UNO August 2013

The YPF case or how to shoot yourself in the foot



In a confidence crisis like the current one, creating distrust is like “shooting yourself in the foot”. That is exactly what happened on April 16, 2012, when the Argentinian president, Cristina Fernandez de Kirchner, sent a bill to the Congress seeking to expropriate 51% of YPF, a subsidiary of the Spanish company Repsol. These were the exact words used by Spanish Foreign Minister José Manuel García-Margallo in order to describe the seizure that had just taken place.

It is not just another case, but an emblematic example of the situation taking place around the world. Some people defend putting an end to orthodox approaches, in order to regain trust, which implies strengthening all democratic institutions and the free market. Others prefer a more unorthodox strategy, such as the Latin American populist countries.

The government of Mariano Rajoy has opted for recovering the lost reputation. An option that has forced them to take unpopular measures such as raising taxes and cut spending, which has translated into a wave of protests. The government has been very firm in order to ensure the payment of the debt above any other possibility. It is not just a strategy. It is a long-term approach that was agreed between PSOE and PP, which ultimately culminated in August 2011, when both parties reached an understanding to implement an express Constitutional reform in order to prioritize renters, even above pensioners.

The wealth of nations does not lie in its natural resources, but on the strength of its institutions and Argentina has never shown any positive signs

There was no other choice but to develop an economic policy to ensure payment of the huge foreign debt accumulated during the years of economic “boom” which was already approaching EUR 1 trillion. However, that strategy –imposed by the European Union– entailed great criticism from many sectors of society. Companies turned against tax increases; unions against cuts, public officers against the Government and citizens against politicians. To the point of even arguing whether the markets were seriously endangering our democracy.

ypf-fullBut the truth is that international investors have begun recovering the confidence in Spain as our country has gradually recovered its credibility and reputation. Although the crisis is still deep, the foundations for an early exit have been laid. Recovery will be more intense if the main political parties, including Catalan and Basque nationalists, are able to go together in order to strengthen the institutions.

This strategy drastically contrasts with the one carried out by Argentina, where the government openly supported heterodoxy, in line with Venezuela or Cuba. The government of Cristina Fernández continues defending a curious concept of private property and the rules of the game. To name a few examples: the nationalization of pension funds; the expropriation of YPF shares that were held by Repsol (as previously happened with Argentinian Airlines and Argentinian Waters); the targeting of independent media such as Clarín or the nationalization of the Predio Ferial de Palermo.

Since the arrival of Kirchner to power in 2003, the institutions have not ceased weakening, as clearly stated in well-documented books such as El dueño (The owner) by Luis Majul or La Campora by Laura di Marco. Both cover the corruption, nepotism and legal uncertainty that inexorably lead to poverty and underdevelopment. The consequences of weak institutions are even more acute when the situation has dragged on for decades. Peronism knows this well. Thus, the YPF case was not a mere expropriation, similar to the ones performed quite often by the so called Bolivarian countries. What happened with Repsol was much more severe, to the extent that the government did not simply use its rights to expropriate; national laws were not respected.

Although economic institutions are essential, it is policies that guarantee the fight against corruption and legal certainty and ultimately determine the prosperity of the nation

This approach should be placed under the thesis developed by the well-known economists Daron Acemoglu, Professor at Massachusetts Institute of Technology (MIT) and James Robinson, Professor of Government at Harvard University, in their book Why Nations Fail. They believe that it is institutions and the rules of the game maintained throughout the years that can explain the existence of rich and poor nations. The key idea is that, although economic institutions are essential, policies are crucial to define the future of the country.

Nations, like companies, fail when their institutions are weak and give all power to elite that merely acts for its best interest. On the contrary, they are sound when leaders give more to society than what they get from it. In short, restoring the reputation is the most profitable option for nations and companies.

Mariano Guindal
Economic journalist

He is one of the most prestigious Spanish economic journalists and works in programs such as “Kilómetro 0” in Telemadrid and “Capital” in Radio Intereconomía. He also collaborates as a columnist in El Economista. Mr. Guindal has spent most of his professional career in La Vanguardia, where he worked as Chief Editor and Leader Writer. He published the book El declive de los dioses (The decline of the Gods), which is becoming a reference book.

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