Home > Political Economy > Argentina’s critics get it wrong again

Argentina’s critics get it wrong again

from  Mark Weisbrot

The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press.

We have heard all this before. When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, the economy would spiral downward into deeper recession.

Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere. Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled.

All this is probably why Cristina Kirchner was re-elected last October in a landslide victory.

Of course this success story is rarely told, mostly because it involved reversing many of the failed neoliberal policies – backed by Washington and its International Monetary Fund — that brought the country to ruin in its worst recession of 1998-2002. Now the government is reversing another failed neoliberal policy of the 1990s: the privatization of its oil and gas industry, which should never have happened in the first place.

There are sound reasons for this move, and the government will most likely be proved right once again. Repsol, the Spanish oil company that currently owns 57 percent of Argentina’s YPF, hasn’t produced enough to keep up with Argentina’s rapidly growing economy. From 2004 to 2011, Argentina’s oil production actually declined by almost 20 percent and gas by 13 percent, with YPF accounting for much of this. And the company’s proven reserves of oil and gas have also fallen substantially over the past few years.

The lagging production is not only a problem for meeting the needs of consumers and businesses, it is also a serious macroeconomic problem.

The shortfall in oil and gas production has led to a rapid rise in imports. In 2011 these doubled from the previous year to $9.4 billion, thus canceling out a large part of Argentina’s trade surplus. A favorable balance of trade has been very important to Argentina since its default in 2001. Because the government is mostly shut out of borrowing from international financial markets, it needs to be careful about having enough foreign exchange to avoid a balance-of-payments crisis. This is another reason that it can no longer afford to leave energy production and management to the private sector.

So why the outrage against Argentina’s decision to take – through a forced purchase — a controlling interest in what for most of the enterprise’s history was the national oil company? Mexico nationalized its oil in 1938, and – like a number of OPEC countries – doesn’t even allow foreign investment in oil. Most of the world’s oil and gas producers – from Saudi Arabia to Norway – have state-owned companies. The privatizations of oil and gas in the 1990s were an aberration – neoliberalism gone wild. Even when Brazil privatized $100 billion of state enterprises in the 1990s, the government kept majority control over Petrobras.

As Latin America has achieved its “second independence” over the past decade and a half, sovereign control over energy resources has been an important part of the region’s economic comeback. Bolivia re-nationalized its hydrocarbons industry in 2006, and increased hydrocarbon revenue from less than 10 percent to more than 20 percent of GDP (the difference would be about two-thirds of current government revenue in the United States). Ecuador under Rafael Correa greatly increased its control over oil and its share of private companies’ production.

So Argentina is catching up with its neighbors and the world and reversing past mistakes in this area. As for their detractors, they are in a weak position to be throwing stones. The ratings agencies are threatening to downgrade Argentina. Should anyone take them seriously after they gave AAA ratings to worthless mortgage-backed junk during the housing bubble and then pretended that the U.S. government could actually default? And as for the threats from the European Union and the right-wing government of Spain, what have they done right lately, with Europe caught in its second recession in three years, nearly halfway through a lost decade, and with 24 percent unemployment in Spain?

It is interesting that Argentina has had such remarkable economic success over the past nine years while receiving very little foreign direct investment and being mostly shunned by international financial markets. According to most of the business press, these are the two most important constituencies that any government should make sure to please. But the Argentine government has had other priorities. Maybe that’s another reason why Argentina gets so much flak.

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Categories: Political Economy
  1. charlie thomas
    April 20, 2012 at 10:31 pm

    yes! thanks for reminding me. The triumph of ideological purity in the US over pragmatism and experience needs attention, but we only talk to our political base. I am still stymied by the vacillating independents and their apparent short term memory of the economic disaster of 2007-9.

