Argentina’s President Kirchner Flunks Economics
Why Argentina is headed for a crisis.
April 23, 2012 - 12:00 am
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 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 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 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 and massive capital flight, the latter of which increased 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 in an editorial.)
Speaking of The Economist, it notes 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.”