Spain had harsh words for Argentina yesterday over the nationalization of the oil firm YPF. Argentine president Cristina Fernandez de Kirchner rejected the demands of the Spanish company that held a major stake in YPF for ten billion dollars in compensation. All this comes at a bad time for Spain, which is the current European union member causing market anxiety. The euro dropped against the dollar today as Spanish stocks slipped. Diane and her panel of experts discuss what Argentina’s decision means for Spain’s struggling economy and the Euro.


  • Paul Isbell A visiting senior fellow for energy and climate change at the Inter-American Dialogue in Washington DC, and a visiting professor at the Instituto Tecnológico de Buenos Aires, former director of the Energy and Climate Change Program at the Elcano Royal Institute for International and Strategic Studies in Madrid.
  • Daniel Kaufmann A senior fellow in the Global Economy and Development program at the Brookings Institution, former director of Governance and Anti-Corruption of the World Bank Institute
  • Sophia Aguirre (Aghih-ray) Professor of Economics and head of the Integral Economic Development Management Program (IEDM) in the Department of Business and Economics of the Catholic University of America
  • Jacob Kirkegaard Research fellow, Peterson Institute and senior associate, Rhodium Group, a New York-based research firm.


  • 10:06:56

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Argentina is facing widespread criticism for plans to nationalize oil company YPF. The Spanish energy giant Repsol was the controlling shareholder. This has become a diplomatic crisis. Joining me to talk about the standoff between Spain and Argentina and the implications for Europe and the U.S. economy: Jacob Funk Kirkegaard of the Peterson Institute for International Economics, Sophia Aguirre of the Catholic University of America, Paul Isbell of the Inter-American Dialogue and Daniel Kauffman of the Brookings Institution.

  • 10:07:48

    MS. DIANE REHMI do invite you to be part of the program this morning. Call us on 800-433-8850. Send us your email to Join us on Facebook or Twitter. Good morning to all of you.

  • 10:08:08

    PROF. SOPHIA AGUIRREGood morning.

  • 10:08:08


  • 10:08:08

    MR. DANIEL KAUFMANNGood morning.

  • 10:08:09

    PROF. PAUL ISBELLGood morning.

  • 10:08:09

    REHMGood to have you here. Paul Isbell, let me begin with you. What was your reaction to the decision on Argentina's part to nationalize the oil company?

  • 10:08:24

    ISBELLWell, my reaction was, my God, why did this have to happen right now, particularly from the Spanish point of view? Spain is in the -- probably the toughest economic and financial situation that they've been in, well, probably for decades. And while this directly -- there's no reason why, directly, this should have a very significant impact on Spain's economic situation.

  • 10:08:53

    ISBELLIt's coming as a sort of very demoralizing and, in Spain, at least, enraging piece of news flow, which is coming on top of all kinds of bad news in Spain from, you know, the financial problems that we're all aware of to a kind of collapse of confidence in Spain's royal family and the monarchy, the constitutional monarchy, all of this now, you know, reinforcing in the minds of those that make investment decisions that, you know, Spain is on increasingly thin ice. And that's very unfortunate, just speaking from the point of view of Spain.

  • 10:09:38

    REHMHow do you see it, Sophia?

  • 10:09:40

    AGUIRREWell, I think it's a very bad move from the point of view of Argentina, as well as already was said, for the moment, the needs of Spain at this point in time.

  • 10:09:56

    REHMWhy did Argentina do this?

  • 10:09:57

    AGUIRREBut at Argentina, very valid many fronts, first is we are taking another step towards Chavez-style of government, and this is serious. Second, one more move to make Argentina more inefficient in the production. We all know run-government companies are not efficient. And, third, this would deter even more the investment that Argentina so badly needs today, foreign investment (word?).

  • 10:10:28

    REHMJacob, how do you see it?

  • 10:10:30

    KIRKEGAARDNo, I mean, I will echo what we've just heard. I mean, I think this is certainly an additional piece of bad economic news for the Spanish government and the Spanish economy more broadly, and to the extent that there are, you know, institutional shareholders in Spain that will suffer financial losses from this. I mean, you know, so far, the estimates is that, you know, Repsol is going to lose somewhere between 10 or $11 billion in market value, and that may spill over to some of the Spanish banks.

  • 10:11:02

    KIRKEGAARDBut I think, on the other hand, without being too cynical, politically this actually may provide a welcome distraction for the Spanish government for the economic turmoil domestically in the country in a way, you know, quite frankly, not dissimilar to the way that Margaret Thatcher benefited from the Falklands Crisis in the early 1980s.

  • 10:11:24

    REHMInteresting. Daniel Kaufmann, what's good about it for Argentina?