  2. kiwichick
    April 21, 2012 at 12:02 am

    argentina is a commodity based economy and commodity prices have skyrocketed since 2002

    • April 21, 2012 at 5:37 pm

      This is generally called “viento de cola” in the opposition press, or the press controlled by foreign interests or the Clarin Group (previously with a participation in stock of no other that those happy folk at Goldman Sachs). I am not saying that soya prices do not help, but they are only part of the picture. The re-industrialization of the country (a political choice) and the consequent drop in unemployment (around 7%) have impulsed both industrial exports and internal consumption. There are problems: mostly inflation, and the increase of imports, both derived from growth. YPF (really: Yacimientos Petroliferos Fiscales) is ours again, and nothing bad will happen to us because we took it back by breaking unjust rules.

      It is time for people in other continents to learn that lesson.

      • Alice
        April 22, 2012 at 10:12 am

        Lovely Pablo – nothing I like better than hearing unemployment falling and Goldman Sachs doing worse. Perhaps we can develop a new economiuc theory called the Goldman tradeoff curve – when Goldman Sachs is doing well unemployment is rising across the globe and vice versa (a new variant of the Phillips curve?)

  3. April 23, 2012 at 3:12 am

    Dear Alice: I think that “Nobel” Prizes (since they are not really Nobel) have been granted for lesser ideas than yours. Let´s call it the Aurum Homo Sugit Sanguinem rule (or AHSS).

  4. Alice
    April 23, 2012 at 9:18 am

    Pablo – took me a little while to work out the Latin. I like it ….Goldman sucks until we lose blood. Sanguinem – genus plural of sanguis meaning multiple cases of blood loss.

  5. Myles McDougall
    April 24, 2012 at 12:48 am

    The author of this blog and subsequent cheerleaders conveniently forget a few important items. Argentina’s economic growth since 2002 is primarily a result of higher commodity prices (soya being the most remarkable but not the only item) and it’s decision to unilaterally change the repayment and rules for the 10s of billions invested in the country’s infrastructure and oil and gas resource through the 1990′s and early 2000s and renege on its government debt. Thankfully, this is not an avenue taken by very many countries. Nor is it a tactic that is without long-term consequences.

    It is equally convenient that people forget what was the actual ruinous state of Argentina’s infrastructure before the influx of billions of foreign capital. This capital would never have come if it wasn’t for the contractual arrangements made by the government of the day. People should also not forget that the previously government-owned oil company, YPF’s oil production that was less than half current oil and gas production rates (and a fraction of the 2002 peak) and generated zero profits for the government before it was privatized. Compare this to the billions that Argentine federal government and the provinces now gain every year from royalties and other taxes generated by the private Argentine oil and gas sector.

    The main reason Argentina’s oil production and gas production has declined is because government policy restricts the effective price that the oil and gas sector receives for their product, not only well below international market value, but and in the case of natural gas, below the cost of reserve replacement. Is it sound economic policy to pay your own domestic industry $2.10/MBtu for gas while it imports gas from Bolivia at $10 and LNG at $16? Would you invest your hard-earned capital in a project that would lose money? If the Argentine government deems it in the national interest to subsidize natural gas consumption, fine but at least be honest about what is happening, including who is effectively paying for the subsidy and what how much this subsidy costs. If Argentina’s oil and gas industry had not been forced to pay the full cost of Argentina’s energy subsidy, domestic production would be much higher today than it is. To suggest otherwise betrays ignorance or hypocrisy

    There are many ways states choose to structure their oil and gas industries. Direct government management is certainly one way to manage their resource but it has rarely proven to be the most efficient way to manage (Maybe it works marginally well in Norway’s low corruption merit-driven culture). It is ludicrous to cite the falling production and corruption found in Ecuador’s controlled industry as an example of anything positive. Nor Is Bolivia’s example of waiting for private capital to explore, find and develop its massive gas reserves only to have the government expropriate the wealth once the risk capital and expertise has been spent. Even Brazil understands that there needs to be transparent and fair rules in place so that it can attract the private capital and expertise required to develop its enormous off-shore fields. Who do you blame for Venezuela’s sharp drop in oil production?

