Renationalisation: the Argentine case shows it can be done

Argentina has completed multiple, successful renationalisations in the past decade. It can be done... when the political will is there.

Javier Lewkowicz
20 March 2015

President Kirchner. Flickr/Ministerio de Cultura de la Nacion

Many South American countries are currently going through a period of so-called post neo-liberalism, a quest to re-establish the state as the principal mechanism of social integration. The path chosen, however, has varied in many respects, one of which is exemplified by nationalisation. Argentina, Venezuela and Bolivia all deployed measures to change company ownership, but each country’s policy was based on its own particular rationale. Venezuela directly expropriated and nationalised hundreds of private businesses that had not been previously privatised, the impetus to do so having been very weak during the 1990s. Bolivia undertook nationalisation of strategic sectors, most importantly hydrocarbons and telecommunications, a policy Evo Morales had anticipated during in his presidential campaign. It also took over four power companies and a metallurgy plant. Brazil, Ecuador and Uruguay, on the other hand, reasserted state control in the economy but not through significant nationalisation.

Argentina’s case is noteworthy in this regard. It begins back in the early 90s with the Freudian slip of erstwhile Minister of Public Works Roberto Dromi, who, on unveiling his privatisation plan, famously declared that nothing that should belong to the state would remain in state hands. So began the sale of an unprecedented number of state-owned assets. Radio, television, telephone, tolls, roads and railways, and the national airline passed into private hands along with steel, petrochemicals, shipbuilding, electricity and hydroelectric plants, oil and gas, mortgage lending, and social security. Not for nothing was the country considered the IMF’s top student. The neoliberal explosion of 2001 inaugurated a new period, in which private enterprises were not renationalised across the board but on a case-by-case basis. For the most part, this occurred in response to poor management that jeopardized the businesses in question and sometimes, in a more indirect manner, the nation’s socio-economic stability.

In November 2003, the newly minted government of President Néstor Kirchner tackled the first transfer of a private company back to the public sector. Argentina’s postal service, which had been in the hands of the Macri group, was nationalised in response to mounting unpaid license fees and the discovery that the severance pay of 3,000 laid-off workers had been recorded in the company books as an investment. The radio spectrum was nationalised a few months later after its owners defaulted on a promised $300 million investment.  The two moves were decisive because the country was still recovering from an economic crisis and the government needed to send a confident message that it was determined to initiate policy.

But the icing on the cake came in 2006 when, after years of corporate neglect, Aguas Argentinas, the water supply and sanitation system run by the French group Suez, allowed contaminated water to be distributed throughout the southwest region of Buenos Aires. The government seized the opportunity to shift water management to state-owned Aysa, and from that moment on progress was dramatic. Where there were 3 million inhabitants without access to potable water in metropolitan Buenos Aires in 2006, the company now aims to achieve 100 percent coverage by the end of this year and complete sewage coverage by 2019.

In addition to public service industries, the state recovered control in 2007 of both the Tandanor shipyards—the privatization of which was a scandal because the owners never honoured the contract they agreed to—and the aircraft manufacturer Fábrica Militar de Aviones. The latter was purchased for 67 million pesos from Lockheed Martin in order to create a new entity under the name Fábrica Argentina de Aviones and the control of the Ministry of Defence.

Still, the four most important cases of renationalisation took place later, during the successive mandates of Cristina Fernández de Kirchner (CFK) between 2008-2011 and 2011-2015, namely Aerolíneas Argentinas, the pension fund, the national oil company, and the railway.  

Aerolíneas Argentinas

On December 10, 2007, CFK replaced her husband Néstor Kirchner as President.  Barely six months later, she unveiled her bill to expropriate the flagship Aerolíneas Argentinas for failing to pay its employees and its suppliers, which had left it facing imminent closure. Sale of the airline in the early 90s to the Spanish Marsans group had marked the beginning of a series of privatisations and was emblematic of the practice of asset stripping. In 1990, for example, the company owned 28 planes and rented one. By 2008, it had only two international-class aircraft, a handful of domestic planes, and a rental fleet of 30. Its offices in Rome, Paris, New York, Miami, Madrid, Bogotá, Lima, and Caracas were transferred to Spanish hands. The airline had boasted three flight simulators used to train personnel—the only Latin American company with access to such technology—and they all were swallowed up by Iberia, along with lucrative routes to the Netherlands, France, Germany, England and Switzerland and the airline’s data processing network and reservations system.

In 2008, the airline’s assets were in the red by some $1.2 billion. The Tribunal of Accounts of the Nation evaluated the company as having negative net worth, so for legal reasons the Argentine government paid a symbolic amount of one peso to represent compensation for expropriation. Marsans in turn filed a 1.2 billion-dollar claim with the ICSID tribunal, the international arbitration institution operating under the auspices of the World Bank.

