Argentina the Outcast

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.