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 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 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. 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 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.