That was the decade-long process imposed in response to the 2001 financial crisis that included a freeze of bank accounts and the forcing of those with dollars to convert their accounts into devalued pesos and peso bonds. President Cristina Kirchner will likely claim that this is another step toward her country’s economic “independence.” Sadly, the reality in Argentina today is very different.
Argentina continues to demonstrate its great talent for undermining itself. Moody’s latest country report notes that “political and policy predictability has eluded Argentina.” One recent example is Buenos Aires’s attempted courtship of international investors in the newly state-owned oil company YPF. Even as it tries to convince the global investors to participate in the development of its Vaca Muerta shale gas deposits, the Kirchner government has taken unprecedented steps to tighten industry controls.
“To get this done, we will require our investors’ trust and commitment.… [W]e are also seeking—and need—operators and strategic, technological, and financial partners,” writes YPF’s new CEO Miguel Galuccio. Yet just last week, the government implemented a sweeping new decree that would require private companies to submit to quarterly audits and face sanctions for failing to comply with the government’s national energy plan.
Argentina’s anti-business policies are also reflected by the Kirchner government’s continuing failure to resolve claims stemming from its massive 2001 sovereign default. Argentina must pay the highest interest rate for sovereign default insurance of any developing nation—a direct result of “inflation, the bad business climate, and instability of the rules of the game,” according to ex-finance secretary Lisandro Barry.
Another example of the country’s storied economic and political unpredictability is reflected by last week’s announcement by the World Bank that Argentina is now the most protectionist country in the world. If Kirchner were to reverse her policies, Argentina’s economy might not be facing economic contraction and stagflation threats, capital flight of epic proportions ($21.5 billion in 2011, nearly double the amount in 2010), and international disapproval—with many calls for Argentina’s expulsion from the G-20.
In March 2012, Argentina’s intransigence led the U.S. to suspend trade benefits for Argentina under the U.S. Generalized System of Preferences program. Kirchner’s actions since then have confirmed the wisdom of that decision.