Monday, April 23, 2012

Argentina is right

By Luiz Carlos Bresser-Pereira

There is no sense in leaving to a foreign company the control of a sector that is strategic for a country's

Argentina once again became the target of the North, of the “common sense” that comes from Washington and New York, and decided to retake State control of the YPF, the country's major oil company, formerly under control of a Spanish company. The Spanish government is indignant, the company protests, both swear to take all legal measures to protect their interests. The Wall Street Journal states that “the decision will damage Argentina's reputation even further with international investors”. But I ask: does the development of Argentina depend on international capital, or is it the owners of that capital who cannot agree when a country decides to protect its interests? And, as for oil industry, is it reasonable for the State to be in control of its most important company, or should it leave everything under the control of multinational corporations?

It seems today that developing countries have little doubt regarding the second question. Almost all of them decided to assume this control; in Latin America, all except Argentina. There is no sense in leaving to a foreign company the control of a sector that is strategic for a country's development such as oil, especially when this company, instead of reinvesting its profits and increasing production, remitted them to its Spanish headquarters. Besides, the days are past when a country that decided to nationalize the oil industry would go through what Iran experienced in 1957. Great Britain and France immediately overthrew the democratic government that then existed in the country and replaced it with the Shah, who promptly put himself at the service of the imperial powers.

But what will happen to Argentina in view of the decrease in the investments of multinational corporations? Is it not a “greater evil”? This is what tell us every day those companies, their governments, their economists and their journalists. But a country like Argentina, with a moderate Dutch disease (like the Brazilian one) does not need foreign capital by definition, that is, does not need nor should have a current account deficit; if it has a deficit, it is because it did not adequately neutralize the chronic overvaluation of the domestic currency, one of the causes of which is the Dutch disease.

The best proof of what I am saying is China, that grows with huge current account surpluses. But Argentina is also a good example. Since 2002, when it devaluated the exchange rate and restructured its external debt, it has had current account surpluses. And, thanks to these surpluses, that is, thanks to this competitive exchange rate, it grew much more than Brazil. Whereas Brazilian GDP grew by 41% between 2003 and 2011, the Argentinian GDP grew by 96%.

Those most directly concerned with direct investments in developing countries are the multinational corporations themselves. They are the ones that capture those countries' domestic markets without offering their own domestic markets in return. To us, investments from multinational corporations are only interesting when they bring about technology and share it with us. We do not need their capital that, instead of increasing total investments, appreciate the local currency and increase consumption. Their capital would be interesting if it were intended for export, but, since this is unusual, it usually represents just a permanent seigniorage on the national domestic market.

Published in Folha de S. Paulo, April 23, 2012 (in Portuguese here)


  1. ¿Sugerís que las inversiones que ahora tiene que hacer la YPf estatal las haga el Estado con fondos del Banco Central? Se evitaría la "enfermedad holandesa" generada por el ingreso de capitales extrangeros pero tendríamos que asumir una vida con dos dígitos profundos de inflación, ya no como un desperfecto sino como una consecuencia planifícada. Eso sí, los sectores que no sean commodities que se olviden de tomar un avión, con mucha suerte alcanzarían a aguantar los trapos acá adentro. complicado.


    1. Diego, fijate que el artículo de Bresser. Ojo en la Argentina no hay enfermedad holandesa, ni por la entrada de capitales (los intereses reales son bajos, no como en Brasil), ni por una maldición de los recursos naturales. Y hay un montón de alternativas para estimular la industria más allá del cambio. Un cambio real devaluado es un instrumento, importante pero no el único, y intervención del estado, con crédito subsidiado, y controles sobre la importación son también importantes.

  2. Argentina is right. I agree, but not for the reasons given by the author.

    1. It was the very Argentinean state (even the same political party) who sells YPF.
    2. If the idea is (as have been said) to sell the stake to a Chinese company…well.


    1. Hi Antonio. True the Peronist Party in both cases, but note that it's not atypical for a party to change. In the UK Labour moved to the right and abandoned Socialism (even created the independent Bank of England, the party that had nationalized it in 1945!), and so did French and Spanish Socialists. More uncommon, but not necessarily unwelcome is the change in the opposite direction, when a party that became neoliberal moves back to the left. No plan to sell it to the Chinese also. They are in negotiations to enter in joint investment projects with Brazilian (Petrobras) and Chinese firms for exploration in order to reduce the initial burden on the State to provide funds.


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