  • 10:11:32

    KAUFMANNWell, for Argentina as a country and for the people of Argentina, very little, if anything is good, but, in the very short term, it may be good for the precedent. So part of the reason that she did this was for political experience reason because it's a populist move, and that resonates with many Argentineans today. But, secondly, she did it for desperate economic and financial reasons.

  • 10:11:57

    KAUFMANNAnd it's a historical trend in Argentina that when they run into real problems with the budget and they need to fund welfare programs, they expropriate something -- a few years ago was a pension scheme and, now, it's the oil company. So in the very short term, it may help her. But it's a disastrous move for Argentinean prospects in the future.

  • 10:12:23

    REHMWhat has happened to Argentina, say, in that last year that would lead to this move, Daniel Kaufmann? They had been exporters of oil energy up to now, and now things are changing. What's happened?

  • 10:12:42

    KAUFMANNWell, they've been changing already for a bit. The -- in terms of oil production, it's going down while demand is going up, so they become increasingly net importers of oil when they used to be exporters. The economy is now growing as fast as before, and they are running out of those extra funds that they used to have for having graded something else in the past and expropriated, like the private pension scheme.

  • 10:13:05

    KAUFMANNLet's keep in mind that it's a whole century, 100-year history, of ups and downs, and particularly downs, in terms of misgovernance or poor governance in Argentina. Argentina used to be, in the 1920s, the seventh richest country in the world. Today, it's about 50, in terms of their regulatory environment -- this is not just now -- in terms of rule of law, in terms of corruption -- about 150 out of 200 countries -- in terms of doing business, any indicator we use.

  • 10:13:34

    KAUFMANNAnd we generate some, others generate others. It's very much an increasing Venezuela story. We can call it increasing Chavetization or Venezualization of Argentina.

  • 10:13:46

    REHMDaniel Kaufmann, he's senior fellow in the Global Economy and Development program at the Brookings Institution. We do invite your emails, your calls, your comments. Join us on 800-433-8850. Sophia, you're very concerned about what this move could mean for Argentina.

  • 10:14:15

    AGUIRREYes. I'm very concerned because, as I -- had been said already, it's yet another move in closing the economy and the government getting more involved. And at this point, I think, as it was said, too, the oil prices are high. The government needs cash to foster these populist policies. And it's a great opportunity, and so...

  • 10:14:40

    REHMWhat kind of populist policies are you talking about?

  • 10:14:43

    AGUIRREWell, the populist policies that the government has implemented, right? So (unintelligible)...

  • 10:14:49

    REHMSuch as?

  • 10:14:50

    AGUIRREPardon me?

  • 10:14:51

    REHMSuch as?

  • 10:14:52

    AGUIRRESuch as subsidies of all sorts, such as, right, creating a wealthier dependency. In Argentina today, people make more money getting subsidies from the government than working themselves. So all these trends that had -- are being implemented in place is what is undermining the economy, the market and protectionist policies that not -- does not make Argentina more competitive but make them fall farther and farther in time.

  • 10:15:24

    REHMJacob, would you agree?

  • 10:15:26

    KIRKEGAARDNo, I think I agree with that completely. I mean, if we take such a thing as the energy subsidies that are given in Argentina, I mean, they're obviously directly related to, as Daniel said, the declining production of domestic oil in the country because there's no incentive to invest when you have to sell your products at a loss.

  • 10:15:45

    KIRKEGAARDAnd I think I would add to the sort of bad diplomatic outlook that this creates for Argentina, is that, you know, Argentina arguably, or the president, I should say, the president was, in many ways, I think, snubbed at the latest inter-American summit where nobody wanted to talk about the Falklands claim that she has recently made.

  • 10:16:09

    REHMWhich is?

  • 10:16:10

    KIRKEGAARDWhich is that to restate the Argentinean claim of sovereignty over the now British Falkland Islands, which, of course, goes back to the early 1980s. But I think when we think a little bit further ahead in time, I mean, Argentina is still a member of the G-20. President Kirchner will have to go to Mexico in -- for the summit in June. Maybe -- you know, who knows? Maybe Argentina will be -- face a new degree of diplomatic isolation at the G-20 as well as a result of something like this.

  • 10:16:41

    REHMYou know, you talk about the diplomatic consequences. We have repeatedly reached out to the embassy of Argentina, inviting them to participate this morning. They declined. So here we are with four of you, extremely critical of what Argentina has done. Are there any folks out there whom you believe, Paul Isbell, would say she has done the right thing for Argentina?

  • 10:17:21

    ISBELLWell, sure. There are plenty of people in Argentina that would say that. I would just add, though, to the discussion we have going. You asked, Diane, what's happened in the last year that would've contributed to provoking this now. One thing we should remember is that, within the last year, it's become increasingly clear that Argentina -- and it's true as Daniel pointed out, since the mid-'90s, gas and oil production and reserve levels have fallen. There's a debate over exactly why.

