An abrupt announcement was made by Argentina’s president, Cristina Fernández de Kirchner, on 16 April 2012: namely, that her government intended to expropriate a bare majority of the shares held by the Spanish oil company Repsol in the already partly nationalised state oil company, Yacimientos Petrolíferos Fiscales (YPF). The move was announced via a bill sent to congress entitled "On Argentina’s Hydrocarbon Sovereignty", which assigns 26% of the confiscated shares to the federal government in Buenos Aires and 25% to Argentina’s provinces. It was approved by an overwhelming majority of Argentina’s senate on 26 April and its passage into law is assured following a vote in the chamber of deputies on 3 May.
Argentina’s president explained the decision by saying that Repsol had broken its commitment to invest in the country’s oil sector (where its subsidiary YPF is responsible for 34% of oil production, as well as 24% of Argentina’s gas) and that the Spanish company had transferred its profits abroad via dividend payments instead of reinvesting them. As a result, and in order to prevent an energy crunch, in 2012 the bill for energy imports would amount to approximately $12 billion.
Aided by a formidable communications team that immediately plastered the walls of Buenos Aires with slogans depicting the president as the champion of resource nationalism, huge rallies have been organised to express enthusiastic popular support for the expropriation. Outside the country - in parts of Latin America as well as Spain and the rest of the European Union - there has been severe criticism. This article seeks to put the decision in the context of the country’s twists and turns, in a series of corsi e ricorsi that makes this story yet another "chronicle of a crisis foretold...".
An economic crunch
Arturo Frondizi became president of Argentina in April 1958, the first elected head of state since Juan Perón’s overthrow in 1955. He had campaigned on an anti-imperialist platform in which state control of Yacimientos Petrolíferos Fiscales (which had been created in the 1922) played a key symbolic role. Frondizi had written a nationalist polemic (Petróleo y Política) that condemned Perón for his decision in April 1955 to start negotiations with Standard Oil of California with a view to injecting much-needed foreign capital and expertise into the then creaking YPF. The negotiations had come to nothing, but the secrecy surrounding them were used as the main justification behind the civilian-military coup that overthrew Perón five months later.
Yet in July 1958, three months after becoming president, Frondizi launched La Batalla del Petróleo ("the battle for oil") [see Celia Szusterman, Frondizi and the Politics of Developmentalism, 1955-62 (Macmillan 1993)]. Couched in nationalist terminology, the "battle" in fact amounted to concessions made to foreign oil firms. Frondizi’s reversal of the resource nationalism that had been his trademark, caught even the British ambassador by surprise. Sir John Ward sent a report to London lamenting that "Frondizi’s rhetorical support of that rickety organisation [YPF] belied earlier rumours that he would lay bare the long history of incompetence and sloth which has marked its fifty years" (see the Public Record Office file, PRO FO371/131979, 25 July 1958).
Sir John was among the few pleasantly surprised when in an announcement couched in epic terms, Frondizi made an emotional address to the nation declaring that YPF would resort to "the co-operation of private capital", a necessary step since to continue to import oil "threatened the self-determination and sovereignty" of the country. The president added that "powerful interests had in the past hindered YPF’s efficiency", thereby undermining YPF’s contribution to "the formation of an emancipating national conscience" (see George Philip, Oil and Politics in Latin America. Nationalist Movements and State Companies [Cambridge University Press, 1982]).
Almost exactly fifty-four years later, the atmosphere around the YPF-Repsol affair has strong resemblances with that earlier episode. Cristina Fernández de Kirchner’s performance in launching her initiative had its own strong elements of histrionics: in an emotional tone, she held a test-tube containing a cloudy yellowish liquid allegedly of the first oil extracted in 1907 (and wrapped in a ribbon in the colours of the Argentine flag). Once again, the announcement was made in the name of "national sovereignty". After a passionate media campaign weeks earlier when the thirtieth anniversary of the Malvinas / Falklands war of 1982 was marked by a reaffirmation of Argentina’s irredentist claim ("las Malvinas son argentinas"), but little was achieved, Mrs Kirchner embraced that other sacred cow of Argentine nationalism: oil.
Cristina Kirchner, first elected president in October 2007, was re-elected by a landslide (54% against a divided opposition) in November 2011, a year after the death of her husband and predecessor in the office Néstor Kirchner. The nine-year story of kirchnerismo since the inauguration of this model of rule by Néstor following Argentina’s economic and social implosion in 2001-02 seems, then, one of continuous political success. But at a deeper level the use of Las Malvinas and oil as symbols of sovereignty - now threatened by "enemies of the people", whether "old" imperialists such as Britain ("those anachronistic 21st century pirates and colonialists") or "new" ones such as Spain (paradoxically, much older and truer "colonialists" in the Argentine case) - is attempting to conceal the unsustainability of the "national and popular project".
