Tuesday, April 24, 2012

Argentina strikes again

This time the Peronist government has decided to nationalize YPF, the country's leading oil producer.  Repsol, a Spanish company, had majority control; Spain has retaliated by cutting off imports of Argentine biodiesel.  Spain is also asking other European Union countries to remove preferential trade treatment for Argentina.

Why is Argentina doing this?  It depends on who you ask.  The move is very popular in Argentina, which claims Repsol had cut back investment and was recycling record profits to largely Spanish shareholders and executives.  In the short term the deal may make economic sense for the Argentines as well, especially if they can get away buying YPF at a price well below market value.  The other side of the coin: Repsol was probably wise to avoid new investments, given the state of property rights in Argentina.
Longer term we could very well see more nationalizations and will certainly see sharply diminished foreign investment in Argentina.  The Argentine government will use its ownership position to provide patronage jobs to its supporters. 

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