  • 10:17:52


  • 10:17:53

    ISBELLThere seems to be some elements of policy, you know, the kind of stop and go interventionist policy involved. But there's also -- there was, for a long time, also questions of geological natures to how much of it.

  • 10:18:07

    REHMBut they're running out.

  • 10:18:07

    ISBELLNow -- well, the thing is is that within the last year, it's become increasingly clear that they have quite a lot of unconventional gas and oil. And this is what's been confirmed in the last year. And, indeed, Repsol YPF was one of the companies that discovered shale gas and shale oil in Argentina.

  • 10:18:26

    REHMPaul Isbell, he is visiting senior fellow for energy and climate change at the Inter-American Dialogue and visiting professor at the Buenos Aires Institute of Technology. Short break and we'll be right back.

  • 10:20:04

    REHMAnd we're back, talking about Argentina's nationalization of a Spanish oil firm without compensation to Spain. Here's an email, "Can Spain take their rigs and go home?" Daniel Kaufmann, what do you think?

  • 10:20:31

    KAUFMANNWell, they are difficult to move, but they can -- they will try, instead, to renegotiate and get at least some decent compensation. There'll be enormous pressure from the international community for some type of compensation, although it's very unlikely for political reasons that the expropriation, the nationalization itself will be reversed. So there'll be a question of what's a fair level of compensation. It will never satisfy Repsol and so on.

  • 10:21:05

    KAUFMANNBut something will happen, and that's important to note because, at the end of the day, as was hinted, this is not a huge blow at the macroeconomic level for Spain. It's a political -- it's a major political issue, but it's a huge blow, shooting themselves in the foot, for Argentina. And that -- I think we need to put that in perspective, and it's a worrisome trend about some countries in the world are going that route these days. Venezuela as being an extreme case, but Argentina is going that route. There are few others.

  • 10:21:36

    REHMI want to go back to the geological question, Paul Isbell. Is there an indication on the part of the Argentineans that somehow they are running out of oil and gas?

  • 10:21:55

    ISBELLWell, that might have been, you know, part of the discussion some years ago. But as we've mentioned earlier in the program, there have been major discoveries. Argentina is estimated now to have the third largest shale gas reserves, and there seems to be shale oil as well. So the question now does not appear to be geological scarcity in Argentina, and there's even strong reasons to believe that there are offshore resources.

  • 10:22:21

    ISBELLThis is one of the reasons why the Falklands-Malvinas issue is back, you know, center stage because the Falkland Islands have begun allowing oil companies to come in to explore, and oil has been discovered in the northern basin.

  • 10:22:37

    REHMSo who gets the resources?

  • 10:22:39

    ISBELLWell, there's a question over the Falklands oil, but there's also then a question over, you know, how Argentina, which is now trying to develop exploratory activities in the Argentine offshore, which is not contested with the Falkland-Malvinas Island. So there's a lot going and there's a lot at stake for Argentina. We should keep in mind that the geopolitical sort of landscape around energy and political economy has shifted enormously in the last 10 years.

  • 10:23:07

    ISBELLAnd although I would tend to agree with the other panelists here, my colleagues, that, you know, the standard conventional, you know, interpretation here is that Argentina is once again shooting itself in the foot. I -- although I would not defend the Argentine move, it's difficult, particularly since I also would see it from the point of view of Spain as well. I would caution again such heavy continued reliance on the conventional wisdom and the conventional interpretation.

  • 10:23:37

    ISBELLYou know, that was what we used all through the early years of Nestor Kirchner's administration. And in the energy sector, subsidies and all, price controls and all, they have continued to defy predictions of breakdown in their electricity system and in other aspects of the energy system. So I would just caution us, you know, from being too sure of ourselves. We may...

  • 10:24:05

    REHMToo sure of ourselves...

  • 10:24:07

    ISBELLIn the fact that this is going to be, you know, a major blow for Argentina, yet another one.

  • 10:24:12

    REHMAll right. Jacob.

  • 10:24:14

    KIRKEGAARDWell, I guess I just want to highlight the -- I mean, we -- as was mentioned, there is this quest for developing new shale-based gas and oil reserves. But, I mean, that really is a technology issue. I think you have to question to what extent foreign investors are now willing to supply that technology. And I think it's kind of interesting to the extent that this is in some ways, at least as I see it, a bit of a break with the recent emerging trend of how governments deal with foreign oil companies.