    In most oil and gas producing countries, the state owns the hydrocarbon resource. This is not the debate . It can choose to invest its own capital and manage the exploration and exploitation of that resource itself (as does Norway and Saudi) or it it can structure a reasonably transparent system that allows for the private sector to provide the required capital, management and technology under mutually agreeable terms. The agreed portion of the economic rent flows back to the state through royalties and taxes (e.g. UK, Canada, Russia). Argentina privatized its oil and gas industry because it’s government was incapable of running an efficient oil and gas company. The privatization of YPF resulted in a dramatic increase in its oil and gas production and cash receipts to the federal coffers. Over the last decade the government has unilaterally changed the contract while extracting a disproportionate share of its hydrocarbon economic rents, Predictably, such a policy reduced the amount of new investment that could be attracted to the industry. The nationalization of YPF is nothing more than a money grab.

    Once again, the Argentinian government unilaterally renege on their debts and obligations. I’m at a loss to see the virtue in that.

    • Alice
      April 24, 2012 at 1:31 pm

      Re comment “through the 1990′s and early 2000s and renege on its government debt. Thankfully, this is not an avenue taken by very many countries. Nor is it a tactic that is without long-term consequences. ”

      It was good enough for jolly old England to renege on its debt to the US after the great crash of 1929 whilst insisting Australia pay back its debt to England.
      Its been good enough for lots of countries in history – and its the fastest way now to get Greece on the road to recovery – and its an option that should be considered rather than plunging the country into further escalating debt through a budget income crippled and dysfunctional by austerity measures and lack of tax.

      Its also a pretty good way to rationalise a bloated financial sector that needs rationalising instead of letting it get artificially re inflated by the heavy protection of taxpayers subsidised bailouts (the gall of now insisting these destroyed nations, victims of the rampant speculative gambling on a bunch of dodgy US home loans by financial institutions in the US flogged all over the world as “bona fide safe”, pay back the banks that danced on their grave?).

      What difference if the government extracts economic rents from production and spends that money on its citizens than in large international corporations coming in to buy, usually at firesale prices, a privatized ex public asset in some far off struggling land and extract their corporate rents, ship them out of a country like Argentina to a tax haven doing the country not much good? (who got the most benefit – the locals or De Beers?).

      If a country is doing well and the majority are employed and arent scouring garbage tips for food, Id say that would be likely to attract more foreign investment than the former. Foreign investment isnt much attracted to poverty ridden nations except as cheap labour source so they can exploit that labour, leave people working under inhumane conditions and sell the produce to people who can afford to buy it somewhere else. What foreign investment is likely to be flooding into Greece right now except for the gleeful and greedy firesale of what they once owned that was theirs?

      There will at some point be a philosophical backlash and a retaliation against this sort of economic acts of abuse.

      I can see the virtue in it. The people and the country recovers faster and the lenders lose for a change.

    • April 25, 2012 at 3:41 pm

      “The author of this blog and subsequent cheerleaders conveniently forget a few important items. Argentina’s economic growth since 2002 is primarily a result of higher commodity prices (soya being the most remarkable but not the only item) and it’s decision to unilaterally change the repayment and rules for the 10s of billions invested in the country’s infrastructure and oil and gas resource through the 1990′s and early 2000s and renege on its government debt. Thankfully, this is not an avenue taken by very many countries. Nor is it a tactic that is without long-term consequences. ”

      Which consequences? Less bloodsuckers? Good.

      “It is equally convenient that people forget what was the actual ruinous state of Argentina’s infrastructure before the influx of billions of foreign capital. This capital would never have come if it wasn’t for the contractual arrangements made by the government of the day”

      You mean the scam. The corrupt way on which OUR companies were destroyed and bought for peanuts.

      “If Argentina’s oil and gas industry had not been forced to pay the full cost of Argentina’s energy subsidy, domestic production would be much higher today than it is. ”

      And because we are nice people, we are not going to force those poor entrepreneurs to supposedly subsidize us anymore. See?

