Created in 1922, Argentine oil producer YPF became the first entirely state-run oil company in the world, and came to symbolize the politicization of oil well before today's Middle Eastern oil producers became omnipotent. The nationalization of oil has been a consistent theme in Argentina since the state first established a monopoly on oil exploration in 1928. President Kirchner's recently announced expropriation of YPF continues a long tradition of gyration between pro and anti-foreign investment sentiment in the country's oil sector.
Given that the president consolidated her power by being reelected in a landslide vote last year, she has a mandate to continue the 'Argentina first' policies she pursued during her first term. YPF's expropriation is the largest of its kind in the natural resource sector since the Russian government expropriated Yukos a decade ago, and a reminder -- as if any were needed -- that acts of expropriation can occur without notice, even to the largest of multinational corporations.
Surely, Repsol would have been aware of Argentina's history of expropriating foreign investment in YPF over the course of the past century. Given how entrenched oil politics have become in Argentine political culture -- and given how deftly both the current president and her husband played the nationalism card -- only a naïve investor would agree to invest in YPF believing that expropriation was impossible. And yet, Repsol can be excused for wanting to believe that Argentina's propensity to expropriate was a thing of the past.
Since 2002, expropriations in the natural resource sector have increased considerably globally. According to the International Center for the Settlement of Investment Disputes, of the 143 pending cases of investment disputes awaiting an outcome, an astonishing 49 percent (70 cases) are in Central and South America. And the country with the most number of cases lodged against it is (you guessed it) Argentina -- even more than Venezuela. The 'bad boys' of Latin America -- Bolivia, Ecuador, and Venezuela -- have all either said they will no longer resolve disputes through international forums of arbitration, or have already pulled out of them. Other Latin American countries may now be expected to follow their lead.
Argentina has enjoyed an impressive period of growth since resolution of the Argentine Crisis a decade ago. The country's more than tripling of GDP since 2002 has given it confidence to take this bold action. But history has shown that those countries that go down the path of expropriation end up paying the price in terms of reduced foreign direct investment. That has certainly been true of Bolivia, Ecuador, Nicaragua and Venezuela. It would be a mistake for Argentina to believe that the same will not be true in its case.
But there is a lesson for Repsol -- and indeed all international investors -- as well, which is that history cannot be erased, or ignored, for it is an important teacher. Given history, it was just a question of time until the Argentine government would turn against Repsol. In the end, it didn't matter how supportive Spain had been of Argentina through its difficult times, or how good the company's relations had been with the government. When the time is right, history will raise its head and reassert its influence in the present-day political and economic dynamics of a country. Given Argentina's example, foreign investors would be wise to remember this -- particularly given how fragile the global economic recovery is proving to be.
Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk consulting firm based in Connecticut (USA), Director of Global Strategy with the PRS Group, and author of the new book Managing Country Risk (www.managingcountryrisk.com).
Follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt
Expropriation and nationalisation are also different things.
Theft means fully exploiting resources, pay enormous dividends abroad, empty the company and not invest a single dollar in new oilfields, leaving everything empty, like in the times of colony.
Sorry, Repsol has no case.
The history of expropriation shows countries INVITE others to invest, mature the industry, and then take over everything and expect to pay pennnies on the dollar for the assets, ala Venezuela. Haven't you read what Argentina claims they are going to pay? Nothing!! It's theft, plain and simple. The owners of Repsol are not obligate to subsidize oil to be consumed by the Argentine public by forcing them to accept below market rates for oil retrieved or forgo a return on their, not the Argentine public's, risked capital, just so the current politicians in charge can get reelected. Its just that simple. Argentina looks to be going the same way as Venezuela, Ecuador, etc.. Watch for a constitution referendum to allow the good lady's indefinite reelection come later.....for the "people".
And Argentina is looking for others to invest there. Good luck with that.
The reasons for that action has to do with the fact that a private company only seeks profit, which is what Repsol is doing, and the state has to guarantee the energetical balance of the country, regardless of the profit needs of private investors.
Repsol is not Spain, in fact it is a multinational company with partners from Mexico and other countries. The privatisation of YPF (which means Yacimientos Petrolíferos Fiscales - Fiscal=Statal) in 1999 should have never taken place.
