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Argentine President Cristina Fernandez de Kirchner. (ENRIQUE MARCARIAN/REUTERS)
Argentine President Cristina Fernandez de Kirchner. (ENRIQUE MARCARIAN/REUTERS)

Globe Editorial

Argentina's expropriation of energy company only isolates country Add to ...

The decision by Argentina’s President to nationalize the country’s largest energy company may pander to popular sentiment at home, but will only further isolate the country internationally.

President Cristina Fernandez de Kirchner announced the expropriation of 51 per cent of Yacimientos Petroliferos Fiscales to a cheering audience on live television on Monday.

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This is a losing cause – just as is Argentina’s claim for sovereignty of the British-controlled Falkland Islands.

The country already has a weak standing in world financial markets, following its failure to repay all of its loans after defaulting on a $100-billion debt in 2001. The latest move will cause more uncertainty and make it more difficult to attract the kind of foreign investment and expert partners needed to develop Argentina’s reserves of shale hydrocarbons. And the move also has broader implications for regional co-operation and threatens the hemisphere’s ability to devise common solutions to economic and political challenges.

Instead of embracing aggressive acts of populism, Ms. Kirchner should focus on tackling pressing domestic problems, including the country’s 25-per-cent inflation, slowing economic growth, growing labour unrest and capital flight.

But real reforms might threaten her popularity. It is much more tempting for her to pander to the nationalist masses and come up with a new foreign scapegoat.

The expropriation of YPF will precipitate a protracted diplomatic and legal battle with Spain, one of the country’s most important allies, and is not supported by Chile and Mexico. Repsol, a Spanish firm, purchased 57 per cent of YPF in 1999 in a deal endorsed by Nestor Kirchner, Ms. Kirchner’s late husband and predecessor. Spain has already vowed to retaliate.

YPF controls some of the biggest stakes in shale gas reserves in the world. Ms. Kirchner accused Repsol of pursuing a policy of “pillage, not production or exploration.” The company says it has invested $20-billion but was stymied by price controls and subsidies.

Argentina’s track record on running state companies is poor. Ms. Kirchner has pledged to employ a team of professionals to manage YPF, but this has not happened at Buenos Aires waterworks or at Aerolineas Argentinas, which have been renationalized and are running massive deficits.

Ms. Kirchner’s latest salvo is harmful to Argentina’s long-term interests and its economic development. She should stand down from any more unnecessary wars.

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