Indeed, the uncertainties clouding the Argentine economy - from high (and unacknowledged) inflation, to the complex network of subsidies, to capital flight and the growing fiscal deficit - are a shadow over the ostensibly bold and confident stances the government is taking on these two totemic issues. The president claim that Argentina’s growth since 2003, "at Chinese levels", has been the highest in its history has been contradicted amongst others by economic historian Pablo Gerchunoff.
He has pointed out that when the cyclical recovery after the 2001-02 catastrophe following default and devaluation is taken into account, economic growth during the kirchnerista years has averaged 3% per year (see his interview in La Nación, 16 January 2012). This is almost exactly the same as during the Carlos Menem years (1989-99), when the economy bounced back from an earlier hyperinflationary crisis. But the Kirchners benefited from a twin bonanza - a qualitative jump in commodity prices (50% of Argentine exports are agricultural) and the modernisation of industrial infrastructure that had taken place in the "neo-liberal" 1990s; and the ensuing growth, and accompanying drop in unemployment and poverty, were crucial in delivering Mrs Kirchner her re-election victory.
A crucial year in Argentina’s economic policy was 2009, when economic statistics were falsified to hide rising inflation (currently the second highest in the region after Venezuela, and one of the highest in the world), the peso appreciated, fiscal deficit replaced fiscal surplus, consumption was encouraged to the detriment of exports and investment, and the imposition of tariff barriers reflected increasing and arbitrary government intervention in the economy.
An unravelled deal
Within this overall context, the immediate reason behind the president’s decision to expropriate Repsol can be traced to the end of 2011. It was at that point when the extent of the misguided energy policies in place since 2003 became evident. A year earlier, at a public ceremony on 7 December 2010, Mrs Kirchner had praised Repsol and the Eskenazi family (low-profile lead investors in the company, having bought 14.9% in 2008 and a further 10% in 2011, and former close allies of the Kirchners) for the "transformation in energy production" that they had been responsible for; but when Mrs Kirchner was told that energy imports in 2012 would cost an unaffordable $12 billion, she had to find a scapegoat. Repsol, first, and soon it will be the Eskenazis too.
Her sentiments were voiced by the influential deputy economy minister Axel Kicillof, who defended the takeover in congress on 19 April by saying that when the "interests of the people" diverge from "the interests of a firm", the state must intervene. He did not bother to explain why this divergence had only recently become apparent.
There were other factors that may have had some bearing on the decision. A series of scandals, from the train accident in Buenos Aires which exposed the lack of investment in railways, to corruption (including one that involves the vice-president) has contributed to a drop of twenty points in the president’s image. The opinion-poll boost from the expropriation is notable: the president’s positive image shot back up to 70%, while 62% of those asked support "the recovery of sovereignty over YPF" (see Poliarquía, La Nación, 22 April 2012).
Although this poll found that 44% blamed government policies and not Repsol for the energy crunch, another poll conducted by the pro-government Página 12 revealed 70% support for the idea that the state should run YPF (only 3% believed the company should be in private hands, though this figure rose to 23% if the capital was Argentine; a paltry 2.6% were in favour of private foreign-owned capital).
Yet the text of the bill sent to congress contradicts any pretension that the state will now be in control of "our" natural resources - even though this has [delete repetition of has]been endlessly repeated. For in her 16 April speech, Mrs Kirchner stated: "Let it be clear: this is not a state-controlled model, but one of recovery of sovereignty and of control over a key tool". Sovereignty had never been relinquished. Foreign companies had been given concessions to explore, drill and extract oil and gas. Moreover, the bill (Article 3 paragraph c) prescribes that the state will support "the integration of public and private capital, national and international, in strategic alliances directed to the exploration and exploitation of conventional and non-conventional hydrocarbons".
Instead of expropriating Repsol, the government could in principle have gained effective control by buying out the 25% held by the Eskenazi family, thus avoiding the damage to relations with Spain and an international media outcry (replete with charges that the policy is "clumsy", "stupid", "feckless", and a surrender to the "siren call of populism").
The choice Mrs Kirchner made reflects another abrupt shift in her husband’s grand strategy that had sought to create a "national bourgeoisie" of which the Eskenazi family were a part. For as recently as 2009, Mrs Kirchner had sanctioned a peculiar arrangement to enable the Eskenazis to afford a 25% stake in YPF, whereby Repsol agreed not to invest but instead distribute all dividends; a device that had the double benefit of giving the Eskenazis a source (the dividends themselves) to buy their share, and Repsol the "protection" of the powerful president (or so the company believed).
An exposed narrative
In 1991, both Cristina and her husband Néstor (who became governor of the oil-producing province of Santa Cruz) had defended the privatisation of YPF decided by the then president, Carlos Menem. Kirchner described the privatisation as "a historical vindication" of national sovereignty. In September 1992, a Patagonian newspaper (La Opinión Austral) reported Néstor Kirchner’s rebuke of those who said privatising YPF was a "sell- out of sovereignty"; for, he added, there can be "nothing more sovereign than attracting investment".