All countries would be wise to remember that multinational companies only seek profits, and not the well being of the country they operate in.
I think REPSOL saw the deteriorating situation by 2003 and began stripping out as much money from the Argentine operations as possible, because they knew it was their only chance to get any Return on Investment (ROI) before the government renationalized the Argentine operations.
If Argentina's economy had a stable currency with low inflation, there would be no need to for the government to intervene and demand domestic oil sales at capped prices, and none of the stripping or expropriation or renationalization would be necessary.
Will be interesting to see how Argentina values the 51% shares they are taking over, and how they choose to pay back REPSOL. Spain has a modern Navy, don't be surprised if they blockade Argentina's main ports, and / or seize exports of Soy shipments destined for foreign ports. I wouldn't blame them, and I think the US should do the same, to pay back the US pension funds that bought $300 million in Argentine bonds that have never been paid back.
Your idea of the main ports blockade is absurd. "Modern navy"? So what? Repsol is a private multinational company (with capitals from many countries), and doesn´t belong to the spanish State, although that´s what they are trying to make us believe right now. Spain is now led by conservatives and keeps getting pressured by this big companies, whose interest and profit they wholeheartedly defend (more than their population´s, with unemployment close to 25%) and is living an economic turmoil similar to that in Argentina during 2001. The internal situation in Spain is really severe and its government is failing to produce a change. They live partly out of the former colonies´ profits, exploiting essential resources irresponsibly and the party is over now. Most of argentine debt has been rescheduled and paid for, if you think the US should make something, tell Obama, he´s also pressured by these big companies/financial corporations who speculate with critical situations worldwide.
(Few are eligible for this apotheosis as most have made dedications to Marx or market).
Given the way that capital buys power, this may be a smart move in the longer run. Keeping OUT investment, keeps out foreign influence peddlers.
And it keeps the old Peronistas happy on the fake left while the old families (on the real right) know that investment costs will be kept down. To keep both left and right happy at a stroke requires the dramatic flourish of a tango.
The todays government in Argentina were all Peron's enemies years ago.
So what Spain will do..? will send "Santa Maria,La niña y La Pinta" ??
American corporations also regularly seek the advocacy, defense, and political power of the United States government in these disputes. What's interesting is they don't want to pay taxes for this service.
As a result, there has been a petrol shortage in Argentina, forcing the country to purchase oil on the international market - at high international prices. This has caused billions USD to depart Argentina for foreign coffers to pay for the oil. With less currency in reserves, the Argentine Central Bank has to worry about lack of faith in their currency.
Real inflation continues unabated in Argentina, I can't believe how little the AR$ is worth compared to USD - just in the 14 months since I left Argentina, it has been very large. Just because Argentina's GDP grows 4-7% this year, it is wiped away when inflation runs 22-29%.
I am from the US, but spent 2010 in Argentina, I love the country, and the people are fantastic, warm, welcoming, and deeply distrustful of their government. And it's pretty clear why. Yes, the US has corruption and banksters at the investment banks. But the US can still buy credit easily at very low interest rates, keep real inflation below 4.25% and didn't nationalize industries when they bailed out companies.
All countries have corruption, we know that since the middle ages. Wish it weren´t so, but it is. In Argentina that corruption is shameless, as in many other countries.
Buy credit could be a short term solution for national problems, but it is bad in the long run.
Corruption is also inside the big companies, the US can tell a lot about that.
http://www.opic.gov/
OPIC: Private Investment Corporation
http://www.opic.gov/insurance/coverage-types
Types of Coverage | OPIC: Overseas Private Investment Corporation
"o Currency Inconvertibility
o Expropriation
o Political Violence
o Standalone Terrorism
o Special Coverages
o Small Business Coverage..."
So I guess that when any individual doesn't pay its dues, will end up confiscate.
Spain doesn't even pay to their elderly the pensions because the country is broke, while its king goes hunting to Africa, The country suffer harsh financial stress, and Rajoy supports the "eurocrats" from the right to help the elite, like France,Germany and England etc.
Rajoy in Spain, is the equivalent to republicans in USA
years ago Spain purchased Argentina Arilines. years later was return to Argentina total bankrupt.