MercoPress. South Atlantic News Agency

Uruguay Economy minister resigns over scandal involving flag air carrier Pluna

Fernando Alonso, a brilliant minister, no doubts about his ethical integrity

Uruguay's economy minister Fernando Lorenzo resigned on Saturday in the face of questions over the alleged irregular sale of government-owned airplanes following the closure of Pluna, the country's flag carrier, President Jose Mujica announced at a brief press conference, with no questions taken, next to Vice president Danilo Astori.

Mujica defended the conduct of Lorenzo, his minister since March 2010, as local television broadcast images of the economist entering a criminal court house. “He has been a brilliant minister,” Mujica said. “We have no doubt about his ethical integrity and his positive commitment. He resigned to let Justice proceed in his condition as a simple citizen.” The president added government will miss his loss and “will make its utmost to keep the current overall policy orientations which were designed by the now resigned minister”.

Mujica is considering replacing Lorenzo with the current president of Uruguay's central bank, Mario Bergara, a source with the president's political party told reporters. Lorenzo was widely respected by investors, but faced growing criticism after the government sold seven airplanes that once belonged to Pluna, the airline the state took over and shuttered in the wake of its bankruptcy last year.

The prosecution wants Lorenzo sentenced for 'abuse of power' in handling the auction of the Canadian Bombardier aircraft, extensive to Fernando Calloia, the president of Uruguay's largest bank, government owned Banco Republica who provided, on his own the necessary collateral for the whole operation, and the notary who certified the legality of the collateral. As to Calloia, Mujica also praised his professionalism and recalled that when he took over, “the bank was extremely short of capital and he has reversed the situation, and today Banco Republica is effectively and proudly the ”Country's Bank“.

”Government is well aware that so many companies that operate with the bank, particularly at the end of the year when so much more cash is needed, and thus reaffirms full confidence in the bank's management and staff and their commitment to their duties“, underlined Mujica. Contrary to Lorenzo, Calloia said he was not resigning.

Mujica added that ”we will respect integrally all decisions from the courts as it is natural in a country where the rule of the law prevails”. In the eight decades of Uruguay's flag carrier Pluna has gone through several boom-bust chapters the last of which in association with a financial group, mainly Argentine, by the name of Leadgate which managed the company as owners of 75% of the company from 2007 to 2012. However the group despite the strong financial support from the Uruguayan government, which was even guarantor for the thirteen Canadian-Bombardier mid range aircraft, with its Argentine managerial team failed and by mid 2012 was already deep in the red, with pending fuel debts and capital contributions (as specified in the original contract but never complied), so president Mujica declared its bankruptcy and grounded all aircraft.

An avalanche of demands flooded the airline from frustrated travelers, to all sorts of suppliers including the government's oil refining company, Ancap, which for years extended fuel to the equivalent of 18 million dollars. Precisely the latest events spin from the summoning of former Pluna CEO Matias Campiani and his Leadgate partners Arturo Alvarez Demalde and Sebastian Hirsch, who remain in custody following twelve hours of questioning by Special Crimes Judge Adriana de los Santos. Lorenzo, Calloia and the notary involved in the collateral document presented an unconstitutionality resource, which will delay their proceedings.

However, apparently Campiani and his partners could end in prison for the reiterated crime of 'fraud', as requested by the prosecution. Campiani and his associates face three main charges, the first presented by the opposition National party and refers to mismanagement and denying Congress information on Pluna's performance from 2007 to 2012; a second charge initiated by the prosecution which refers to the auctioning of the aircraft and alleged 'emptying' of the company before it was declared bankrupt and finally Ancap which is charging Campiani for the 18m dollars fuel bill, which were allegedly 'paid' with delinquent checks.

The Leadgate group and Campiani have argued all along that the Pluna project or regional expansion collapsed because of Argentina's air policy of subsidizing fuel and fares which made it impossible to compete. The Uruguayan opposition claim that from the very start in 2007, Campiani and his partner investors with or no experience in the highly competitive air industry, barely complied with the terms of the contract. Forget about the rest of the time until bankruptcy.

However there is also a political side to the Pluna scandal: Leadgate and Campiani were promoted by Vice-president Astori, who at the time said he had the utmost trust and confidence in the group. They had been involved in the sale of some Uruguayan financial institutions that had gone broke and Campiani supposedly had recovered the River Plate branch of the Italian dairy corporation Parmalat.

Both Lorenzo and his most probable successor Central Bank chairman Mario Bergara belong to Astori's group which has a very orthodox approach to economics. However Mujica's and his advisors approach is far less orthodox and there have been ongoing clashes between the two groups. Furthermore when Pluna Leadgate was launched in 2007, Astori was the Economy minister and Mujica Agriculture minister, and the now president was famous for commenting “don't know how experts in dairy farming and cows can make it in the air industry”. Besides “I don't like the looks of these cocky Argentines from Buenos Aires, something smells no good”.

In 2009 Astori and Mujica disputed the ruling coalition presidential primary. In the name of cohesion and unity the ticket was finally Mujica-Astori, but the Vice-president running the economy and the government's banks. With the next presidential election next October, and primaries in June, Mujica's forecast and strong decisions in the Pluna case have weakened Astori and his group, probably because of a too naive approach towards Leadgate.