Argentina has decided to nationalize and/or partially expropriate the national oil company.
Argentina is the macroeconomists best example of how not to choose appropriate macroeconomic policies.
Argentina used to be a top 10 country in terms of per capita real GDP (our best proxy for well-being).
But, for 90 years, they’ve had generally bad leaders and bad policies.
After experimenting with freer markets in the late 80’s and 90’s, Argentina’s political system collapsed early last decade. First, the defaulted on their international debt. Then power was taken over by a provincial governor, Nestor Kirchner. He groomed his wife to succeed him (given this inheritance, you may call them King Nestor and Queen Christina if you like … more people probably should).
As part of those reforms from a generation ago, the state oil company was privatized. Until last week, the majority owner was a Spanish firm, Respol.
The government of Argentina took over executive control of the company earlier this week.
They are claiming they will pay a fair price for those shares. If they do, this is called a nationalization. This is akin to eminent domain.
The government doesn’t have much money to do this. So, if they pay nothing for the firm’s shares, this is called an expropriation. This is akin to theft.
This move is no doubt part of the same strategy of claiming the Falkland Islands for their oil resources.
Both moves buy time for an autocratic government that is not making life better for its citizens.
Read about it in the article entitled “Argentina to Seize Control of Nation’s Biggest Oil Firm” in the April 17 issue of The Wall Street Journal, and “Argentina’s Oil Raid Can Only End Badly” in the April 18 issue of The Financial Times.
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