Late last month, the Spanish energy giant Repsol agreed to accept $5 billion worth of Argentine bonds as repayment for the government’s confiscation of YPF, Argentina’s largest oil company, which was formerly controlled by Repsol until its April 2012 seizure by President Cristina Kirchner. With the South American country mired in financial turmoil and flirting with yet another sovereign default, the true value of its bonds remains to be seen. But for now, President Kirchner appears to have resolved a longstanding dispute that had polluted Argentina’s image and accelerated capital flight.
Are there any lessons to be drawn from this episode? There are, I think, both for Western governments and Argentine policymakers.
At the time of the initial YPF seizure, in April 2012, three of the most prominent Western media outlets—the Economist, the Wall Street Journal, and the Washington Post—recommended that Argentina be expelled from the G-20 as punishment. Yet no such action was taken. The Economist also suggested that Argentina be stripped of its borrowing privileges at multilateral institutions, and that its citizens lose their visa-free-traveling privileges in Europe.
There was indeed some pushback on the financing front: While Argentina has continued receiving Inter-American Development Bank loans, it has faced much steeper challenges in accessing new World Bank loans, thanks to opposition from countries such as the United States, Spain, Germany, the Netherlands, the United Kingdom, Canada, and Japan. (This opposition, it should be noted, predated the YPF seizure.) But the proposed clampdown on visa-free European travel went nowhere.
A stronger, more unified Western response to the YPF nationalization might have prompted a quicker and more equitable settlement by Buenos Aires. It might also have compelled President Kirchner to settle other outstanding international financial disputes and to rethink the economic policies that have turned her country into a basket case. All of that would have been in the interests, not merely of Repsol, the Spanish government, and other Western companies and countries, but also of Argentines themselves, for their nation remains on a collision course with economic disaster.
Ever since Argentina’s historic 2001–02 default—which followed prior defaults in 1989 and 1982—it has effectively been frozen out of global capital markets. It still owes the Paris Club of creditor nations an estimated $10 billion, and it’s still embroiled in a legal fight with private creditors who refused to participate in earlier debt restructurings and are demanding full repayment on their defaulted bonds. In mid-October, Financial Times correspondent Benedict Mander noted that, “Of a total of 439 legal disputes between countries and companies” at the World Bank’s International Court for the Settlement of Investment Disputes, “no fewer than 50 involve Argentina—far more than anywhere else, with socialist Venezuela lagging some way behind in second place.” (As Mander acknowledged, the number was about to drop from 50 to 45, with Argentina announcing on October 18 that it had agreed to issue $500 million worth of debt to settle disputes with three American companies and two European ones.)