Pension funds

That same year the social security system was nationalised; it was one of the most strategic measures undertaken by the Kirchner government. Although the nationalisation took place against the backdrop of the global financial crisis, it is significant because it was not a response to an urgent domestic issue. It consisted in transferring pensions from a privately funded corporation to a framework of intergenerational liability in which actively employed workers subsidize passive ones. This is how it operates insofar as cash flow is concerned, but another key element is capital. The previous retirement and pension fund administrators (AFJP in Spanish) managed—charging enormous commissions in return—substantial assets derived from the contributions of workers who, in effect, were financing their own retirement. In December 2008, this capital was worth some $23.347 billion; today it is called the Sustainability Guarantee Fund (FGS in Spanish) and is worth $54.534 billion, as measured by the official exchange rate.

Much of FGS is invested in the shares of the country’s most important companies. After the renationalisation, the government invoked its shareholder rights and nominated many directors to the boards of these firms, something that the local elites have never forgiven it. AFJP had also invested heavily in public securities; as a result, some of the debt passed directly from private to state hands. Meanwhile, the government modified the investment strategy to focus on domestic companies and infrastructure funds, at times acting much like a development bank.

More important still, by recovering the pension fund, the state was able to tap into the substantial fiscal resources that stemmed from the contributions of active salaried workers and the profitability of the FGS. In this way, the government financed its Universal Allocation per Child, an employment insurance program that provides monthly benefits per child to unemployed workers and those without access to benefits under the registered employment plan known as the “Family Allowance.” The FGS funds were also used to establish Pro.Cre.Ar., a program that helps subsidize home buying and Prog.R.Es.Ar., a stimulus plan that targets young people between the ages of 18 and 24 who are neither working nor in school and helps them complete their studies from primary school to university.

Finally, nationalising the retirement program enabled the government to strengthen social security, which covers close to 95 percent of those of retirement age. This in turn has produced a “flattening” of the retirement pyramid, which means there are more people receiving minimum pension benefits. In other words, having been nationalised, the system has gained a redistributive bias that operates at the expense of high-income earners and the financial system and in favour of poorer pensioners. Many complaints were filed by former AFJP members who tried to lock in the benefits earned under the privately funded system, but these were dismissed in court. At the same time, there have been several judgements in favour of retirees who are hoping that their benefits turn out to be higher than the basic minimum.


On May 3, 2012, the Kirchner government took the most controversial of its renationalisation decisions and announced it was taking over the oil company YPF, the country’s largest privately owned corporation, by expropriating 51 percent of the shares held by Spanish energy giant Repsol. The move came after a flurry of divestment by the company, which brought Argentina’s energy trade deficit to unimaginably low levels and set the course for an economy plagued by a severe shortage of dollars, a situation that continues to this day. The numbers speak for themselves: the balance of exports and imports in the energy sector was $4.104 billion in 2007, $3.514 billion in 2008, $3.830 in 2009, $1.759 in 2010, and -$3.114 billion in 2011 when the decision to expropriate YPF was taken.

The decline in the energy sector was the result of Repsol’s policy of maximizing earnings: it made money in Argentina by exploiting mature oil fields and selling gasoline and then investing the profits in exploration in other parts of the world. So, oil and gas reserves decreased continuously while company profits and the dividends it paid out increased. From the time Repsol acquired YPF in 1998 until the end of 2011, oil reserves dropped by 54 percent; and gas reserves, by 97 percent. This did not happen overnight. The practice took place quietly over time such that the Kirchner government itself was a silent observer, a fact that underscores the serious lacunae in its regulatory policy.

Unlike the case of Aerolíneas or the AFJP, the government agreed in February 2014 to pay compensation to Repsol.  Some $4.670 billion was transferred using a variety of financial instruments within the framework of an overall strategy on the part of the state to align itself with international markets. In exchange, Repsol withdrew the pending case against Argentina, which it had filed with the ICSID.

Today, YPF is spearheading an effort to recover the country’s energy self-sufficiency with the exploitation of the unconventional Vaca Muerta field in the Neuquén basin. It is estimated that it will take at least five years before the country can regain its balance of trade in the energy sector.


At the opening of the legislative session on March 1, the President announced a measure that, for the moment, is the latest salvo in the Kirchner renationalisation arsenal: the railway. The story goes back to February 22, 2012, when, at 8:30 in the morning, a commuter train, unable to brake, slammed into the buffer stops of the Once de la Ciudad de Buenos Aires railway station. 51 people died, and more than 702 were injured.

The tragedy drew attention, once again, to a lack of government oversight with respect to private companies that had been awarded rail contracts in the 90s. Thanks to a generous subsidy, rail passengers paid low fees and the operating companies received money from the state without any obligation to invest or even adequately maintain cars and lines. The Once accident was the most recent and most serious in a string of mainly small-scale accidents.

The disaster provoked a radical change in the government’s rail strategy, and it soon began to rescind contracts and replace private operators. It also led an ambitious investment initiative that turned the railway into a political asset - so much so that Transportation Minister Florencio Randazzo has become one of several presidential hopefuls for the October 2015 elections. The state paid $1.2 billion to China for the renovation of urban passenger trains. The latest news on this topic is that the government has now reclaimed the last of the lines awarded to private operators. It plans to place the entire rail system under the banner of the newly rehabilitated state-run Ferrocarriles Argentinos.


This article is part of our Modernise: de-privatise series. Translation by Victoria E. Robertson.

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