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miércoles, 22 de mayo de 2002

Investment, the investor and the long term financing

Neither lowering the public expenditure from 14% to 3% on GDP, nor privatizing quickly, nor opening a country, nor anything could assure the success in the long term. Even the more daring and ambitious investor who came with the pro-business economy, the press heroes of the Nineties know this reality.

Many investors bought very efficient Argentine companies that today are in creditors’ meeting or hard problems. Private Equity Fund burst in buying companies haphazardly. There were them of these famous ones, which they bought companies without debts, with interesting fixed assets that could be used like guarantees of later loans. Companies that, as a consequence of their performance, paid important sums of money from income tax, interesting contributors of the state treasury and the society. Simply changing the destiny of the tax (passing from income taxes to financial cost) they took loans whose financial cost base was assured. In the end credits bridge originated by the purchases were cancelled through financing by the own company. From 1998 with Russia’s default, the financing to buy companies was not only diminished abruptly, in addition to that the flow of genuine financing finished which support indebtedness structures and financing of any business activity. Finished leverage takeovers, international and corporate private equity funds begin to turn towards Brazil as well, where anticipating the devaluation they landed in swift way. Since most of the indebted companies could not face the financial cost which they were underwent and of course, first they didn’t pay the income tax and later they pay to the system bank with a lot of difficulties and expired conditions. It was several years issuing bonds yield of 14% per annum in dollars (junk bonds) to financing purchases, everything charged to the operation of successful companies. A leader food company, who earns 10% annual on sales, today is seriously complicated. Many balance sheet inflated by Intangible assets signed by the best direct or representative consultants involved in worldwide scandals. It’s interesting to observe that the commissions of most developed accountant schools in the world are not agreed in the application methodology to estimate a brand, despite in Argentina already was being used dared methodologies as standard. I could be extended it with sophistry that proliferated in the Nineties and which they were detected easily in the diagnoses. An example of it was the increased amounts or nonexistent of stocks when it was made an inventory. Clearly, the objective was to hide losses to continue asking for banking credit. It is an enormous speculation cycle that finalizes when the macroeconomics changes the course and gives up growing. If the countable make-up or creative accounting (allegorical reference) in many of these companies had been deduced, they would have a more negative equity than all banks of the financial system, after the asymmetric Pesos exchange. The difference is that in the case of the companies bought by a leverage buyout, found the problem early before the asymmetric pesos exchange, as soon as it was begun a economic activity deceleration in Argentina, between the second and third quarter in1998. There was a case of a famous supermarket whose banking debt had increased eight times only in the next year after its acquisition. - I ask myself: the Banks of the "Super System" that was constructed, with what financial risk did they lend? - The takers of junk bonds abroad, what recover expectation did they have? Who did advise them? Where is the international investment bank in this point? It is clear now that there are shared responsibilities between those who caused damages and the injured ones. Being fair, it is necessary to mention this was a business that allowed huge commissions to its promoters during the Nineties. There were syndicated credits, issues, loans bridges, a lot of operations and yield for its creators. Original founder with simple lucidity fled terrified from the companies that had sold, despising millionaire contracts to continue managing them, very soon beginning the new administration.

With purpose about replacing fired successful entrepreneurs, the best head hunters arrived in Buenos Aires trampling on with their offer. Always there was a search for an executive to replace a CEO that left to his company and to his position. The unpleasant thing was that they often ended up improvising executives with financial handling, whose capabilities and market knowledge didn’t agree with the awaited results. Despite everything was running while Argentina grew six or seven annual percents. The curtain was opened when Russia speeded its default up. The euphoria of the apparent initial success was followed by failure.

A set of reforms and financial instruments of short-term economic policy to stabilize the rate of exchange and the inflation (the convertibility plan), without a real and attractive investment plan in the long term, never was a sustainable scheme. When the economy or the businesses were concentrated in the short term and do not have long-term strategy, the results are those who are observing. The economy only participated in a game: short term. In the obstinate search to obtain instantaneous recognitions, it was established the short-term objectives that stimulated the myopia. This policy took to us living and succumbing only by the quarterly numbers of the INDEC (National Institute of Statistics and Census).

The inflexible search of the established assumptions for every quarter made forgetting everything what it didn’t have a connection with the intentions to reach determined goals. A feeling to travel in a submarine by ten years impeded to took advantage of creative opportunities and alternatives. Some economist couldn’t even think without receiving reproof and haughtiness. With opening barriers, privatizations and liberalization in high speed in a short term were to live existentialism or at least one bubble. The booty of exchange and monetary stability during the 90th - fed the future failure (it eliminated the national industry and most of the Argentine businessman).

The globalization caused the crisis in a way as great waves like in the beach when it is necessary to move quickly or the wave pass over the Nation and this remain to row against the current. Wave after wave immovable Mexico, Asia, Russia, Brazil, and Turkey. Whenever a quarter of air blew in the world, Argentina insisted on remaining static while the moving sand swallowed it. Dropping in prices of our commodities, revaluation of the dollar, devaluation in Brazil and us without reaction. During the Nineties many sources of works were destroyed, without forecast available, we soon remained without capitals while the country acquired a huge and important debt. In investments as well as businesses, it is necessary to participate in the both game simultaneously: in a short and long term. A long-term strategy is basic to ensure sustainable success and that is no longer is debatable. The type of country we want it, it will determine the economy that we will have. This desire must be embraced a high conviction support by those ones live in it in order to be sustainable in the time.