Posted on 04/23/2012 5:42:35 AM PDT by IbJensen
Back in February, after Argentine authorities inexplicably seized the contents of a U.S. military plane that was delivering equipment for a routine police-training exercise, a local official in the Buenos Aires city government summed up [1] the dismal state of her country’s foreign policy: “Our only friend right now is Hugo Chávez.”
On April 16, President Cristina Kirchner poisoned yet another bilateral relationship when she announced the nationalization of a majority stake in Argentina’s biggest oil company, YPF, which is owned by the Spanish firm Repsol. Her move prompted outrage in Madrid and threats of retaliation. Meanwhile, the Spanish technology company N2S abruptly canceled plans to establish an Argentine office. “Argentina really looked like a very attractive market for us and we believed it was serious in its commitment to foreign investment — until Monday’s decision,” N2S managing director Francisco de la Peña told [2] the New York Times. “I’m sure that a lot of other Spanish companies are as disappointed and worried about what has just happened as we are.”
The decision may have surprised Mr. de la Peña, but it did not surprise anyone who has watched President Kirchner launch one economically destructive power grab after another. As Brazilian journalist Míriam Leitão wrote [3] in response to the YPF seizure, “Argentina’s capacity to err seems unlimited.”
After all, Kirchner is the same leader who in 2008 nationalized both her country’s private pension system and its largest airline (Aerolineas Argentinas). She is the same leader who in 2010 fired Argentine central-bank governor Martín Redrado for his refusal to transfer $6.7 billion of foreign reserves to help Buenos Aires repay defaulted debt. She is the same leader who has produced soaring inflation [4] and massive capital flight, the latter of which increased [5] by 89 percent between 2010 and 2011. And she is the same leader who has systematically doctored inflation and economic data, to the point that The Economist recently announced it would no longer be publishing the official Argentine statistics. (“We are tired of being an unwilling party to what appears to be a deliberate attempt to deceive voters and swindle investors,” the venerable weekly said [6] in an editorial.)
Speaking of The Economist, it notes [7] that Argentina is now a net energy importer, despite its abundant resources. While the government has blamed its energy trade deficit on YPF’s reluctance to invest more generously in domestic production, independent analysts generally agree that “the real cause of Argentina’s declining energy trade balance is its maze of price controls and subsidies, which makes investment unprofitable and encourages excess consumption.”
By nationalizing YPF, Kirchner hopes to boost Argentina’s financial position and also score political points through the demonization of a foreign energy giant. But her timing couldn’t be worse, given that her country (in the words [8] of Financial Times commentator John Gapper) “has deep fiscal problems, no access to international capital markets and a looming investment challenge.” Indeed, how will Argentina now entice foreign multinationals to invest in its capital-starved energy sector (or any other sector, for that matter)? How can it expect to maintain the trust of the global business community when it treats private assets like state piggy banks? As Mexican president Felipe Calderón declared [9] following the YPF maneuver, “Nobody in his right mind invests in a country which expropriates investments.”
Of course, if you look solely at Argentina’s annual GDP growth, which topped 9 percent in both 2010 and 2011, you may wonder what all the fuss is about. Didn’t Kirchner win an easy reelection last fall, receiving more than 54 percent of the vote? And doesn’t she deserve credit for her country’s rapid economic expansion? The answers are yes and no, respectively.
We must remember that Kirchner was running for reelection against a weak, divided opposition, and that her approval ratings have since fallen [10]. As for the economy, Argentina’s recent growth has been fueled by high global soybean prices, which in turn have been fueled by ravenous Chinese demand. The country has also benefited from strong growth in Brazil, its largest trading partner. Now that the Brazilian and Chinese economies are both cooling down, Argentine growth will slow considerably.
Moreover, because Argentina’s Kirchner-era expansion has been accompanied by surging double-digit inflation, it has not raised living standards for the poor and the middle class. “The poverty level is higher now than the worst moments of the 1990s,” former Argentine economy minister Domingo Cavallo told [11] the New York Times in early 2011. “Without a doubt, inflation is increasing poverty.”
President Kirchner has relied on a mirage of economic vitality to conceal the effects of her policy failures. But as Argentina continues to lose investment and suffer from debilitating inflation, more and more of her countrymen are waking up to the harsh reality that they are much poorer — and much closer to a crisis — than they had thought.
Look the definition of economic stupidity and you get Argentina. She may also make the mistake of attacking the Falklands again.
Just as we think we are about to be done with the stupid punk Hugo Chevez, up pops another one.
Good article here today.
THE AMERICAS
April 22, 2012, 6:30 p.m. ET
O’Grady: The Argentine Way of Business
By MARY ANASTASIA O’GRADY
It is never a good idea to agree to blackmail. The extortionist will not be satisfied until the victim is bled dry. Just ask Repsol, the Spanish oil giant. The record of its relationship with the government of Argentina strongly suggests the sovereign-risk equivalent of such a crime.
Until last week, Repsol owned 57% of the Argentine oil company YPF. That’s when Argentine President Cristina Kirchner announced that her government will seize 51% of the company. All of the shares she plans to take belong to Repsol.
Nationalizations, particularly in the energy sector in Latin America, are nothing new. But the circumstances surrounding the Argentine grab of YPF may be. They demonstrate the special nature of kirchnerismo, an economic model that enriches friends of the government while driving the nation toward poverty.
http://online.wsj.com/article/the_americas.html
I doubt Kirchner is thinking about shale oil development. Argentina is virtually out of USD reserves and unless one is absolutely insane, there is no foreign investment available to develop the shale oil. My hypothesis is that Kirchner is going to screw the Argentinian people, cut oil available for domestic use and export oil to boost USD reserves.
And Obama and the American media are attempting to dupe the American people in the same way.
"Argentina has one of the lowest population densities in the world and suffers from the stupidity of its people for electing socialist/communist/peronista jokers into power and the elected ones for being blind to realities. This, of course, is a lot like the United States of Titanica today!"
Your right.
Not only that, but this goes to show you that socialist never learn. The total collapse of Argentina didn't teach the folks down there a damn thing as they continued to put the big government Marxists right back in power so they could turn around and put the same policies and practices right back in place that brought their country down in the first place.
Argentina is the best window to see where America is headed and it's not a pretty picture because when we go, we'll take the rest of the world with us.
She and her husband got elected specifically BECAUSE they are economic illiterates. Argentines blame the rest of the world for not allowing their beautiful Peronist dream to flourish.
More evidence that socialism and crony capitalism do not work. Her policies are mirror images of a second Obama term.
Must've been in the same class as comrade Hussein 0bama.
the US president thanked the Argentine head of state for the “passion and dedication applied to conversations over global issues,” while also publically declaring his congratulations to the Argentine president over her triumph in the October 23 elections.
"Barry, let me tell you how seizing power is really done!"
Argentine President Cristina Fernández de Kirchner
Two dogs.
bttt
Bienvenidos a Argentina. Flunking Economics Since 1900
It is so funny, all my friends in Brazil and Chile always talk about how stupid the Argentines are.
Could be Argentina is having visits from the Karma Police due to their “safe haven” snuggling up with the worst and most Nazi war criminals.
Argentina loves their Nazi War Criminals and Communists.
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