  • 10:24:45

    KIRKEGAARDI mean, we've all heard this broader, longer term trend of renationalization of national resources, particularly, of course, in the oil sector. You know, we had Russia, and we've had it in other -- obviously, in Venezuela as well. But if you look at very recently, I mean, there was an interesting case where, you know, Exxon Mobil, of all companies, have now engaged directly with a Russian company to develop the Arctic gas reserves.

  • 10:25:12

    KIRKEGAARDSo there is a willingness to engage now by many governments that were previously perceived to be very nationalistic because I think they perceive that they need the kind of technology that these companies can bring, which seemingly is not something that worries the Kirchner government.

  • 10:25:29

    REHMSophia, other Latin American countries, for example, Mexico, how is Mexico viewing this? They've been somewhat involved in the same problem.

  • 10:25:44

    AGUIRREWell, no. I think Mexico will be very happy. More investment will go to Mexico over to Argentina -- away from Argentina. But I have to say a couple of things here, echoing some of the comments made before. One is that...

  • 10:26:02

    REHMNo, excuse me.

  • 10:26:04


  • 10:26:04

    REHMArgentina's move apparently also affects Mexico state-owned Petroleos Mexicanos. So, in fact, they are concerned.

  • 10:26:19

    AGUIRREBut they are not expropriating, which is what they are doing in Argentina right now.

  • 10:26:22

    REHMBut they are enough, Daniel?

  • 10:26:26

    KAUFMANNYeah, both of you are right. The Pemex, the Mexican oil producer has a stake for about 10 percent.

  • 10:26:36


  • 10:26:37

    KAUFMANNRight now, Argentina is saying that they are not being affected by it. However, Mexico and the president has come out very strongly against it because they understand as a modern country that by threatening the whole legal regulatory framework and basically throwing it out of the window, which used to be -- talking about conventional wisdom where I disagree with my colleague, Paul -- that used to be what was done by many countries in the 1970s for the sake of state development.

  • 10:27:13

    KAUFMANNSo in some sense, we're going back to the 1970s-type of policies in the case of Argentina. Mexico has come out very strongly and not only Mexico. Basically, the world at large one after the other are lining up as we speak. It is absolutely the case. Yeah, I agree with Paul. There's more reserves in terms of oil shale that are being discovered, but the huge challenge now is who's going to invest and basically...

  • 10:27:39


  • 10:27:40

    KAUFMANN...and develop that oil shale. Let's just -- let me just mention one additional fact because it's really important in terms of all the actions preceding this that the government has been taken -- has led to basically a de-investment in terms of foreign investment already in Argentina. Argentina used to attract about $10 billion a year in terms of foreign investment about eight years ago and so on. It's down to about two to $3 billion.

  • 10:28:08


  • 10:28:09

    KAUFMANNAnd this is before this happened, so in terms of the prospects of how this is going to develop further, price controls even at the gas pump level, gas stations -- the current president and -- with her former husband who was previously the president would get involved personally in berating basically gas stations for charging too much.

  • 10:28:33


  • 10:28:34

    KAUFMANNSo that was the extent of disincentives that before were set. So I would love to meet in another two years and see where Argentina has gone in terms of conventional or not conventional wisdom.

  • 10:28:42

    REHMWe'll try to do that. Where does the EU stand on this issue, Jacob?

  • 10:28:51

    KIRKEGAARDWell, I mean, I think the EU will line up very firmly behind the Spanish government on this issue also because, as we talked about earlier, the U.K. government actually has a similar, if somewhat different, longstanding feud, if you like, with the Kirchner government. And I think it already has had some repercussions. The EU has canceled an upcoming trade meeting with the Argentinean government or postponed it, at least.

  • 10:29:23

    KIRKEGAARDI think that if you -- if anybody had any hopes for an EU-Mercosur Free Trade Agreement being restarted, that certainly has died now, in my opinion. I think you will see the EU because it's a little complicate because recently, the EU has actually acquired a legal right to act on international investment twists on behalf of member states.

  • 10:29:54

    KIRKEGAARDSo you now have the strange legal situation where there is in existence a -- an Argentinean-Spanish bilateral investment treaty, but it's actually most likely going to be enforced by the EU in a court of arbitration, coming back to these negotiations about some kind of compensation. But it's going to be a very tricky legal issue.

  • 10:30:16

    REHMBut in the meantime, Paul Isbell, you have Spain threatening retaliation. What can they do?

  • 10:30:26

    ISBELLWell, they could start a full-blown trade war if they wished, but they won't. Most of this is just very -- this is bluster on the part of Spain, whether -- for better, for worse. It's understandable given the extreme vulnerability that Spaniards feel, particularly those in the government and particularly those in the top brass of Repsol who, you know, probably won't survive this incidence even if they would have been able to stay on under a new -- the new administration in Spain.