In 2009, eight of Argentina’s former energy ministers publicly warned that government policies had resulted in a fall in oil-and-gas reserves that would lead to the loss of energy self-sufficiency. Among them was Alieto Guadagni, who has shown that the 2003-11 period was the only one since the 1940s in which hydrocarbon production declined (see Econométrica, 146, June 2011). In 1970-2000, for example, oil production doubled and gas multiplied by six; whereas in 2001-11, oil production has fallen every month (while gas has been falling since 2006) - and 70% of the loss in reserves has taken place since 2003.
The government’s energy policies did nothing to protect reserves, and instead favoured concessions to people who had "neither geological experience nor productive vocation" (see Alieto Guadagni, La Nación, 2 March 2012). In 2006, for example, more than seven million hectares were given to friends of the government who had promised to invest $1.7 billion. But nothing was invested. The people favoured were waiting for prices to rise even more in order to transfer their concessions to others with both the capital and the technical capacity to invest.
The result was that two decades of abundant, exported and cheap energy were to be replaced by a period of scarce, imported and expensive energy - part of a situation where the "national bourgeoisie" turned out to be a select group of cronies, such as Cristóbal López, Rudy Ulloa, Lázaro Báez (and initially the Eskenazis), that piece by piece bought businesses ranging from casinos to media to construction and oil. As Guadagni said referring to the energy crunch, "the problem is not one of geology, but of politics".
The official kirchnerista "narrative" holds the oil companies responsible for the fall in energy production, the outcome of their failure to make sufficient investment for domestic production to satisfy demand. The economist Fernando Navajas highlights the flaws in this account, which ignores the fact that the older wells are near exhaustion and the new sources (including shale-gas deposits in Vaca Muerta [Dead Cow] - according to some estimates the third largest in the world) - require new, high-cost technologies; investments of $25 billion may be needed to access deposits equivalent to $250 billion. It is, argues Navajas, the government’s energy subsidies and refusal to allow energy companies to charge market prices that has led to lack of investment.
To compound the situation, Repsol had (as per the 2004 agreement, and with the acquiescence of state-appointed directors) been remitting abroad more than 90% of its profits; on average, oil companies distribute 30% of profits, whereas Repsol in 2011 distributed 90% of its - in part to allow the Eskenazis to repay their debt to Repsol and to the group of banks that lent them the money to buy their share in the company (for a detailed factual account, see Alieto Guadagni in Clarín [9 April 2012] and in Econométrica [June 2011]).
A history repeated
What is apparent in the expropriation is less "resource nationalism" (which presupposes an element of coherent strategy) than economic and political populism. The style of the decision, noted by many observers, is revealing here: the humiliating manner in which Repsol executives were evicted from their offices, and the amateurish policy-making of new presidential favourite Axel Kicillof (whose articulate anti-capitalist rhetoric reflects someone with years of experience in leftwing student activism).
True, the substance of the decision will take longer to unravel. But some things are already obvious. This move will not retrieve in the near future the lost energy self-sufficiency: so much for "sovereignty". It has reinforced the reputation Argentina has for a cavalier attitude towards the rule of law (concerns with which are but a "neo-liberal concept", according to Kicillof). And in this instance, Article 17 of the 1994 constitution - which establishes the need for agreed compensation and a deposit of the relevant amount prior to expropriation - has been violated. It is unlikely Repsol will see any money at all.
Mario Vargas Llosa has described the expropriation of YPF as "una pasajera borrachera de patrioterismo nacionalista" ("a fleeting inebriation of nationalist hooliganism" (see the Nobel laureate's article in La Nación, 23 April 2012). Yet many in Argentina celebrate the so-called "recovery of national control over natural resources": overlooking that control had never been relinquished, that government directors on the board of YPF-Repsol signed without comment the firm’s balance-sheets, and that the government is actively seeking deals with anybody, including French, American and Brazilian oil companies to hand over the running of the country’s oil business. It will be interesting to see if they are prepared to risk in such an uncertain business climate, the billions required.
The Repsol-YPF affair is the latest example of a way of conducting politics that augurs badly both for the institutions of liberal democracy in Argentina and the well-being of her population. The government has acted as an arsonist who dresses up in the guise of a heroic firefighter.
Back in 1962, Arturo Frondizi found himself unable to foster the support of the population, and amid a divided society and armed forces believing themselves to be "the last moral resort of the nation", the president was deposed in another coup. When restricted elections were held in 1963 (Peronists were banned from participating), the anti-Frondizi faction of the Radical Party won - and the first decision of the new congress was to annul the contracts Frondizi had signed with private foreign companies in order to achieve self-sufficiency in oil production. This decision cost Argentina dearly, for it delayed energy self-sufficiency for another thirty years.
Moisés Naim’s comment in a trenchant analysis, that Argentina seems to suffer a case of "systemic learning disability", is relevant here (see "YPF will soon be the least of Argentina’s problems", Financial Times, 18 April 2012). The losers, as usual, will be the Argentine people. But until opposition politicians rise to the occasion, opt for rationality over passion, and persuade their fellow-citizens that there is a better way, the disability is unlikely to be repaired.