Argentina: on the Slippery Slope to Full Nationalization?
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LATIN AMERICA 33 Photo: Presidencia de la Nación Argentina/Wikipedia. Argentina: On the slippery slope to full nationalization? Michelle Bachelet, a former president of Chile and Cristina Kirchner, Argentina’s president, next to the statue of Evita Peron Marcia Carmo, Buenos Aires 51% of its shares, leaving Repsol with only a 6% share in YPF. Repsol risks Has late Argentine first lady Eva Duarte getting nothing for the expropriation: de Peron been resurrected for President Deputy Minister of the Economy Axel Cristina Kirchner’s administration? Evita, Kicillof said it will be charged with who died 60 years ago, embodied the environmental liabilities populist polices of Peronism that previous “We are the only country in Latin President Nestor Kirchner and his wife, America and one of the few in the world the current president, have been reviving that does not manage its own natural since 2003. These policies favor a larger resources,” Kirchner said, claiming that government presence in the economy. the expropriation will help reverse this A picture of the late Evita was the situation. She blamed Repsol for falls in oil backdrop for the president’s announcement production and for Argentina becoming that her government was intervening an importer of fuel. “For the first time in in Repsol-YPF, in which the majority 17 years, since the privatization of YPF shareholder was Spanish company Repsol, in 1998, in 2011 we became importers and was advancing a bill to expropriate of oil and gas,” she said. Last year the May 2012 The Brazilian Economy 34 LATIN AMERICA Although foreigners Mariel Fornoni of Management & Fit warned that “Argentines support the heavily criticized expropriation, but not blindly. There is Argentina for the Repsol much speculation about how the company will be managed. It is clearly understood expropriation, it was that Minister De Vido is responsible for hugely popular among the energy crisis and therefore cannot head the oil company.” Argentines. Political analysts Rosendo Fraga, New Majority Studies Center, and Graciela Romer, Romer and Associates country had to import US$9.3 billion in consultancy, said that YPF is a symbol fuel. “If we continued like that, Argentina of Argentina’s nationalism. The Repsol would become a unviable country,” she nationalization reversed the president’s said. She considered Repsol-YPF to be recent fall in popularity, Romer said. the major cause of these hardships—even Fornoni noted that “With the measure, though it represents only 30% of gas and she recovered 17 points of support oil production. lost between last December and early Kirchner suggested that the Brazilian April.” state oil company, Petrobras, was now her model: “In Brazil, the government owns A popularity roller coaster 51% of Petrobras shares. We choose to do Several factors had contributed to the the same [with Repsol-YPF].” president’s fall in popularity: the February Even as Kirchner was announcing train wreck that killed 51, rising inflation, the intervention, Minister of Planning the perception that the economy may be Julio de Vido and Deputy Minister of slowing after nearly nine years of growth, the Economy Axel Kicillof occupied the and allegations of corruption against the Repsol-YPF building and gave 16 executive vice president, former Economy Minister directors 15 minutes to leave, which Amado Boudou, who has been accused outraged Spanish diplomats. Kicillof, 41, of influence peddling in choosing the has emerged as the government strong company that prints paper money. “In man. Now the “new YPF” is looking for Argentina, when earnings start to get new foreign partners. short, when the party is no longer for all, accusations of corruption then attract Popular support the attention of voters and naturally Although foreigners heavily criticized affect the popularity of the authorities,” Argentina for the Repsol expropriation Fornoni said. it was hugely popular among Argentines. When a measure has popular support, Opinion polls showed that over 50% of Congress will pass it easily. The the population supported it. However, expropriation bill was approved by a large May 2012 The Brazilian Economy LATIN AMERICA 35 majority in the Senate and the Chamber The Repsol nationalization of Deputies (207 for, 32 against). It also raised a cry for more nationalizations. reversed the president’s Opposition representative Fernando recent fall in popularity. Solanas urged, “We cannot be limited to 30% of the oil sector, the Repsol-YPF market share. The government must suggesting that the company might have control of 100% of this market that review its investments in the province is strategic for any country.” Though of Mendoza due to political uncertainty the governing coalition applauded his and inflation. Days later, a government statement, it raised concerns among spokesperson said that Vale had reassured foreign investors. authorities in Mendoza that it would Nor did the nationalization bandwagon continue to explore for potassium there: stop there: “After the oil, we have to “It’s okay. If plans are not changed, nationalize electricity companies,” claimed Vale plans to invest over US$5 billion unions that support the government. in the mining project, and this could Among embassies and foreign companies, turn Argentina into one of the largest the most common questions are thus: potassium producers in the world.” “Will the government move to other sectors? What could be next?” Declining investment Last year, according to the Economic Distrust Commission for Latin America and the In a survey by Sel Consultant, Buenos Caribbean (ECLAC), the region received Aires, 70% of the corporate executives a record US$153 billion in foreign direct questioned believe that the Repsol-YPF investment (FDI). In 2011, Brazil led expropriation will “worsen the business with US$66.7 billion in FDI (43.8% of environment”—previously 58% had the total), nearly 10 times more than considered the investment climate to Argentina’s US$7.2 billion. “It is hard to be stable. Results of a study by Abeceb construct the model of social inclusion consultancy in early May, however, dreamed by the government, with this found that in the first quarter the low investment,” said former Energy business climate was already marked by Secretary Alieto Guadagni. “uncertainty” due to import restrictions, What is heard from economists exchange controls, inflation, and a and businesspeople critical of the change in the central bank charter (see government is that Argentina is being page 37). “excluded” from the investment map. A few days after the Repsol Many, however, avoid public criticism nationalization, the Argentine press of the government. “We invited 15 published statements by Murilo Ferreira, economists and experts to talk about president of Brazilian company Vale, the economy and the energy situation May 2012 The Brazilian Economy 36 LATIN AMERICA Among embassies and Ferreres, Ferreres and Associates consultants. “Argentina has been foreign companies, the characterized as a country that breaks most common questions rules. It invaded the Falklands island in 1982 (during the military regime), are: “Will the government defaulted on public and private debt in move to other sectors? 2001, restructured its debt at a discount of 75%, and is now expropriating oil What could be next?” companies,” wrote Eduardo van der Kooy, political analyst for the Clarin in the country, but only 3 came,” newspaper. Senator Norma Morandini noted. In Argentina under Kirchner, there are President’s ambivalence no ministerial meetings or presidential In 1992, Christina Kirchner and her press interviews. Few ministers husband, then governor of the province speak to journalists; the planning of Santa Cruz, called for privatization minister is among those who do not. of YPF. In 2011, as president she praised Repsol investment and productivity in Gas reserves the country. In 2012, she expropriated Repsol has speculated that the Repsol. In practice, there is now a expropriation may have occurred because disconnect between what the government the government “kept an eye” on gas is doing, falling investment, and business reserves and unconventional oil in Vaca fears. Soon after the expropriation law Muerta region, in the rocky ground in was passed, on May 3, television station Neuquén province in Patagonia. Experts TN (Todo Noticias) promoted a debate say there are no reliable figures that can on whether it would be possible to confirm that Argentina could have the amend the constitution to pave the way third largest reserves of unconventional for the president to have a third term. gas in the world, as the U.S. Department of TN asked: “Cristina Kirchner eternally Energy has claimed. According to advisors in power?” to the Neuquén government, fear of an ecological disaster will require billions of From economists and dollars in extra care. The question now is whether the expropriation of Repsol- businesspeople critical of YPF and the Argentine nationalization roller coaster could discourage further the government what is exploration of this gas field. heard is that Argentina is After the expropriation of Repsol, “It will not be easy to instill confidence in being “excluded” from the new investors,” said economist Orlando investment map. May 2012 The Brazilian Economy LATIN AMERICA 37 Controversial moves by President Kirchner • Nationalization of pension and retirement the measure caused the dollar to rise funds: The government justified the move in the parallel exchange market. In by arguing that private enterprises were exchange houses and banks, the price mismanaging pension funds. Today, follows the government’s decisions; the nationalization has broad popular in early May, they quoted the dollar at support. about 4.40 pesos. However, in shopping • Control of imports: New requirements malls, some shops accept U.S. dollars at for imports entered into force in February: the rate of 5 pesos per dollar. Importers must submit to the Federal • Media concerns: The opposition accuses Administration of Public Revenues (AFIP) the Argentine government of not a complex sworn statement on purchases being transparent in managing public from abroad.