  • 10:30:58

    ISBELLThe top brass of Repsol has tended to shift with changes in administration. So it's unfortunate. It's also ironic, and, you know, there are at least some voices in Spain that are recommending caution in the rhetoric that their compatriots are using. There's some irony here because, you know, the kind of rhetoric that Spaniards used during the run-up to the Argentine crash was pretty vile as well. And so now that the shoe is partially on a different foot here, it's very sad to see this happening.

  • 10:31:36

    REHMAnd, Sophia, talk about Spain's financial condition right now.

  • 10:31:43

    AGUIRREYes. Well, they have hit the point of no return, as we say. But as I have mentioned before, I don't think this situation with Argentina will make a major difference. In the macroeconomic context, I do agree with the comment before Daniel that -- no, Jacob -- that there will be a distraction from the major crisis, and politically that's helpful. We all rally behind our rights as Spaniards.

  • 10:32:11

    AGUIRREBut -- so in the big scheme of things, this makes no difference for Spain. However, Spain is in a very difficult situation in the news, the rest of Europe. The consequence, I think, for the rest of Europe could be very serious as well.

  • 10:32:26

    REHMAnd what about the euro, Jacob?

  • 10:32:29

    KIRKEGAARDWell, I don't think we should overdramatize the impact on the broader euro area effect on this. This will have an implication on, you know, the net investment positions of Spain, which is going to be reduced because they're going to lose, you know, some of their foreign assets. But, again, in the grand scheme of things, I -- as I said, I think there is a risk of some follow-on losses for some of the Spanish banks. But beyond that, I don't think the macroeconomic effects are going to be that great.

  • 10:32:58

    REHMJacob Funk Kirkegaard, he is a research fellow at the Peterson Institute. And you're listening to "The Diane Rehm Show." Considering all the criticism that has been out there of Argentina's move, is there any indication that Argentina might back out of nationalizing the oil company now, Daniel?

  • 10:33:29

    KAUFMANNWell, that would have a huge political cost for the president, Cristina Fernandez de Kirchner, who, right now, is enjoying enormous popularity internally from that move. So that's extremely unlikely. Instead, it's much more likely that given the international pressure, they may try accommodating the negotiating terms.

  • 10:33:54

    KAUFMANNBut basically, this has -- this action, whatever happens next -- has again damage, enormous, the reputation of Argentina, internationally. And I would want to add to what was discussed before in terms of what Spain may do. And I agree that it is important, given the historical, colonial context, to keep the rhetoric under control.

  • 10:34:14

    KAUFMANNBut by now, this is becoming very quickly a European and EU issue. Already, some implications has taken place. There was a very important meeting between EU and Argentinean on their relations, was cancelled. But second, this whole issue of the G-20, which has been a major question mark for already years of why is Argentina there, where, ironically, a powerful country like Spain is not. It's only part of the EU. Now that's going to be taken to another level. So it's not just a basically a slap in their wrist, but they may be kicked out.

  • 10:34:52

    REHMAll right. We're going to open the phones now, 800-433-8850, first to Chapel Hill, N.C. Good morning, Michael.

  • 10:35:05

    MICHAELGood morning, Diane.

  • 10:35:07

    REHMGo right ahead, sir.

  • 10:35:08

    MICHAELYeah. Well, I'm going to say I'm a big fan of the show. I just wanted to say that I find this discussion by the experts really decontextualizing in some way that -- you know, I understand that they're all against what's going on (unintelligible) there.

  • 10:35:20

    MICHAELBut it's sort of divorced from this discussion of, you know, what recently took place with the economic collapse, the fact that many wealthy people were able to get their money out of the country, and the fact that middle class people were literally -- walked out of banks and in the end saw their savings dwindle, and that a lot of these populist moves are really reflections of that recent history.

  • 10:35:39

    MICHAELNever mind the much broader, longer history of U.S. and European involvement in Latin America, economic involvement that has led to the shift to the left since, you know, the 1990s. And I just found much of this discussion completely divorced from that context.

  • 10:35:52

    REHMPaul Isbell.

  • 10:35:54

    ISBELLYeah. I think that's a very useful comment in this conversation. Again, while I find it -- you know, in terms of economic analysis -- very difficult to defend this, we have to remember that, you know, politics and economics are, you know, bound at the hip. And political moves, particularly by savvy politicians, have the economic price, the risk of a certain economic price to be paid factored in, typically.

  • 10:36:26

    ISBELLThis is obviously a gamble on President Kirchner's part. And again, I think we're going to need more than two years to determine whether the conventional wisdom will turn out to be correct. I think we're going to need more, like, another 10. We need to see what happens because, you know, things are shifting in this world, and, you know, the conventional wisdoms are being proven less and less useful.