      “…here needs to be transparent and fair rules in place so that it can attract the private capital and expertise required …”

      Nope. Capitalists will go where there is fast money to be made. If the rules were fair Repsol could not even enter the country. By the way, are you forgetting something? Like that the resource being exploited is OURS and not yours?

      “Argentina’s economic crises of 2001 (…) it was caused by a governments and society that was not prepared to see through the structural improvements that needed to take place to make the country competitive (and therefore warrant it peso/US dollar parity) or spend within its means. ”

      So you are insulting my country and its people now. I suppose that you say the same about the Greeks and the Spaniards.

      Dolar/Peso parity with free trade –> increase in imports –> de-industralization –> unemployment –> shrinkage of the economy –> crash.

      And Privatizations –> unemployment —> etc etc etc. We call it the second conquest of America. Not so difficult to understand, is as if Keynes decided to come back from the grave and gave a lesson about the real world to those experimental scientist at the IMF that were calling the shots.

      By the way, do not speak like that in the streets if you visit. People still remember 2001-2 and outside the rich neighborhoods they will not take it kindly. You will be better off if you claim that the Malvinas (Falklands) are British, believe me.

      • Myles McDougall
        April 26, 2012 at 9:48 pm

        Do not make the error of mistaking me for a radical neoconservative. I am a moderate with a conservative fiscal view and a liberal social perspective. I happen to believe that most of the social economic problems are caused by populist dogmatic policies reflecting either radical right or left wing views (often alternating). Take a quick look at the countries that are commonly considered to have the best standards of living or rank highest on the happiness index: Norway, New Zealand, Australia, Finland, Canada, Austria. There are many differences between them but they generally have mixed economies but certainly capitalist, a high degree of social mobility, fiscally responsible and coherent economic development policies.

        Putting the blame on the private sector including foreign investors may have an emotional appeal. It is generally not these investors that caused the problems, whether it be in Argentina, Bolivia or anywhere else you would like to mention. Unfortunately blaming the foreigners is a convenient scapegoat for inept governments who need someone to blame for the consequences of their previous bad policies. I find the parallels between the 1982 Military Junta and the Kirchner regime trying to whip up popular indignation over the Malvinas compelling, except now they get to include the Spaniards for their problems. Unfortunately, the government succeeds in diverting the attention away from the real problems and the real solutions, which are not as simplistic and tend not to make great tee shirt slogans.

        I lived in Argentina in the 1990′s before, during and after the privatization process. Before privatization it took 3 years to get a phone line (longer if you couldn’t pay “coima”, there were constant energy brownouts due to chronic under investment in the energy infrastructure. The gas and power distribution system was falling apart, was rife with theft and covered a small portion of what it covers today. The subte was a mess. Highways were a joke ( It took 2 hours to drive the 50 km from BA to La Plata). The government owned and controlled oil and gas company,YPF, was losing money, production was a fraction of what it is today and declining. It had 30,000 employees much of them ‘noquis” to do the work of what is performed today (at 3x the production) by less than 15,000 people. The government ‘s pension obligations were unsustainable. AND…..the government was totally broke, with no ability to even begin to deal with the decades of under investment and incompetence. Was all this that foreign investor’s fault too or maybe…just maybe Argentine’s should take some responsibility and acknowledge they needed foreign capital. Everyone knows that the Argentine’s themselves don’t keep their capital in the country. Why?

        Now you believe that today’s government can do it better? Let’s see. They have already taken over the pension funds and central bank reserves, in help finance their programs. Has Cristina arranged the return of the $100s of millions of funds that her husband transferred overseas from Santa Fe’s provincial coffers yet? Do you really believe that Argentina has the institutions to prevent the pilfering of YPF’s wealth? Does the Argentine government actually run anything well? Does the person who is slated to run YPF, actually know anything about running a major oil and gas company? Where will Argentina get the capital and expertise to develop its enormous shale resource?…..

        You seem to admire what has happened in Venezuela. Have you been there lately? Did you feel safe? Do you believe that the people have the quality of life that they should have given their enormous oil endowment? Why is their oil production falling when they have such a huge underutilized resource? how much money do you suspect that the Chavez family has in offshore bank accounts? Do you think that there might be a better way?

