President Cristina Fernandez’ YPF seizure derives from a long, sad Argentine political tradition. Such nationalistic tendencies stretch back nearly a century. Juan Peron, founder of Fernandez’s party, also grabbed many businesses in the 1940s. But, commodity prices don’t stay high forever.
In 1950, Argentina had a per capita GDP of 236 per cent of the global average, up from 213 per cent in 1900, according to economic historian Angus Madisson. By 2010, its GDP per capita, on a purchasing power parity basis calculated by the World Bank, was 142 per cent of the world average.
Before 1943, Argentina’s economic management was fairly conventional, although state ownership was more prevalent than elsewhere. State-owned Banco de la Nacion was founded by centre-right president Carlos Pellegrini in 1891, while YPF became one of the world’s first fully state-owned oil companies under Radical president Hipolito Yrigoyen in 1922.
Nevertheless, it was Juan Peron, in office from 1946 to 1955 and benefiting from Argentina’s massive foreign exchange reserves built up by World War Two, who brought nationalisation fully into Argentine policy. He seized the central bank, several banks, the railroads, the merchant marine, universities, public utilities and tramways. He also created a single purchaser, the Institute for Promotion of Trade, for grain and oilseed exports, removing market discipline from the country’s export sector.
Fernandez has already nationalized $30 billion of private pensions, Aerolineas Argentinas and Lockheed Martin Argentina. Like Peron, she has been immensely helped by international conditions, with an unprecedented boom in commodity prices.
Mostly, the Argentines get the governments they vote for. However it’s tough for the voters to do better. Bad policies such as those of Peron and Fernandez have been rewarded by favourable international environments, while good policies in the 1930s (known in Argentina as the “Infamous Decade”) and the 1990s were rejected because unfavourable international conditions led to poor results. Argentina’s next government, however sensible, will deal with the wreckage of the Kirchner/Fernandez period and possibly higher interest rates and lower commodity prices. It’s not a job one would want.
Lower tax payouts from FY17 to boost earnings
Stock a favourite of most analysts; immediate upside may be limited