The well-received 1985 movie \u201cBack to the Future\u201d was followed by two sequels. The fourth sequel is currently playing in Argentina\u2014not on the big screen but in the political economy of that nation. This nation of 40 million has once more slid back into an imbecilic morass of demagoguery, authoritarianism, mindless statism and self-destructiveness. Don\u2019t cry for Argentina; this toxic elixir was 100 percent brewed and imbibed by the political class in that nation.<\/p>\n
In a move that defies all logic, President Cristina Fernandez has renationalized YPF, the nation\u2019s largest oil company, booting out Repsol as majority shareholder. The biggest natural resources renationalization since the Russian government took control of Yukos oil a decade ago, President Fernandez\u2019s claim that the renationalization was done due to YPF\u2019s failure to invest in the oil sector simply does not wash. YPF has had every right to repatriate profits and dividends to its Spanish majority shareholders. It is the Argentine government\u2019s failed energy policy and setting of domestic prices far below international levels that are the true culprits here. Cristina\u2019s vehement assertion that \u201cI am a head of state and not a hoodlum\u201d is akin to Richard Nixon\u2019s assertion: \u201cI\u2019m not a crook.\u201d<\/p>\n
The implications for firms are obvious: Argentina has become an exceedingly precarious, unstable, and unpredictable environment for business where governmental intervention can defy the law and take place any time and for whatever reason. For the international investment community, Cristina\u2019s actions further solidify Argentina\u2019s pariah status.<\/p>\n
The Argentine president\u2019s action is merely another, yet higher profile, manifestation of a degenerate political culture characterized by cronyism, statism, corruption and antipathy towards free market capitalism. The nefarious legacy and Juan and Eva Peron, adopted by Cristina and her late husband Nestor, is playing out with greater drama on the Argentine political stage.<\/p>\n
Let us not forget that little more than a decade ago the nation defaulted on its debt (to which it still owes the Paris Club $9 billion), devaluated its currency, and abrogated contracts. Under Cristina, the country raised taxes on exports; robbed the central bank of its independence; privatized pension funds, airlines and a water company; and instituted a host of new protectionist measures. In fact, Argentina ranks first in Latin America with 191 protectionist measures\u2014more than double that of Brazil, a country that is not exactly a model nation for trade liberalization.<\/p>\n
As for the business operating environment for both foreign and domestic firms, under Cristina\u2019s reign it has deteriorated, as well. In the World Bank\u2019s Doing Business<\/em> rankings of 183 countries, Argentina places #147 in starting a business,\u00a0 #144 in paying taxes, and #113 in the ease of doing business.<\/p>\n There are many theories as to why Cristina nationalized YFP, other than her vehement belief that YPF was \u201craping\u201d the country of its rightful income and not investing enough in the energy sector. Some speculate she was angry at having been snubbed at the recent Summit of the Americas in Cartagena, Colombia (where members of the U.S. Secret Service were certainly not snubbed). Others surmise it was done to solidify her position with the Argentine congress. Whatever the case, having won reelection easily, and with Chavez and Castro both at death’s doorstep, Cristina\u2019s Evita complex–domineering, narcissistic, authoritarian–is soaring to new heights. Populism runs wide and deep in the Justicialista (Peronist) Party; so no one should be surprised by her moves—especially after other anti-foreign investment actions and protectionist trade measures aimed at her Mercosur neighbors and other countries. As long as the price of commodities (particularly wheat and soy) are high and without any effective challenge in congress or within her party to her power, Cristina can and will do whatever she pleases, with her faithful economic policy advisor, Axel Kicillof, a die-hard Marxist, at her side.<\/p>\n Mexican President Felipe Calder\u00f3n recently declared: \u201cNo one in their right mind is going to invest in a country that expropriates investments.\u201d Obviously, President Calder\u00f3n is oblivious to the fact that there are more than a few investors whose na\u00efvit\u00e9, irrational exuberance, or historical short-term memory loss will not be dissuaded from investing in Argentina. As for many others, they will look to Colombia, Panama, Peru, Brazil, and Mexico for far less risky opportunities.<\/p>\n For it takes two to tango, and Cristina Fernandez is in no mood to dance.<\/p>\n
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