        What do the countries I mentioned earlier do? As I’ve mentioned they have a range of economic models but they also have some things they have in common. Perhaps Argentina’s should look to these rather than Venezuela. .

      • Myles
        May 3, 2012 at 1:24 am

        Your retorts do not respond to the points been made. It may make you feel good to insult those who came and invested in Argentina in good faith but it doesn’t make the actions of the current government right. What is the basis for the simplistic statement that deals entered into by two parties in good faith were a scam? The terms of the transactions that were reached were the best terms that could be negotiated at the time, in part due to Argentina’s history of economic mismanagement, including high inflation, currency devaluations, debt default and questionable respect of private property. If international oil prices were still at the same price range found in the 1990′s, nobody would be complaining about profits. Risks were taken, some companies lost, some gained.

        Argentinian investors were equally able to invest in the privatization process. While some did (e.g. Perez Companc), the majority of Argentine capital remained in offshore bank accounts, presumably because the Argentines themselves had a better appreciation of the risks.. Some of these privatization assets provided the investors good returns but not all privatization investments did well,. Many companies invested into concessions that lost money. That is the nature of investment, but you conveniently limit your focus only on the apparent investment successes. Was the average return among all privatized investments extraordinary? No, they were not, particularly when you include the consequences of the post 2001 crisis.

        I’m not sure where your blind faith in the ability of the Argentine state to wisely manage the expropriated previously-privatized assets comes from. I hope you are right but history does not support this faith. I predict that the Argentine government will soon reduce the level subsidies from the level they had forced onto the public service and energy companies precisely because the government will not be able to finance the same level of subsidies and still make the investments that these sectors require. Then the hypocrisy of the government’s criticisms and actions will become apparent.

        The 2001 crises is the result of many inter-related errors. In retrospect we can agree that the the convertibility plan was flawed. The excessive deficit spending of the government also was also a major contributor to the problem. We should also include the legacy of previous governments and industrial leadership including inefficient industries, unworkable labour relations, underinvestment in education and technology, rampant tax evasion, an unpredictable justice system and a culture of corruption and entitlement, to name only a few. if Argentines genuinely want to improve their prosperity and the justice of their society, you would be well served to focus more on these issues rather than blame foreign or private investment for the current state of affairs.

  6. Alice
    April 24, 2012 at 2:04 pm

    On Argentina – Although inflation nis 9% they dont seem to have the obsession of keeping inflation as low as neoliberal central bankers and starnegly enough the population dont seem to be suffering. The urban income poverty rate has dropped to 18% as of mid-2008, a third of the peak level observed in 2002, though still above the level prior to 1976. Income distribution, having improved since 2002, is still considerably unequal.

    Hang on – you mean their income equality improved since 2002 when many other “privatise, de-regulate, keep inflation obsessively low and forget everything else – ignore rising unemployment – ignore rising income inequality – its all good for you” countries
    went backwards on unemployment and inequality.

    Ever feel like you have you have told a whole big pile of lies? I do.

    Im with Pablo. It is time for other countries to learn their lessons from Argentina, including the United States.

    See the graph – is someone trying to suggest is all just soy prices? Come on.
    Also if there are suggestions of government corruption in ownership of state assets to be fair lets not ignore the ignoble private sector corruption – in Argentina its mostly white powder trade and tax evasion (now thats a surprise – the private sector can be corrupt – who would have thought such a thing?).

    http://www.google.com.au/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_kd_zg&idim=country:ARG&dl=en&hl=en&q=argentina%27s+gdp+growth

    • April 25, 2012 at 3:25 pm

      To be fair, real inflation is something between 18%-25% a year. We don´t care, it is well inside the normal historical parameters for Argentina. Hey, better a 20% and eating than a 3% and committing suicide in front of Parliament, isn´t? The numbers from the Central Bureau of Argentina are doctored to pay less for inflation-indexed bonds. Again, I don´t care for those people holding those bonds. If there is money to be made the investors will come anyway, is not as if they have morals or something like it.