  • 10:36:48

    REHMSo what all of you, it seems to me, are saying is that politically, internally, it could be good for the president to respond to this populist sense, this belief that she's done the right thing. But, internationally, she's off on the wrong track. Is that an unfair statement, Paul?

  • 10:37:20

    ISBELLWell, I think it's a little bit of an oversimplification. Obviously, nationalization, particularly in a context in which there's fragility in the perception of investor certainty, will probably hurt foreign investment inflows in the future. In the energy sector, however, it's not clear.

  • 10:37:38

    REHMPaul Isbell, he is visiting professor at the Buenos Aires Institute of Technology.

  • 10:40:04

    REHMAnd as we talk about Argentina, its nationalization of a large oil company owned by Spain, here are two postings from Facebook, one from Angela, who says, "The Spanish owners did not invest sufficiently on an industry that's essential for Argentina's growth." And then Joshua says, "Is it not in the interest of Spain to invest in Argentina?" Daniel.

  • 10:40:43

    KAUFMANNWell, this is appropriate, good question. To Joshua and to Angela, here, there are no angels, and there, I agree with my fellow panelists. And the multinational Repsol was far from extremely efficient in investing probably as much as they should. But that's a third-order issue. The main problem has been the incentive structure that basically was destroyed by the government policies with all the price controls, subsidies and other disincentives to invest.

  • 10:41:19

    KAUFMANNAnd it's quite common that multinationals sometimes do not necessarily behave and act in the best interest -- social interest for the country, and that's why it's so crucial to have the appropriate incentive framework for the government to put it together. Right now, Chile, for instance, is in discussions on the copra, and they're always trying to improve their terms so they -- there's better investment, but they use an international legal framework which is respected.

  • 10:41:46

    REHMAll right. Here's an email from Marilyn in Colorado, "Compare Argentina and Brazil. One of you called this the Chavezation of Argentina. I recall economists like yourselves attaching that label to Lula De Silva when he was first elected in Brazil. Now, Brazil has massively diminished income inequality and is a world economic powerhouse." Compare and contrast, Sophia.

  • 10:42:24

    AGUIRREWell, I think that what you see in Brazil, and hopefully we will continue to see, is a consistency of policy toward engaging in international markets, as Chile, a successful story in spite of different political parties, has done over time. Argentina has failed systemically on that, and instead have moved to Chavetization road. So I think that, no, definitely no. Brazil is following a path that it reflects the success of Chile and is not the case of Argentina, the country.

  • 10:42:57

    REHMHowever, I do remember doing programs when Lula De Silva was just slammed as someone who was out of the mainstream, who wasn't cooperating, who was going his own way, who was doomed to failure. And what do we see now?

  • 10:43:18

    ISBELLWell, I remember, you know, Lula's -- the last time Lula ran for president, his fourth attempt and when he won in 2002 and -- there was a big scare globally that, you know, this was going to be a disaster. And there were a few lonely voices trying to point out the fact that no, it would not be. Now, there is a difference, though, between Lula -- the Lula phenomenon and the Brazilian phenomenon and what's happened in Argentina, which is more of a post-Peronist phenomenon.

  • 10:43:53

    ISBELLAnd Sophia's correct. One of the great things that Brazil has been able to do in the last 20 years is establish not just credibility, but they've done it by consistency. And they've done it by staying in the line even though the markets weren't buying the argument until, you know, until they were convinced.

  • 10:44:13

    REHMMore recently, yeah.

  • 10:44:14

    ISBELLNow, in Argentina, the thing is there is this record of back and forth and, you know, we're friends, and now we're hostile. You know, that's the way they've been with Spain for the last several years. I will say this, though: You know, Argentina, you know, has reached the point of diminishing returns in the negative sense. You know, there's not much more they can do. They do have to normalize their economic model, and they've known this since Kirchner -- Nestor Kirchner was able to use a heterodox approach to recompose Argentine growth.

  • 10:44:51

    ISBELLNow, the big question has always been, when and how are they going to reinsert themselves in the global economy on more normal lines? Now, the point here is that it looks like they're trying to gain as much leverage as they can and reincorporate as many much control over local resources as they can, particularly the strategic ones, before they would consider this.

  • 10:45:15

    KIRKEGAARDNo. I guess, I mean, compare and contrast, I think it has actually -- is very instructive to compare the approach that the Brazilian government has taken to developing its newly discovered offshore oil resources and the role of the Argentinean state-owned or state-dominated, at least, oil company Petrobras, which, you know, operates under constraints with respect to local content requirements, et cetera. But, nonetheless, it's essentially a company that operates along on commercial practices.

