In Argentina's Oil, A
Glimpse Of Latin America's Left
by JUAN FORERO, April
22, 2012
Argentine President Cristina Fernandez holds up a
petroleum sample as she announces plans for her government to nationalize a
giant oil company that is largely owned by a private Spanish company.
Behind her is an image of the country's former first lady, Eva Peron.
Just the arrival of
Argentine President Cristina Fernandez de Kirchner prompted supporters in
her Peronist movement to break into chants last Monday. The event,
choreographed to feel momentous, was at the presidential palace. Fernandez de
Kirchner announced plans to expropriate assets of the Spanish oil firm
Repsol in Argentina.
Through a window,
television viewers could see a huge image of Evita Peron, the famous
1950s-era populist whose presence is deeply felt in today's government.
"Companies that
are here with foreign stockholders are Argentine companies," Fernandez de
Kirchner said. "Let no one forget that."
The president's plans,
likely to be easily approved by Congress this week, delighted the left in
her country and were condemned by the Europeans and criticized by the
U.S. State Department.
The move also provides
a peek at what the left might look like in Latin America, just as Venezuelan
President Hugo Chavez and the Castros in Cuba appear to be fading.
Emerging Leaders
For decades, the
radical left was embodied in Fidel Castro. His fiery speeches inspired
leftists across the region after his 1959 seizure of power.
Then came Chavez, who transformed Venezuela into a
Socialist state over 13 years. Now, though, Chavez is stricken with cancer and
has faded as he seeks treatments in Cuba.
Castro has been
replaced by his brother, Raul, who is five years younger but still 80.
Sooner or later, both
Cuba and Venezuela will have new leaders. This means the de facto emergence of another set of leftist
populists: Ecuador's Rafael
Correa, Bolivia's Evo Morales, Nicaragua's Daniel Ortega and,
of course, Fernandez de Kirchner.
These populists are
known for intervening in their economies and spending heavily,
thanks to a recent bonanza in crop and resource prices.
Money Crunch
At the moment, it's
Argentina's expropriation of Repsol affiliate YPF that is getting attention
across the region, making Fernandez de Kirchner a champion to some on the left.
"Clearly, YPF is
the biggest, most symbolic nationalization that we've seen in Latin America in
decades," says Arturo Porzecanski, an economist at American University in
Washington.
Fernandez de Kirchner
has also used Central Bank funds and a nationalized pension system to shore up
finances. Porzecanski says such steps reflect the serious money crunch
Argentina faces — and it's not just in Argentina.
"Those countries
whose governments have spent all the bonanza and then some are really
scrambling for funds," he says. "Whereas other countries that have
managed the bonanza more responsibly — whether it's a Colombia or a Peru
or a Chile or a Brazil — they're in a much more viable, sustainable
position."
Those other countries
are either center-left, such as Brazil, or center-right, like Chile.
They are all market-friendly and have drawn record levels of foreign investment
and diversified their economies — while some of the other countries have begun
to decay.
'A Sense Of
Stagnation'
Michael Shifter,
president of the Inter-American Dialogue in Washington, D.C., says measures
such as the YPF takeover or Ecuador's recent efforts to restrict the press are
more the exception than the rule. He says they reflect a populist option that
is not viable for most countries.
"There's no sense
of moving toward fulfilling some alternative vision and some utopian
ideal," Shifter says. "There's a sense of stagnation and just
trying to hold on to power, which is really not a very attractive leftist
project."
He also says that, in
the long term, it's just not sustainable.
Spain's Clash With
Argentina Over An Oil Company
April 18, 2012
Thanks for joining us.
I'm Diane Rehm. Argentina is facing widespread criticism for plans to
nationalize oil company YPF. The Spanish energy giant Repsol was the
controlling shareholder. This has become a diplomatic crisis. Joining me to
talk about the standoff between Spain and Argentina and the implications for
Europe and the U.S. economy: Jacob Funk Kirkegaard of the Peterson Institute
for International Economics, Sophia Aguirre of the Catholic University of
America, Paul Isbell of the Inter-American Dialogue and Daniel Kauffman of the
Brookings Institution.
ISBELL
why did this have to
happen right now, particularly from the Spanish point of view?
Spain is in the -- probably
the toughest economic and financial situation that they've been in. enraging
piece of news flow, which is coming on top of all kinds of bad news in Spain.
AGUIRRE
at Argentina, first is
we are taking another step towards Chavez-style of government, .. third,
this would deter even more the investment that Argentina so badly needs today, foreign
investment
KIRKEGAARD
Repsol is going to
lose somewhere between 10 or $11 billion in market value, and that may spill
over to some of the Spanish banks
KAUFMANN
this (expropriation) was
for political experience (expediency?) reason because it's a populist move,
and that resonates with many Argentineans today. But, secondly, she did it for
desperate economic and financial reasons. it's a historical trend in
Argentina that when they run into real problems with the budget and they need
to fund welfare programs, they expropriate something -- a few years ago was a
pension scheme and, now, it's the oil company. So in the very short term, it
may help her. But it's a disastrous move for Argentinean prospects in the
future.