      • Myles McDougall
        May 1, 2012 at 6:09 am

        There is a very real cost to high inflation. It is a huge disincentive to savings and investment. It makes cost efficiency management impossible. It is extremely difficult and probably impossible to control. Name one successful country that maintains a policy of 25-30% inflation target. Worse, name another country that actually lies to its citizens and the world about what the inflation rate really is. Under certain circumstances, one can make an argument that a 3% target inflation rate is too strict. There is no good defense for 30%. It’s called economic mismanagement. There will be a consequence.

  7. Ignacio
    April 24, 2012 at 3:32 pm

    Mrs Fernández (Not Mrs Kichner) was most probably loosing popularity and she recently started a cascade of nationalistic themes and rhetoric that started with reviving the Islas Malvinas claim and recently the YPF expropiation. The measure was accompanied with threats directed to other spanish companies involved in banking and telecommunications. This is, first and foremost, a measure designed to rise money for Mrs Fernández supporters, and second a populistic measure designed to hide economic stagnation in Argentina.

    Few days after the expropiation, the government was trying to sell the company to another foreign investor.

    • Alice
      April 25, 2012 at 10:13 am

      Ignacio comments “Mrs Fernández (Not Mrs Kichner) was most probably loosing popularity and she recently started a cascade of nationalistic themes and rhetoric that started with reviving the Islas Malvinas claim and recently the YPF expropiation.”

      I thought having a popular mandate to do something means generally acting in the interests of the majority and politicians should get on with the job and do it. If its popular then that is what they should do. Isnt that why we have governments?

      Isnt it why we all vote?

  8. Myles McDougall
    April 24, 2012 at 11:29 pm

    Reply to Alice – You are mixing issues. It is one thing to argue that international investors should renegotiate a debt (including write-offs) when the country finds itself in a impossible predicament. This can reasonably be argued for Argentina in 2001, Greece and others now (as was the 1930s write-down of British and French debts accumulated fighting WW1.). It is another thing to falsely suggest that the foreign investment is the sole source of all their troubles and to unilaterally stiff the debtor. It is also another thing to sell an asset like YPF at an earning multiples comparable to similiar open market transactions at the time and then simply argue that you should be able to unilaterally reverse the transaction at a below market price when the company’s subsequent investments and international oil prices result in increased company value. Do you suppose the Argentine government would have agreed to take back the company and returned its cash proceeds to Repsol, if oil prices were currently at 1999 levels i.e. $10 per bbl. Let’s call a spade a spade.

    Argentina’s economic crises of 2001 was not caused by the 1993 privatization YPF, the subsequent acquisition of its controlling stake by Repsol or any of the investments made into Argentina in the 1990′s, it was caused by a governments and society that was not prepared to see through the structural improvements that needed to take place to make the country competitive (and therefore warrant it peso/US dollar parity) or spend within its means. Argentina’s current fiscal challenges and energy deficits are not caused by Repsol’s investment policies in Argentina but by populist policies government measures that have temporarily shielded consumers from the realities of international energy prices at a hidden cost of tens of billions. This inefficient energy subsidy policy is something Argentina cannot afford. Argentina’s current energy shortage is directly and only related to this ill advised policy. It is not more complicated than that. Blaming the big bad foreign energy company might make good local politics, but it is a lie, clear and simple.

    The reality is that most Argentinians recognize that the real game is about putting the billions in annual oil and gas revenues and procurement directly into the hands of the government insiders who will revel in the smorgasbord of new corruption opportunities. Poor economic and energy policy will reign supreme, and alas despite its enormous wealth, average incomes will remain well below its potential.

    • Alice
      April 25, 2012 at 10:25 am

      Myles – dont talk the talk of “its government corruption of the goivernment runs something” but its squeaky clean if private sector interests run it. Im sure ee are all over that fairy story.

      Lets just see how Corruption affected Argentina. But its not what you want ti hear.