  • 10:45:46

    KIRKEGAARDAnd -- sorry, Brazil has also invested or invited lots of other foreign oil companies to share the exploration costs, et cetera, of its, excuse me, of its offshore oil reserves. So there's many ways in which you can maintain a dominant role for the government in developing national energy resources but doing it in ways that are -- do not have the negative effects that Argentina's recent acts will have.

  • 10:46:15

    REHMAll right. To St. Louis, Mo., Richard, good morning. You're on the air. Go right ahead.

  • 10:46:21

    RICHARDYes, good morning. Yeah. In listening to what you're talking there about -- with Argentina, Chile and Brazil, I mean, each one of them seems to have a different slant on how it maintains control over a resource. And, basically, what the hostilities over, from what I see, in general, is that these are over control and money.

  • 10:46:40

    RICHARDIf you want to stop the corporate leveraging of power, particularly political power in these areas, socialization of all natural resources, not just in those countries but worldwide so that people are not disenfranchised, who don't happen by birthright and just by happenstance in an area in which they are flushed with water or oil or some of the natural resources.

  • 10:47:04

    RICHARDThe real possibility is to put all of these natural resources in the hands of the citizen group of managers, which are international, and have a stake -- actual stakeholders, not shareholders. Commoditization of these natural resources is on -- is irrational. It puts us back into the kind of position that companies like Royal Dutch Shell and others maintain in the world, which is a death grip on political power and the control of banks and their assets.

  • 10:47:33

    REHMAll right, sir. Daniel Kauffman.

  • 10:47:36

    KAUFMANNI think we should be very levelheaded and not ideological indeed, as suggested here, regarding the ownership of natural resources by a country. And in some instances, in particular in such a wealthy national resource like oil, it does make sense to have some state ownership and sometimes in a mixed fashion with the private sector. Then there's the question of who operates it. And sometimes the private sector, with the proper incentives and with the proper agreements, can do much better.

  • 10:48:08

    KAUFMANNSo there should not be one ideological bible that all those should be in private hands. Let's keep in mind, however, that the Kirchners, both Kirchners supported the privatization of their oil resources, and YPF in particular, over a dozen years ago. And Argentina then was supposed to abide to international legal contract, which they have abdicated. So many countries have different models.

  • 10:48:35

    KAUFMANNBut they do not easily renounce to major international legal and regulatory agreements, which Argentina, yet again, has done. At the end of the day, that's absolutely a big difference, and that's the difference with Lula. The problem with Lula when he comes in is that people judge him by his previous ideological affiliation and not by the actions. Leaders should be judged by their actions, the same...

  • 10:49:00

    REHMAll right. To Peter in Sanford, Fla. Good morning to you.

  • 10:49:06

    PETERGood morning. My question was, I was wondering if Spain -- is there any international court where they could go to to attempt to try to get some compensation?

  • 10:49:16


  • 10:49:17

    KIRKEGAARDYes. There is an International Court of Arbitration affiliated with the World Bank that takes care of these cases. Well, there actually has in the -- I believe in the late '90s, there was a case ironically where Argentinean private companies sued the Spanish government for compensation. And they're now going to go, you know, it's going to go the other way.

  • 10:49:38

    KIRKEGAARDBut as I said earlier, there is this tricky legal issue that actually there is an EU role now in this bilateral relationship on investment issues that was in the case before. So it gets more complicated, but there is a legal arbitration international system to deal with these issues.

  • 10:49:54

    REHMAll right. Here's an email from Jonathan, who says, to him it's still unclear what the argument is from President Fernandez and if she has any justification for her actions. Paul?

  • 10:50:16

    ISBELLWell, the argument is that Repsol YPF have not kept up their side of the bargain, right? Now, of course, that is, you know, something for, you know, internal debate.

  • 10:50:32

    REHMWhat would their side of the bargain have been?

  • 10:50:36

    ISBELLWell, to have paid out less in dividends and invested more, to have, you know, a turnaround and output and production faster.

  • 10:50:44


  • 10:50:44

    ISBELLNow, that's kind of -- it's a stretch for the Argentines to say that, I have to admit. What they're really -- what the real argument is is they feel it's in the national interest now, and they feel that that's justified by the Argentine Constitution. So this is a question of geopolitics as much as it is economics or investor behavior and investor certainty.

  • 10:51:04

    REHMWould you agree, Sophia?

  • 10:51:06

    AGUIRREWell, I would say that there is some truth to that. Investment haven't taken place, but also in the side of Repsol, you have to say, well, why would they invest? There were every possible incentive, as Daniel already have pointed out, to disinvest. And so...

