¿La Argentina contra el Mundo?

World Citizen: In Argentina, It's Cristina Against the World

By Frida Ghitis, on 17 May 2012.         

It seems like Argentinean President Cristina Fernandez increasingly has the world lined up against her, but there’s no reason to feel sorry for her. Fernandez is the librettist of her own drama, and she is carrying out an international populist performance worthy of her famed predecessor, Evita Perón, updated for the anti-globalization, Occupy generation.

In the process, the Argentinean leader is taking her country on a sharply different path from the one chosen by other booming South American economies, moving Argentina down a perilous road.

She is also driving foreign investors, as well as many domestic ones, away from Argentina. Years from now, she will have carved out a name for herself, either as the woman who proved her critics wrong, or as yet another in a long line of Argentinean presidents who squandered the country’s vast potential, though not without with a certain flare.

Fernandez won re-election by a landslide last October, partly boosted by sympathy after the unexpected death of her husband and predecessor, former President Nestor Kirchner.

Despite the strong show of electoral support, her approval ratings soon went into a steady slide. As the government struggled to get control of growing economic problems, some of them of its own making, opinion polls showed her dropping from about 60 percent to 40 percent in the first three months of her second term.

But Fernandez is nothing if not creative. She recently infuriated former foreign friends and delighted domestic constituents when she announced that Argentina would expropriate Spanish energy company Repsol’s holdings in Argentina's top oil firm, YPF. Repsol was unceremoniously told it no longer owned its 57 percent share in the company.

With that, Fernandez lengthened the growing list of governments and investors angry enough at her administration to impose sanctions and file claims against it before international tribunals.

The move was part of a growing wave of South American resource nationalism, but in the case of Argentina, it also fit another pattern: one of flouting the rules of international commerce, brazenly defying the tenets of free trade and property rights, and continuously raising obstacles in the path of businesses big and small, near and far.

Argentina has come under withering criticism from Uruguay, Brazil, the European Union, the U.S. and others. It faces more claims against it before the International Center for Settlements of Investment Disputes, an arm of the World Bank, than any other country. That doesn't seem to worry Fernandez, however, since Buenos Aires simply ignores ICSID rulings.

The same cannot be said for the Obama administration, which announced it was withdrawing U.S. trade benefits due to Buenos Aires’ policy of refusing to pay arbitration awards ordered by the ICSID. Washington had warned that it might impose the trade sanctions, but the warnings fell on deaf ears. The suspended preferences come at a potentially high cost to Argentina's exporters.

Brazil, too, is imposing restrictions, a tit-for-tat move in what is escalating into a dangerous trade war between South America's two biggest countries and putative allies in the regional Mercosur bloc.

Spain also imposed sanctions and launched a campaign to have the EU do the same. Separately from the Repsol matter, the EU may take Argentina before the WTO, seeking a global response to Buenos Aires’ "discriminatory" policies on trade.

But the dominant sentiment with regard to Fernandez’s moves, even beyond anger, is frustration. In Latin America, there is a sense that the measures will ultimately prove self-destructive. The prominent Brazilian columnist Miriam Leitao wrote, "Argentina's capacity to err seems unlimited."

Argentina, once as wealthy as the U.S., has a stubborn history of clawing economic collapse out of the jaws of prosperity.

Some in the region worry about Argentina painting the entire region as dangerous to foreign investors. Colombian President Juan Manuel Santos addressed the Spanish prime minister by name during a business conference, saying, "Here we don't expropriate, President Rajoy."

By contrast, Fernandez's supporters were energized by the YPF expropriation, as evidenced by the sudden proliferation of anti-Repsol graffiti on city walls in Buenos Aires. Combined with an uptick in tensions with Britain over the disputed Falkland Islands -- or Malvinas, as they are known in Argentina -- it made for a potent nationalistic brew.

Authorities explained the nationalization by accusing Repsol of failing to invest enough in oil and gas production from its properties in Argentina. But the real reason, besides the desire to stir up politically beneficial populism, is that the government's unorthodox policies are creating a cascade of harsh fiscal problems for Fernandez. The treasury finds itself in desperate need of money, especially hard currency, to sustain its unique brand of economic policies.

Currency controls to keep money at home have made it more difficult for Argentinean exporters to do business. Price controls have depressed production, and artificially low energy prices have caused consumption to spike, so Argentina finds itself importing fuel at a cost of about $3 billion per year.

The state will now control YPF, so Fernandez will be able to hand out jobs to secure loyalty and use any cash generated by the company to finance government spending. Fernandez has already had a compliant Congress rubberstamp a move that allows her to use the Central Bank's reserves to finance government operations.

The need is urgent, as the economy is slowing down amid government policies viewed as hostile to business, resulting in slashed investment and capital flight. Foreign investment plummeted 30 percent in Argentina last year. By contrast, it increased by 150 percent in neighboring Brazil.

Despite the controversial policies, the economy has grown strongly in recent years. High levels of government spending and strong international prices for Argentina's export commodities produced impressive growth of 8.9 percent last year. They also fueled an ominous inflationary spiral that the government tried to cover up.

With growth now slowing, the government needs more cash, and, above all, it needs to tame inflation. Cuts in subsidies and efforts to slow the growth of wages have produced a popular backlash and resentment.

Fernandez has taken on the world, seeking to bolster her own popularity as she crafts a unique brand of nationalist economic policies. If the Argentinean economy stabilizes and continues to grow, she will not need the populist histrionics to divert attention from her government’s weak economic performance. But if the slowdown turns into an economic contraction, expect more theatrics to stoke patriotic sentiment, and an even more dramatic chapter in the saga of “Cristina Against the World.”

Frida Ghitis is an independent commentator on world affairs and a World Politics Review contributing editor. Her weekly column, World Citizen, appears every Thursday