      ” How corruption is linked to Argentina’s economic instability is quite evident: during the 1990’s Menem’s government sold off shares in state companies and public service concessions to please foreign investors, but it soon became an open secret that many of those privatizations involved rigged bidding, kickbacks, and other irregularities.”

      Nice – corruption involved actually flogging off public assets by way of privatisation too cheap with kickbacks and now you are suggesting that corruption is the reason that the state in Argentina cant be “trusted to run” essential services?

      Well if the state kicks out private businesses who want to pay kickbacks and bribes to get some public asset cheap and run it down until the people are yelling, and then the state re nationalises again after a few years and flogs it again a few years to a new set of foreign investors who want to pay kickbacks and bribes to the state to flog it to them again.

      Well – I dont see any problems. The State will still be in front. Whats the problem here except caveat emptor?

      • Myles McDougall
        May 1, 2012 at 4:47 am

        Reply to Alice

        First some inconvenient facts. The only reason Venezuela’s GDP has increased in that the price of oil has increased almost 600% from $17/bbl in 1999 to over $100 today. Over the same period, oil production in Venezuela has declined over 25% or 1 million bpd from 3.5 million bpd to 2.5million bpd. The loss of the 1 million bpd represents about $36 billion per year in lost revenues to the Venezuelan state. Most other productive industries have collapsed. How is that in Venezuelan’s best interest? Oh….by the way Hugo Chavez didn’t nationalize Venezuela’s oil industry in 2000. It was officially nationalized in 1976. He did lock out professional managers and technical staff union which largely explains the loss in production. Not exactly

        On the contrary to our apparent assumption, I believe the government should focus on those essential services that they are best suited to fulfill. They could start my collecting taxes in a fair and efficient manner, provide quality health care, education, security, consumer protection, a fair, stable and transparent legal system, and a reasonable safety net for the disadvantaged. If the government was doing this well, perhaps there would be an argument that it should take on a larger direct role. While I applaud some of the recent Argentine’s government’s initiatives (e.g. higher education funding including a better pay for teachers), one cannot argue however that they have been good or efficient job of public administration.

        You cannot make the argument that the services that were privatized, were not run better after privatization than the services that had previously been run by the government. They were clearly much better after privatization. The issue became what is the “fair” price to charge for these services to receive the level of desired service and adequately fund the required investments. Is it reasonable to pay third world prices for first world level of service? If the government demands that these service be delivered at a price below cost, something has to give.

        The structure and process that was established for the privatization was for the most part well done in terms of transparency, the competitiveness of the auctions and the prices that were paid at that time (which included risk premiums because of Argentina’s oft-repeated history of economic mismanagement). At the time observers inside and outside the country were almost unanimous that the process was clean and well handled. On what basis do you make claims to the contrary? That would be a convenient revisionist history. The criticism became pricing, not because the prices were high from an international comparison, but high in comparison to post-devaluation domestic wages. In effect the Argentine government unilaterally forced the privatized companies to subsidize public services at the company’s own expense. Then as this imposed subsidy made it impossible for the privatized companies to finance the required levels of re-investment (or even go bankrupt – like Metrogas), the government blames the government for their inability to maintain services at the levels they had previously achieved.

        The real question is why Argentina cannot maintain a economy that can function with a stable currency, keep its inflation under control, generate the wealth and equity that Argentines deserve . The answer it multifaceted and complex, but what is clear to anyone that takes an informed and objective view that the culprit has much to do with government mismanagement and incompetence and very little to do with those foreign investors who showed their confidence in Argentina’s future prosperity by investing in the country.

