Argentina Ditches Repsol
- April 19, 2012
Interesting developments in Argentina, where president Cristina Fernandez de Kirchner’s decision to bring the country’s largest oil company Petrolíferos Yacimientos Fiscales (YPF) back into state ownership at the expense of the Spanish multinational Repsol has sparked howls of rage in Spain, and drawn condemnation from some governments and financial institutions.
The government has justified the expropriation of 51 percent of shares owned by Repsol on the grounds that the multinational was underinvesting in the country and failing to exploit its reserves. The government Minister for Planning Julio de Vido has pointed out that Argentina has been importing crude from Venezuela, despite having the world’s third largest gas reserves.
Repsol denies that it has been under-investing and is seeking legal address, with the support of the Spanish government and the European Union. The British government, which has its own issues with Argentina, has weighed in, with William Hague accusing FernÃ¡ndez of ‘a wider protectionist agenda’.
When a government like ours accuses Argentina of taking steps ‘ which are damaging to business interests and will undermine Argentina’s economy by reducing its attractiveness to international investors’, you feel the object of such criticisms must be doing something right.
Kirchner may not be the most exemplary leftist leader. Allegations of financial malpractice and cronyism have surrounded her and her late husband Néstor Kirchner at various points in their careers, both before and after they entered politics. But the popularity of her husband’s government and her own in Argentina are largely because to their willingness to challenge the kinds of economic policies that are currently being implemented in Spain and Europe.
I well remember living in Spain in the early 1990s, when a wave of IMF-directed privatisations was unfolding across Latin America, and Spanish companies like Repsol, Iberia and Telefonica were buying large shares in newly-privatised state companies all over the region.
Argentina was a special object of this ‘investment fever’, where the ghastly Peronist monstrosity Carlos Menem and his minister of the economy Domingo Cavallo presided over the wholesale privatisation of state assets, including pensions and public utilities, and a Convertibility Plan which pegged the Argentinian peso to the dollar.
These measures were initially successful in reducing an hyperinflation from 5,000 to 0 percent – albeit at the expense of massive unemployment and underemployment which forced many Argentinians to work two or three jobs just to make ends meet.
But the Argentinian ‘economic miracle’ was always brittle. Between 2000-2002 Argentina underwent a spectacular economic collapse, and defaulted on a national debt that reached $140 billion. This was a period in which factories and local businesses closed, pensions vanished or dribbled away to almost nothing, and banks shut their doors in the faces of their customers, who lost their life savings vanish.
This catastrophe aroused little concern amongst western governments or the world’s financial institutions, but it prompted riots, demonstrations, and factory occupations across Argentina, in a grassroots revolt whose generalised disgust with the country’s political class was summed up by the slogan ‘que se vayan todos’ – throw them all out.
The anger of many Argentinians was also directed towards the IMF, which continued to demand more spending cuts as a solution to Argentina’s debt crisis. In 2002, in words that have considerable resonance for Europe’s current ‘age of austerity’, José Luis Coraggio, an economist and the rector of General Sarmiento National University in Buenos Aires noted that
[stextbox id=”alert”]Our political class bankrupted the country in the 1990s by implementing Washington’s neo-liberal economic prescriptions. Now we are told that the only solution is to turn over the bits and pieces that remain of our national economy to foreign lenders and to slash government social spending even further to get ‘rescue financing’ from the IMF.[/stextbox]
This popular movement gave rise to the left-of-centre governments of Néstor Kirchner and his wife, both of whom disregarded IMF prescriptions and boosted public spending, instead of reducing it. In recent years, the economy has undergone a striking recovery, with rising trade surpluses and annual growth rates.
Despite, or perhaps because of these developments, the Kirchners are not well-liked by western governments and the more fervent free marketeers, where their policies have been criticized for their ‘populism’ and ‘anti-market’ components.
The outraged response to the YPF ‘expropriation’ is par for the course, with a number of analysts, including Repsol’s chairman, accusing FernÃ¡ndez of trying to divert attention from rising inflation and a faltering Argentinian economy.
Maybe so, though the governments and financial institutions that allowed the 2008 crisis to happen are not really in a position to lecture Argentina on how to run its economy. The renationalisation is popular with the Argentinian public, and it has also received support from other leftist governments in the region, such as Venezuela (naturally), Bolivia and Brazil.
Even analysts hostile to the takeover have agreed that the Repsol did underinvest in Argentina, because the government imposed limits on what YPF could charge consumers and raised taxes on profits.
So Fernandez’s decision may be ‘populist’ and ‘protectionist’, but it’s also another sign of the new confidence and the changing balance of power between Latin America and its former colonial power. For all its anger, Spain is in no position to do much about it by itself. It remains to be seen whether it can muster up sufficient international support to reverse the decision or ensure that Repsol gets the compensation it is seeking.
Having renationalised YPF, the onus is now on Argentina to demonstrate that it can run the company effectively.
And if it succeeds, the renationalisation may prove to be another nail in the coffin of the neoliberal model that has wrought such chaos back and forth across the planet for the best part of three decades – and an example for others to follow.