Taking the wrong road

There are many reasons to justify the assumption that President Cristina Fernández de Kirchner is attempting to conceal the failure of her economic management behind a façade of nationalism. The Argentinean economy is in jeopardy, and, in this time of frustration, the president has opted to fall back on the sort of patriotic slogans (“they rob our raw materials, they make off with our wealth”) that have inflamed the country’s political rhetoric since the days of Juan Perón.

A good example of this was her speech on Monday, delivered in Tierra del Fuego, to commemorate the Falklands War. The president called for dialogue, but also tried to stir up national sentiment, with regard to the diplomatic conflict with the United Kingdom on account of the 1982 war, and the hope of Argentinean access to the oil discovered in the vicinity of the islands.

Argentina runs the risk of economic ruin in the short term, and patriotic agitation is a bad route to take. Foreign investors in Argentina now operate under a permanent threat of abusive exaction or nationalization. This is the case of YPF, the petroleum group principally owned by the Spanish firm Repsol, whose operating permits are being arbitrarily withdrawn in Argentinean provinces, and over which a decree of nationalization has hung in recent months.

There is no reason for the nationalization of YPF. But the government has been unable to implement a policy for moderation in consumption, nor has the national production of energy products been properly managed. The result is burgeoning demand, shrinking levels of production, and soaring prices, which are hurting consumers.

Kirchner and her ministers have tried getting foreign companies to import gas and sell it in Argentina at a loss. Those who have refused are punished with nationalization. The Buenos Aires government is prepared to disregard contracts, concessions and any idea of legal security that may attract foreign investment in the future.

The populist rhetoric, the threats of nationalization (which also serve to bring down the stock market valuation of YPF) and the constant resort to pressures on foreign capital, are sufficient reasons for the international community to withdraw its confidence in Argentinean regulatory stability. Suppressing a foreign company’s operating concessions without good reason does not befit a G-20 country, nor does threatening nationalization simply to satisfy the inflated chauvinism of provincial governors. Obama has announced that he will suspend Argentina’s preferential trade status; the European Union, the United States, Japan, Mexico and 10 other countries have denounced the protectionist policies of Argentina to the World Trade Organization. Cristina Kirchner has a problem with her country’s economy, with her energy policy, and with her balance of payments. If she proposes to solve these problems by means of economic patriotism, she is making a serious mistake.