      • Myles McDougall
        May 1, 2012 at 5:45 am

        Reply to Alice – sorry I accidently sent the last email before I proof read it – corrected version below

        First some inconvenient facts. The only reason Venezuela’s GDP has increased in that the price of oil has increased almost 600% from $17/bbl in 1999 to over $100 today. Over the same period, oil production in Venezuela has declined over 25% or 1 million bpd from 3.5 million bpd to 2.5million bpd. The loss of the 1 million bpd represents about $36 billion per year in lost revenues to the Venezuelan state. Most other productive industries have collapsed. How is that in Venezuelan’s best interest? Oh….by the way Hugo Chavez didn’t nationalize Venezuela’s oil industry in 2000. It was officially nationalized in 1976. He did lock out professional managers and technical staff union which largely explains the previously mentioned loss in production. Now, the U.S., Canadian and Arabian oil industries benefit from the expertise and experience provided by these exiled Venezuelan professionals. Not exactly an impressive government performance.

        Contrary to your apparent assumption, I believe the government should focus on those essential services that they are best suited to fulfill. They could start my collecting taxes in a fair and efficient manner, provide quality health care, education, security, consumer protection, a fair, stable and transparent legal system, and a reasonable safety net for the disadvantaged. If the government was doing this well, perhaps there would be an argument that it should take on a larger direct role. While I applaud some of the recent Argentine’s government’s initiatives (e.g. higher education funding including a better pay for teachers), one cannot argue however that they have been good or efficient job of public administration.
        You cannot make the argument that the services that were privatized, were not run better after privatization than the services that had previously been run by the government. They were clearly much better after privatization. The real issue has become what is the “fair” price to charge for these services to receive the level of desired service and adequately fund the required investments. Is it reasonable to pay third world prices for first world level of service? If the government demands that these service be delivered at a price below cost, something has to give.

        The structure and process that was established for the privatization was for the most part well done in terms of transparency, the competitiveness of the auctions and the prices that were paid at that time (which included risk premiums because of Argentina’s oft-repeated history of economic mismanagement). At the time observers inside and outside the country were almost unanimous that the process was clean and well handled. On what basis and evidence do you make claims to the contrary? I smell some convenient revisionist history.

        The issue here is really about pricing, not because the prices were high from an international comparison, but they became high in comparison to post-devaluation domestic wages. In effect the Argentine government unilaterally forced the privatized companies to subsidize public services at the company’s own expense. Then as this imposed subsidy made it impossible for the privatized companies to finance the required levels of re-investment (or even go bankrupt – like Metrogas), the government blames the affected companies for their inability to maintain services at the increased standards these very companies had previously achieved. Certainly there was a need for the privatized public services to share the consequences of the devaluation , however making these business the scapegoat for government economic mismanagement is populist public manipulation at its worst.

        The real question is why Argentina cannot maintain a economy that can function with a stable currency, keep its inflation under control, generate the wealth and equity that Argentines deserve . The answer it multifaceted and complex, but what is clear to anyone that takes an informed and objective view that the culprit has much to do with government mismanagement and incompetence and very little to do with those foreign investors who showed their confidence in Argentina’s future prosperity by investing in their country.

        Those countries generally considered to have the highest standard of living, social mobility and justice have governments that achieve fair and balanced partnerships with the private sector. Each have their roles to play. Respect for private property, strong institutions, and a mutual understanding of the needs of business and role of government lead to intelligent policy and long-term prosperity. This is not the current path of the Argentine government.

  9. Alice
    April 25, 2012 at 10:07 am

    And a very brief reply to Myles….

    Its not just Argentina doing well from the government marching in, telling the private sector corporate types to pack their stuff up, switch off their pcs, empty their desks and leave the premises of essential services companies they thought they owned.

    Just have a look at Venezuela’s GDP growth as well since 2000. Some companies dont want to play ball and just want to screw public services to the minimum for the maximum short term price and maximum executive plus bonus salary they can get? (no doubt under pressure also from Wall Street “pump and dump” interests.

    Both these countries went mad with privatization in the 1980s. Now they realise their mistakes. Whats so new about that except that many other countries lag behind and will take a while to learn the same lessons. Rampant ill thought privatizations do damage.

    Let governments across the glove bowl the ball fair and square at these greedy people.
    Tough love its called. Tough love on the greed. Not tough love on the citizens.

    Austerity where it is needed.

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