Returning from attendance at the Summit of the Americas in Colombia where she focused on getting support for her country’s claim to the Falklands, President Cristina Fernandez de Kirchner turned her attention to another issue destined to attract headlines in the international press. Her government’s decision to acquire a majority stake (51%) of the largely Spanish-owned YPF oil company seems to have been unexpected, and a major surprise to its Spanish investors and the Spanish government itself. The Argentine decision is, in effect, a nationalization and expropriation of the foreign-owned company, which many international financial institutions would have thought to be a thing of the past in what they deem to be modern, liberalizing economies.
Spanish governments of whatever political colour have, over the last three decades at least, tended to take the lead in inducing the European Union to take a deeper interest in the countries of Latin America, and to expand its economic presence and influence in that part of the hemisphere. Its intention was that the continent should take advantage of the openness of many Latin American countries to investment as they liberalized their economies after the recessions affecting them in the late 1970s into the 1980s, and equally, to capitalize on the trend towards free trade area arrangements induced by the WTO agreement, and led in the hemisphere by the United States. Entry into their old colonies, with a language and cultural advantage as well, would allow Spain and Portugal in particular, to match United States interest in the continent.
Argentina was one of the those countries, and one of the larger ones at that, which, under President Carlos Menem pursued this course of policy liberalization and the liberalizing of currency arrangements, moves seen as quite unorthodox for that country at the time. But the policy gave the economy a decisive lift, and the initiative of removing the state from substantial control of the economy seemed to have been justified. Parallel to this, the country enhanced its investment in Latin America, with Spain being the largest foreign investor in Argentina up to now, with a presence in banks, utilities and telecommunications firms, in addition to the petroleum industry.
But particularly since the advent of the administration of the now-deceased President Kirchner, the predecessor of his wife, Ms Cristina Fernandez, there have been intimations within the Argentine administration that there was an increasing dissatisfaction at certain levels of the social system that might be a hazard to the re-election of the then President. Following his death, the strategy of populism would appear to have worked for his wife’s election to the presidency, and it would now seem that she has decided to seek to consolidate her position by another bout of populist action.
The reaction from Europe and Spain has been strong. It is reflected in a recent comment in the London Economist (April 21) that the President “has long been a chavista-lite,” a reference to the policies of Venezuelan President Hugo Chávez, “harassing private business, rigging national statistics and gutting state institutions… raiding central-bank reserves, imposing currency controls and raising trade barriers.” The journal, noting that “Argentina remains in default on its debt to the Paris Club of sovereign creditors,” hints that the country’s ability to borrow from multilateral organizations might be reconsidered. The British press, no doubt in support of Europe’s response, has been able to find some Latin American support, quoting President Calderón of Mexico as saying that “no one in their right mind” would now invest in Argentina.
The Union Bank of Switzerland has suggested that this, and other populist policies, are likely to lead to a process of both stagnation and inflation (stagflation) in a country where energy prices are heavily subsidized. And in a mix of geoeconomics and geopolitics there is also another suggestion that the British can take consolation from the Argentinian move, “because it diminishes the credibility of Argentina’s Falklands claim” (FT, April 20).
Spain, already reeling from its economic crisis and subordination to financial institutions as well as the bureaucrats of the EU strongly supported by the German government, has, naturally, strongly protested the nationalization. There are suggestions that other major Spanish investors would be wise to look again at their stakes in the Argentinian economy. But this is surely unlikely with limited possibilities for extensive investment in the Spanish economy at this time.
The Argentinian decision raises an old discussion on the Latin American continent about the role of the state in the economy. While, with Mexico’s adherence to the NAFTA, there has been a substantial opening of the economy to foreign, in effect substantially North American, investment, discussion still continues on the issue of whether such extensive opening diminishes the capacity of the government to initiate decisions that can ensure that there is a sufficient return on foreign investments to make a decisive impact on employment, and to maintain an indigenous capacity for industrialization.
Some in the international financial institutions query whether the Brazilian economy is still too lopsided in favour of the state to make a decisive impact on unemployment in that country. But that debate has now been somewhat subordinated to the demand from countries like China in particular, for commodities produced in states like Brazil and Argentina, the returns from which have created a vent, not only for activating industrial investment, but also for allocating substantial funds to social protection and the financing of developmental projects for the lower sections of the societies.
Whether this latter orientation, as distinct from utilizing revenues for sustaining short-term populist support in a volatile and highly competitive domestic political situation, will prevail in Argentina, is left to be seen. In the meantime, Spain must wonder, what next from Señora Fernandez?
