Argentina Nationalizes YPF – Who Should Worry?

Argentina Nationalizes YPF

Some have likened her to Eva Perón, but Argentinian President Cristina Fernández de Kirchner’s announcement last week that she would be seeking the confiscation of 51% of YPF, the former state oil firm, has drawn a lot of comparisons to expropriation’s biggest fan, Venezuelan President Hugo Chavez.

The surprise move, which was approved by Argentina’s Senate this week, will come as a shock to Spanish oil giant Repsol, a majority stakeholder in YPF, the company Kirchner accuses of siphoning off profits instead of reinvesting them.

A Pattern of Populist Actions

Argentina's President Kirchner Nationalizes YPF

Argentina's President Cristina Fernández de Kirchner announcing the bill to nationalize YPF April 16, 2012. PHOTO CREDIT: Desconocido, Presidencia de la Nación

Together with her assertion of sovereignty over the Falkland Islands, these populist actions are no doubt designed to bolster support from the labor unions and the poor and divert attention from the real woes facing Argentina—but, critics say, can only serve to dampen future foreign direct investment.

These actions follow other populist measures, such as the recent change in law, which now dictates that the export proceeds of oil and mining companies must now be repatriated in Argentina, and also the imposition of stricter foreign exchange controls.

However, these actions have not served to stem the flight of capital, and the expropriation of Repsol’s stake in YPF will only add fuel to the fire. Inflation is now rampant and a devaluation is probably inevitable.

Should Other Foreign Investors Worry?

Other foreign investors may be targeted—as U.S. agribusiness Bunge can testify following its recent suspension from a key grains registry—as Kirchner looks set to adopt the same path taken by other countries in Latin America in taking back control of their natural resources.

The insurance market, however, may escape a substantial claim, as it is reported that Repsol had not purchased the relevant political risk coverage to protect itself against expropriatory acts.

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Refinery silhouette in top image CREDIT: Jacobo Garcia, Flickr

About Andrew Van den Born

Andrew is an Executive Director of the Financial Solutions division, specializing in the structuring and placement …
Categories: Energy, Latin America, Political Risk | Tags: , , ,