Like piggies at the trough, Argentine businessmen are falling in love with the nationalization of YPF. At first, the private sector recoiled at the idea. It symbolized the growing isolationism of the nation, the abrogation of private property rights and the heavy-handed nature of the Fernandez de Kirchner Administration. However, the move is taking a new life of its own. Prior to the economic reforms of President Carlos Menem and Economy Minister Domingo Cavallo, most of the largest Argentine fortunes were made by the families who provided goods and services to state-owned enterprises. The cozy relationship between the government and conglomerates, such as Techint and Perez Companc, was one of the legacies of Juan Peron. Academically, known as corporatism, it is a three way relationship between the state, private sector and organized labor. Some academics, particularly Marxists, attribute this corporatist structure to the economic success Argentina experienced during the post War period. Indeed, Argentina was the envy of Latin America, with a vibrant middle class and a strong private sector. The problem is that corporatist structures end up undermining the overall competitiveness of the economy by transferring too much wealth to corporate providers and labor unions while undermining the value of state-owned assets and the quality of the services rendered. By the 1980s, Argentina was a museum of industrial history. Telephone services were completely obsolete. The ports were among the most inefficient on the planet. Brand new automobiles employed designs that were 20 years old. It was no surprise that the country slipped into hyperinflation by the late 1980s. Nevertheless, from a political perspective, it was a structure that explained the rise of Peronism through the support of organized labor and large corporations. Therefore, it is little surprise that Axel Kicillof, a young Marxist professor, is emerging as the president’s most important consigliere.
It is perhaps this nostalgia that also explains the enormous popularity of the president’s decision to nationalize the oil giant. Some polls show as much as 70% support for the measure, and it is helping revitalize the political fortunes of the Administration. Unfortunately, Repsol did not particularly endear itself to the Argentine public during its tenure. Despite the deals that were cut with Nestor Kirchner, investment was very low. The Spanish oil company was never known for its technology or operating prowess, and it virtually used its YPF operations as a cash cow. Moreover, there is a tense undercurrent in Argentine society against its former colonizers. Despite the facts that Buenos Aires tries to emulate its European counterpart and most Argentines can trace part of their lineage to the Iberian Peninsula, they always felt like they were looked down upon by their Spanish cousins. Therefore, it’s no surprise that the government’s decision to “stick it” to the Spaniards was received with a wide round of applause.
What started as the settling of a personal score transformed itself into what may become a new political-economic paradigm for Argentina. The Argentine Industrial Union (UIA), which represents the old-guard private sector, declared its support for the nationalization of YPF. Therefore, President Fernandez de Kirchner has the support of the private sector, the unions and the public. In other words, it’s a win-win situation and it looks like the Kirchners pulled another rabbit out of the hat. The successful nationalization of YPF probably dooms the fate of the electricity and gas sectors, which will probably return to the hands of the state. However, given the recent discoveries of huge shale oil and gas deposits in Neuquén, it may also mark the start of a new era of cheap energy for the country. Argentina may be a pariah in the international community, but it can’t be blamed for the recent moves. None of the other Latin American governments privatized to the same extent as Argentina, and none of them relinquished control over their national oil companies. These companies, such as Pemex, PDVSA, Ecopetrol, Petrobras and ENAP remain under the total or partial domain of the state. They are huge sources of politically-mandated contracts, social programs and employment. The last two decades marked the nadir of Argentine industrial history. Many of the large conglomerates disappeared, only to be replaced by foreign multinationals, such as Repsol, Telefonica and Santander. Ironically, the nationalization of YPF may mark the renaissance of Argentine industry. Sometimes, Marxist theories, such as corporatism, may provide some of the best insights to what is occurring today. In the meantime, we will see a lot of smiling Argentine faces as they see ample opportunities to provide sub-standard goods and services to state-owned companies at very inflated prices.