Argentina adrift?

Argentina adrift?
Latin American perspectives on Argentina, YPF and the Falklands One of the themes of the upcoming Council of the Americas conference, to be held in Washington DC this May, is ‘regional views on global economic recovery’.  With growth in parts of Latin America now outstripping that of India and its states courting investors from around the globe, assessing such views seems opportune.  And yet, in recent weeks, the idea that there might be a ‘regional view’ on economic recovery – to say nothing of the policies and investment climate necessary to bring that recovery about – has fractured.  The reasons for this fracture are the actions of a country that until recently was expected to be one of the leaders of a resurgent Latin America: Argentina. In the past few months, Argentina has taken increasingly strident actions in the name of protecting its economy and its sovereignty.  Most dramatically, the government announced on 16 April that it would be sending a bill to Congress to renationalise the oil and gas company Repsol YPF, seizing a 51 percent stake from Spain’s Repsol.  Despite the shock expressed by the international community afterwards, the move was entirely in keeping with other policy decisions by Cristina Fernandez de Kirchner’s government, which has also nationalised the country’s airline and private pension funds.  Argentina’s recent agitation on the issue of the Falkland Islands – the country rejects the UK’s claims of sovereignty over the islands in favour of its own – is similarly framed by the twin themes of resource nationalism and sovereignty.  Argentina claims the disputes – which are largely popular domestically – are bilateral and rejects the prominence placed on them by the international community.  The rest of the world, however, continues to scrutinize the country, thus meriting a consideration of Argentina’s position in the regional and international community. That Cristina Kirchner’s actions have been popular domestically is not in doubt.  Her announcement of the YPF nationalisation plan was applauded by her political allies and there were celebrations in the streets of Buenos Aires.  Although the opposition has criticised the nationalisation, it is small and politically weak.  Resource nationalism and sovereignty play better to the Argentine general public than concerns about the country’s international reputation.  Even those legislators who admitted they were uncomfortable with the move have said that they will likely vote in favour of the measure.  In an act of double-speak, one claimed he was not in favour of expropriation but was in favour of nationalisation.  Indeed, the bill passed through Argentina’s Senate almost unanimously on 25 April – there were only three votes against the measure.  The former president Carlos Menem, now serving as a Senator, was absent from the voting.  It was Menem who pushed for YPF’s privatisation in the early 1990s, with the support of Néstor Kirchner (then-governor of Santa Cruz) and Cristina Kirchner (then a provincial legislator).  The bill now proceeds to Argentina’s lower chamber where it is also excepted to pass by an overwhelming margin. The response from the international community to Argentina’s expropriation of YPF has been consistently critical.  The EU, World Bank and WTO have all condemned the country’s actions and filed formal complaints.  Spain has warned of reprisals.  Political analysts have begun to talk of the country’s increasing irrelevance on the international stage. Within Latin America, however, responses have been more varied.  The continent’s leftist block, led by Venezuela, was suitably approving.  Immediately following the YPF announcement, Hugo Chavez voiced his unequivocal support for the renationalisation.  The foreign minister of Ecuador called for a regional endorsement of the move, noting that resource nationalism was an important issue throughout Latin America.  This surprised no one, with many analysts noting that Argentina has been moving gradually to the left and increasingly aligning itself with ALBA (the Bolivarian Alliance for the Peoples of Our America), a leftist bloc that includes Bolivia, Nicaragua, Ecuador, Venezuela and several Caribbean nations. While South America’s left wing governments have played true to form, the response from the continent’s centrist and centre-right powers, such as Mexico and Colombia, has been more nuanced. Although some countries in South America’s centrist bloc have lent political support to Argentina’s recent actions, that support has often been tempered with restraint or ambivalence.  Particularly with regards to the Falklands issue, the consensus among Latin American states is to support Argentina’s claim for sovereignty while advocating a diplomatic resolution to the dispute.  This is the position endorsed by UNASUR, the region’s largest trade and policy bloc.  Notwithstanding UNASUR’s position, some states have gone further, banning specific UK or Falklands-flagged vessels from their ports.  But the symbolic weight of such gestures is greater than their practical impact.  Meanwhile, President Juan Manuel Santos of Colombia rejected Argentina’s requests to put the Falklands issue on the agenda of a recent Americas conference in the Cartagena.  Santos’ decision was perhaps unsurprising, as he is a well-known Anglophile, but it nonetheless demonstrates the limits of actual support for Argentina in the region.  As one political commentator in South America told us, ‘Argentina may be able to pull some strings, but it won’t be able to push its neighbours that far’. Such ambivalence was not shown by Mexico, Colombia and Peru when Argentina took over YPF.  With all three countries making active moves to court foreign investors, the fear of seeming unfriendly to investment was palpable.  Colombia’s Santos was quick to reassure the Spanish prime minister that his country does not expropriate.  Similarly, Peru’s finance minister said his country was well aware of the damage such ‘insane polices’ could cause, while President Felipe Calderon of Mexico lamented the decision as unfortunate, noting that expropriation made future potential investors wary (though how much his concern was motivated by Mexico’s national oil company Pemex’s 10 percent share in Repsol YPF is unclear). Brazil, Latin America’s largest economy and Argentina’s largest trading partner, has thus far largely refrained from speculating on Argentina’s actions.  Shortly after the expropriation, the government indicated it respected Argentina’s decision and its sovereignty.  No further comments have been made.  This muted response is typical of a country that favours neutrality and consensus-based approaches to its foreign policy.  As one senior political figure in Brasilia told us: ‘We like to go with the herd when it comes to Latin America’.  But although Brazil’s neutral position can be partly put down to this approach, it also reveals why the questions raised by Argentina are so vexing for other Latin American nations.  Simply put, Argentina remains a significant economic power in Latin America at the same time that it is becoming increasingly isolated from the international community.  This situation places specific pressures on other Latin American states seeking to balance their regional and international interests. For Latin American countries with international ambitions, such as Mexico (currently president of the G20) or Brazil (currently seeking a seat on the UN Security Council and greater representation in the World Bank), there is considerable international pressure to distance themselves from Kirchner’s government and reassure investors.  When Calderon and others spoke on the follies of expropriation, for example, they were likely speaking to audiences outside the Americas.  Just how far Latin American countries can distance themselves from Argentina, however, remains questionable.  Many also practice resource nationalism and the regional value of Argentine trade is great.  Add to that, the sheer size of Argentina’s shale gas reserves – the third largest in the world – and one could argue that the limits of how much Argentina can be ignored or condemned to irrelevance may well be tested. William Read Associate Director, Head of Americas Team Sarah Burack and Allison Everhardt, Business Intelligence April 2012
Published: 27th April 2012