  • 10:51:23


  • 10:51:24

    AGUIRRE...the policies -- because the policies of the country were undermining any profitability of investment, so you are getting what your policies motivate, right, other motivations or your policies are. However, there is a truth that there -- well has been a lack of investment and then overpaid on dividends. That's a fact.

  • 10:51:44


  • 10:51:44

    ISBELLWell, actually, I was very encouraged over the last year when the Argentine government created a new special regime for investment in the exploration and exploitation of shale gas and shale oil. And this is really what was promising for companies like Repsol in Argentina, right, because it's really going to be an unconventional play from now on in Argentina, unless we're talking about the deep offshore where there are conventional resources as well. I should just add this: there's another thing behind the scenes here.

  • 10:52:18

    ISBELLA few years, I mean, Repsol has known that it really didn't want to have half of its production and half of its reserves in YPF in Argentina, half of their global portfolio. They would much prefer it to be spread out all over the place, and they've been trying to diversify. They've been trying to sell their shares in YPF. They tried to sell them -- part of the Repsol's -- we're trying to sell them to Lukoil a few years back. They've been negotiating with the Chinese oil companies.

  • 10:52:45

    ISBELLAnd the FT's has just reported that Sinopec was on the verge of a deal with Repsol to purchase its share in YPF. It looks to me like the Argentine government was perfectly aware of that and would much rather have control and idea with the potential investors in the future.

  • 10:53:03

    REHMPaul Isbell, and you're listening to "The Diane Rehm Show." As we talk, this whole issue becomes more and more complex. What I wonder about, and I'm sure what many of our listeners wonder about, is what impact this could have here on the United States. Daniel Kaufmann.

  • 10:53:30

    KAUFMANNWell, certainly, very small at the microeconomic level because we're talking about a few billion dollars, which are very important for Argentina and -- on the whole and making of their regulatory legal framework. It's going to have major cost for Argentina. It's not going to have a major cost for the U.S., but in terms of how the U.S.-Argentina and U.S.-Latin American relations -- and the idea for a little bit from the comment before -- are now all the investors are going to go to Mexico.

  • 10:54:00

    KAUFMANNThe point is that many investors from outside of Latin America, they look at continents for better or worse, and this doesn't help the image of Latin America. So it's going to be very important for experts to point out that Latin America is just a continent (unintelligible). Countries are so different nowadays in terms of responsible governance and management and vis-à-vis each other. But it may have, in the short term, another chilling effect on foreign investors in Argentina.

  • 10:54:27

    REHMInteresting. Jacob.

  • 10:54:28

    KIRKEGAARDNo. I think I would argue with what Daniel said on the economic side. It's going to be a negligible spill over to the U.S. from this. But I think politically in this -- the U.S. government is actually involved in a number of long-running disputes with the Argentinean government, both on issues related back to the Argentina default in 2001 as well as more recently where the Obama administration actually took a rather unprecedented move and have suspended Argentina.

  • 10:54:59

    KIRKEGAARDBecause, ironically -- I guess, we can say now, because of a dispute between American companies and the Argentinean government overcompensation in a similar investment type case, the Obama administration suspended Argentina from the so-called General System of Preferences, which is another way of saying that Argentina is going to lose a lot of trade preferences with its exports to the United States.

  • 10:55:22

    KIRKEGAARDAnd certainly what has just happened now is going to, in my opinion, make it much less likely for Argentina to be reinstated and regain those trade benefits here in the United States than what otherwise be the case.

  • 10:55:34

    REHMSophia, where do we go from here?

  • 10:55:39

    AGUIRREWhere, in Argentina or in the United States?

  • 10:55:42

    REHMWhere does this issue go from here?

  • 10:55:46

    AGUIRREWell, I think that, politically, Kirchner cannot do much. She will not do much because she will lose a lot of face, so she will not retract. Although, I agree that the nice way of settling will be in the agreement on how we settle on this expropriation. But, unfortunately, I don't think she can afford to reverse this bad decision. In terms of investments in Latin America, I would say yes and no because, yes, it's true.

  • 10:56:17

    AGUIRREPeople see Latin Americas, Latin America -- they are different countries. But I also think that in today's world, investor have learned to differentiate, and that's why we see the investments that we see in Ecuador, in Peru, in Chile, in Brazil, in Mexico, I suppose to other countries. So I think that, thank God, we have differentiated, I mean, learned to differentiate that.

  • 10:56:39

    REHMSophia Aguirre, Jacob Funk Kirkegaard, Paul Isbell, Daniel Kaufmann, a very interesting conversation. Thank you all. And thanks for listening. I'm Diane Rehm.

  • 10:56:56

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Monique Nazareth, Nikki Jecks, Susan Nabors and Lisa Dunn, and the engineer is Tobey Schreiner. A.C. Valdez answers the phones. Visit for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.

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