Argentina applies band-aid to cancer

17 Apr

Having had the audacity to rhetorically nationalize the Falkland Islands, a stable state that is proud to consider itself attached to the British Crown. Argentina’s President Cristina Kirchner has decided instead to try for something smaller by nationalizing YPF, a subisdiary oil production company of Spain’s Reposl YPF.

What’s so wrong with that? Argentina’s energy production has stagnated in recent years while consumption has increased. Besides the obvious cost and market economic factors of the nationalization of YPF, is simply the fact that this move won’t produce the desired effects, but rather will do just the opposite.

It’s almost a certainty that costs at YPF will increase while actual production decreases, if there is oil to be found in Argentina it’s already been found, but YPF will remain profitable as they’ll likely secure a big contract to sell their nationalized oil to China.

While most of the worlds oil production is now done at a nationalized level, there is a certain matter of quality in this issue. Nationalization rarely achieves the promises that are made with it. This is because nationalization of resources is generally done because it is politically expedient, as it is in this case, it looks good and provides a guaranteed boost to the state’s revenue sources that are otherwise bogged down due to heavy and obstructive laws.

Argentina will surely see the governments budget be massaged by it’s increased revenues, however the opportunity will be wasted when the engineers are fired or quite out of frustration because politically appointed board members and managers will be to selfish to care about anything other than themselves. This is all rather ironic considering leftists regularly claim cronyism in the oil industry by the right, but when they get the chance you’ll see it goes both ways and this is a perfect case to watch it in action.

I don’t claim to be informed about Argentina other than a basic history, but I know games and political hacks when I see them. However the fact that Argentina defaulted in 2001 and now are on a similar path again just 11 years later is sadly impressive from a country with one of the highest levels of inflation around.

Short-term gain, long-term loss.

Click here for the BBC article.


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