aires to Patagonia, the southern steppes where oil and gas fields were being discovered and exploited by the state monopoly, Yacimientos Petroleros Fiscales. By the 1960s Perez Companc had become a subcontractor to YPF and was plowing profits into agriculture, real estate development and banking.

With the wave of privatizations under then-president Carlos Saúl Menem in the early 1990s, Perez Companc blossomed into a full-fledged conglomerate. Today it ranks as the fourth-largest oil-and-gas company in Argentina, producing 80,000 barrels of oil equivalent per day. (YPF, with 685,000, is No. 1.)

By the mid-1990s, when Argentina's economy was growing at more than 6 percent a year and the country was viewed as one of the most vibrant emerging markets, Perez Companc shares traded at a 25 percent premium over the aggregate value of its individual subsidiaries. As a conglomerate, it was viewed as a "country play" - an easy way to invest in a half dozen key economic sectors. "It was like buying an Argentina mutual fund," recalls Daniel Rennis, the company's investment relations manager.

As the Argentinean economy opened up, Perez Companc realized it would be hard-pressed to compete against foreign multinationals in so many sectors. The company chose to sell off most of its enterprises and concentrate on energy. And the family promoted a trio of professional managers - CEO Oscar Vicente, CFO Lagrosa and COO Tadeo Perich - who fashioned Perez Companc into a vertically integrated energy company.

Revenue streams have since been diversified across businesses and national borders. Today hydrocarbon production accounts for 43 percent of company revenues; refineries and petrochemicals produce 42 percent; and the generation of electricity brings in an additional 10 percent (forestry operations provide most of the remainder). Proven reserves of oil and gas have quadrupled to more than 1.2 billion BOE in the past five years as Perez Companc opened fields in Venezuela, Peru and Bolivia. Total production is expected to rise, from 145,000 barrels of oil equivalent per day in 2000, to 400,000 BOE daily by 2005, requiring $3.5 billion in capital expenditures. To raise funds, Perez Companc will sell its remaining noncore holdings and issue bond offerings.

"Though the company has a very strong cash flow, its ability to finance a major acquisition right now would be difficult because its stock price is so low," says Frank McGann, an energy analyst at Merrill Lynch & Co. in New York. "A big part of that comes from being associated with Argentina." Because of its link to the Argentinean economy, Perez Companc promises to maintain its debt at less than 45 percent of its market capitalization.

"Perez Companc has also been very restrained in its acquisitions," says analyst Marc McCarthy, who follows the company for Bear, Stearns & Co. in New York. "It really hates uncertainty and volatility." For example, in two impending transactions with Repsol-YPF, the company is expected to swap oil and gas fields with long-term potential in Argentina and Bolivia for smaller deposits offering more immediate returns. Perez Companc wants to impress investors and creditors with its steady revenue flows. That is why the company hedged most of its oil production at about $18 a barrel beginning two years ago; a decision that cost Perez Companc potentially much higher earnings in 1999 and 2000, when oil prices reached $30 a barrel. "But we were determined to find the financing for our $3.5 billion spending program from 2000 to 2004 without running the risk that capital markets would close on us," says investment relations manager Rennis.

About 58 percent of the company's shares are owned by the Perez Companc family and its private foundation. Senior executives receive high marks on Wall Street for accessibility. Not so chairman Companc. "He never talks to analysts," says Bear Stearns' McCarthy. "It doesn't comfort me not knowing who I'm dealing with at the top. But he does have a very professional team."