BRASILIA – Roughly 20 years ago, an important Argentine minister startled a newly arrived Brazilian ambassador by telling him that “Argentina is prodigal in three things: meat, wheat, and insane gestures.” The decision to expropriate 51% of YPF, Argentina’s biggest energy firm, from the Spanish company Repsol is one of those gestures. Added to its contempt for foreign creditors, and to the growing and arbitrary protectionism that violates all global and regional rules, President Cristina Fernández de Kirchner’s decision pushes Argentina closer to being deemed internationally as a lawless country.
Whatever their short-term benefits and popularity, gestures of such gravity always entail serious long-term consequences. In particular, they risk cutting a country off from the main flows of credit, investment, and commerce – that is, all of the activities that generate economic opportunity and prosperity.
Bad governments are always guided by their yearning for an immediate surge in popularity, regardless of the future costs. Argentina’s governments have made this a habit ever since Juan Perón first came to power in 1946.
Indeed, as a result of Fernández’s decision, Argentina now finds itself ostracized in international energy and financial markets. Unable to provide either the investment or technological resources and knowhow to develop YPF’s resources, her government must invite others to fill the financial and technological void created by Repsol’s forced eviction. But any international corporation that participates in exploiting the assets stripped from Repsol would face serious legal problems.
Brazil’s energy giant Petrobrás, one of the largest corporations in the world, was publicly invited to expand its production in Argentina through new investments. Petrobrás, with its global interests, could never accept this invitation, particularly given its effort to obtain the financing that it needs to develop Brazil’s immense offshore oil reserves.
Sinopec, China’s second largest oil company, was reportedly holding discussions with Repsol to acquire a substantial share of its assets in Argentina. Now all bets are off. As an unnamed Chinese source told Reuters, “this is a challenging situation for anyone, given the action taken by the government. For me, it would be political suicide to allow a Chinese company to prospect YPF control rights after the nationalization announcement.”
Repsol was gravely harmed by Fernández’s action, having lost about 50% of its productive capacity and a third of its income. Spain’s government, outraged, promises strong retaliation, and will certainly have the European Union’s political support. But it is hard to imagine what measures could actually lead Fernández to reconsider. After all, given that all of this was predictable, and that foreign investors will now be even more reticent to enter the market, she has clearly calculated that the political benefits outweigh the economic costs.
But that depends on whether nationalization brings about an increase in production. It seems clear that it will not, unless the government decides to inject massive fiscal resources into YPF at the expense of other pressing needs. Given that this is unlikely, supply shortages are inevitable.
Oil stirs great popular fascination. For countries that possess it in abundance, it is one of the most solid and central pillars of nationalism. And, everywhere, it is the real or imaginary explanation for many wars, the “black gold” that fuels dreams and awakens greed. For rulers who don’t care if their victories are Pyrrhic, it is also an easily accessible resource for manipulating the public imagination with conspiracy theories and patriotic posturing.
The Fernández government has been sending signals that it is determined to continue on its erratic course, not only creating chaos in the economy, but also marginalizing the country in the eyes of the international community. But decisions like this, which sometimes seem to start well, invariably end badly.
Personally, I am deeply sorry that Argentina has ventured into this realm of mistakes and delusions. It is a great country, with sophisticated and highly accomplished people in all fields. For Brazil, there can be no satisfaction in seeing so close a neighbor separate itself from international law and engage in dangerous adventures, to the ultimate detriment of its own people.