Argentina used to be,
in the 1920s, the seventh richest country in the world. Today, it's about 50,
in terms of their regulatory environment -- this is not just now -- in terms of
rule of law, in terms of corruption -- about 150 out of 200 countries -- in
terms of doing business, any indicator we use.
We can call it
increasing Chavetization or Venezualization of Argentina
AGUIRRE
In Argentina today,
people make more money getting subsidies from the government than working
themselves. So all these trends .. is what is undermining the economy, the
market and protectionist policies that does not make Argentina more competitive
but make them fall farther and farther in time.
KIRKEGAARD
bad diplomatic outlook
that this creates for Argentina. the Argentina president was snubbed at the
latest inter-American summit where nobody wanted to talk about the
Falklands claim that she has recently made. to restate the Argentinean
claim of sovereignty over the now British Falkland Islands, which goes back to
the early 1980s
Argentina is still a
member of the G-20. President Kirchner will have to go to Mexico for the
summit in June. Maybe Argentina will face a new degree of diplomatic isolation
at the G-20 as well,, as a result of something like this.
REHM
you talk about the
diplomatic consequences. We have repeatedly reached out to the embassy of
Argentina, inviting them to participate this morning. They declined.
ISBELL
Repsol YPF was one of
the companies that discovered shale gas and shale oil in Argentina.
KAUFMANN
There'll be enormous
pressure from the international community for some type of compensation,
although it's very unlikely for political reasons that the expropriation, the
nationalization itself will be reversed. So there'll be a question of what's a
fair level of compensation. It will never satisfy Repsol and so on.
this is not a
huge blow at the macroeconomic level for Spain. But, it's a major
political issue,
it's a worrisome trend
about some countries in the world are going that route these days. Venezuela as
being an extreme case, but Argentina is going that route.
ISBELL
the question now does not
appear to be geological scarcity in Argentina,
there have been major
discoveries. Argentina is estimated now to have the third largest shale gas
reserves, and there seems to be shale oil as well.
This is one of the
reasons why the Falklands-Malvinas issue is back center stage because the
Falkland Islands have begun allowing oil companies to come in to explore, and
oil has been discovered in the northern basin
KIRKEGAARD
this broader, longer
term trend of renationalization of national (natural?) resources, particularly,
in the oil sector. we had Russia, and in Venezuela as well
But, very recently, Exxon
Mobil, of all companies, have now engaged directly with a Russian company to
develop the Arctic gas reserves. there is a willingness to engage now by
many governments (with oil companies) that were previously perceived to be
very nationalistic because they perceive that they need the kind of technology
that these companies can bring
AGUIRRE
Mexico will be very
happy. More investment will go to Mexico over to Argentina -- away from
Argentina
KAUFMANN
The Pemex, (Mexico
state-owned Petroleos Mexicanos) the Mexican oil producer has a stake for about
10 percent
Argentina used to
attract about $10 billion a year in terms of foreign investment about eight
years ago and so on. It's down to about two to $3 billion. this is before this
happened.
KIRKEGAARD
the EU will
line up very firmly behind the Spanish government on this issue also because the
U.K. government actually has a similar longstanding feud with the Kirchner government.
it already has had
some repercussions. The EU has canceled an upcoming trade meeting with the
Argentinean government or postponed it, at least
any hopes for an
EU-Mercosur Free Trade Agreement being restarted .. has died now
it's a little
complicate because recently, the EU has actually acquired a legal right to
act on international investment twists on behalf of member states.
an Argentinean-Spanish
bilateral investment treaty, but most likely going to
be enforced by the EU in a court of arbitration, coming back to these
negotiations about some kind of compensation. But it's going to be a very
tricky legal issue
ISBELL
they (Spain) could
start a full-blown trade war if they wished, but they won't.
the extreme vulnerability
that Spaniards feel, particularly those in the government and particularly
those in the top brass of Repsol who probably won't survive this incidence even
if they would have been able to stay on under a new administration in Spain.
KIRKEGAARD
I don't think we
should overdramatize the impact on the broader euro area effect on this.
KAUFMANN
(Argentina might back
out of nationalizing the oil company?) that
would have a huge political cost for the president, Cristina Fernandez de
Kirchner, who is enjoying enormous popularity internally from that move. So
that's extremely unlikely
AGUIRRE
Brazil - a consistency
of policy toward engaging in international markets, following a path that
reflects the success of Chile, a successful story in spite of different political
parties
Argentina has failed
systemically on that, and instead have moved to Chavetization road.
ISBELL
Brazil, in the last 20
years, has establish not just credibility, but they've done it by consistency
.. by staying in the line even though the markets weren't buying the argument
until they were convinced.
KIRKEGAARD
the U.S. government is
actually involved in a number of long-running disputes with the Argentinean
government, both on issues related back to the Argentina default in 2001 as
well as more recently where the Obama administration actually took a rather
unprecedented move and have suspended Argentina
because of a dispute
between American companies and the Argentinean government overcompensation in a
similar investment type case, the Obama administration suspended Argentina from
the so-called General System of Preferences, which is another way of
saying that Argentina is going to lose a lot of trade preferences with its
exports to the United States
