Argentina in turmoil

Well, I didn't expect to fly in to a local firestorm! No sooner had I arrived in Buenos Aires last night, than Argentina was dominating the world news headlines as a result of the decision by their Government to seize a majority share in YPF, its biggest oil company, from Repsol, the Spanish energy group.

YPF, Argentina’s largest oil company, was privatised in 1993 and purchased by Spain’s Repsol which owned 57% of the company.  Claiming Repsol had reneged on an agreement to invest in local infrastructure, Argentina’s President, Christina Fernandez, announced her intention to reclaim the energy company. The new ownership structure will give the federal government a 51% controlling interest in YPF which, apart from solving some of Argentina's energy problems, countered a possible threat from a takeover by China's Sinopec.

The pros and cons of this decision were nicely summed up in today's FT: "Argentina's oil raid can only end badly" (click here for the article) but the view on the ground appears to be that the timing of this move was all wrong. Argentina is not a "BRIC", is not enjoying the benefits of foreign direct investment which is flowing into neighbouring Brazil, already has deep fiscal challenges and a looming energy crisis. Repsol’s chairman, Antonio Brufau, has warned that “these acts will not go unpunished”, and Felipe Calderón, Mexico’s president, said that “no one in their right mind is going to invest in a country that expropriates investments”.

As if on cue, N2S, a small Spanish supplier of software to the energy sector, announced today that it was abondoning its plans to open an office in Argentina. According to their MD, Francisco de la Peña, "Argentina really looked like a very attractive market for us and we believed it was serious in its commitment to foreign investment - until Monday’s decision. I’m sure that a lot of other Spanish companies are as disappointed and worried about what has just happened as we are."

It remains to be seen whether the timing of this week's decision will represent a significant turning point in Argentina's long term economic decline, but its certainly a talking point on the streets of Buenos Aires!