The only thing worse than a terrible movie is a terrible movie that we have already seen. By nationalizing oil giant YPF, Argentina has treated us to a tale of economic nationalism of a kind that the world knows all too well. We have seen this show before, and it ends badly.
Start with the predictably overwrought reaction of businessmen and conservative politicians. After this expropriation, they insist, no one will ever again invest in Argentina.
That is false, just as previous claims that no one would lend to Argentina after its umpteenth debt default turned out to be false. As P.T. Barnum reminds us, there is a sucker born every minute; a sucker who will be bailed out by his government if he over-lends surely is born almost as often.
What is at stake every time Argentine governments put on a populist display is not the fate of foreign investors, but of the country’s citizens. Populism and economic nationalism have been impoverishing Argentines at least since the 1940’s. This time will be no different.
Argentina has been making a hash of its energy sector for more than a decade. After the economic crisis of 2001, the authorities fixed the price of energy in nominal pesos and kept it there for years, even though inflation was running at 20% or more (according to independent estimates, that is; official figures are cooked to show lower inflation). No surprisingly, consumers over-consumed and firms under-invested. Output stagnated. With gas increasingly scarce, Argentina defaulted on its gas-export contracts to Chile, and imposed an abusive and arbitrary tax on gas sales to its Andean neighbor.
Today, Argentina is reported to have the world’s third largest reserves of shale gas at the suggestively named Vaca Muerta (Dead Cow) field. The Argentine government has neither the money nor the technology to exploit these vast resources. Argentina could choose to follow Bolivia’s lead: kick out the foreign companies and then fail to extract the gas. Otherwise, it will have to find partners, most likely foreign.
So the question is not whether Argentines will proudly go it alone, but what kind of partners they will have. Argentina has just expelled a company whose capital came mostly from a democratic country, Spain. For all of their faults – they were never models of innovation or forward-looking management – YPF and its parent company, Repsol, at least were bound by the strictures required for trading on advanced countries’ stock exchanges.
If press reports are correct, YPF´s next foreign partners could well come from China. And Chinese companies’ record in Africa, where they have engaged in an all-out race to control natural resources, with little regard for the niceties of transparency and modern accounting, let alone environmental protection, human rights, and democratic freedoms, is not exactly encouraging.
From all recent indications, the new YPF is unlikely to be a model company. Recognizing that many European and Asian countries have successful state-owned enterprises, the Organization for Economic Cooperation and Development has developed a code of best practices. The OECD recommends placing firms at arms-length from politicians’ short-term interests, appointing independent boards, enhancing disclosure, monitoring conflicts of interests, and hiring professional managers. Those were the principles at work when the Chilean Congress, as part of Chile’s accession to the OECD, voted in 2009 to revamp the corporate governance of copper giant CODELCO.
In Argentina, by contrast, a deputy government minister, whose professional background is in academic theorizing, has been tapped to run YPF. The quality of management is likely to be as high as in recently re-nationalized Aerolíneas Argentinas, whose grumpy flight assistants and perennially delayed departures have made it the butt of industry jokes. The YPF board will be packed with members of La Cámpora, the Peronist youth group led by Máximo Kirchner, President Cristina Fernández de Kirchner’s son.
The prospect that YPF could be the launching pad for the next generation of the Kirchner dynasty would be laughable were it not eerily plausible. The Kirchner family seems to be working hard to prove Marx’s famous dictum that history repeats itself, “the first time as tragedy, the second time as farce.” Indeed, governance under the Kirchners owes more to Groucho, Chico, and Harpo than it does to Karl. How sad for Argentina.
Andrés Velasco was Chile’s finance minister from 2006 to 2010, earning praise for innovative policies that included a measure to save Chile’s copper windfall in a rainy-day fund.