Christina Kirchner's decision to nationalize YPF, an Argentine subsidiary of Repsol, is alienating her country economically. The announcement, packaged in nationalism and populist rhetoric, will have ruinous consequences for the Argentine economy, because foreign investors are fleeing the country after Kirchner undercut the public's faith in the security of the law in Argentina.
The Argentine risk premium shot up yesterday, and President Kirchner declared that "companies on Argentine soil, although their shareholders are foreign, are Argentine companies." After the YPF nationalization, this statement poses a big threat to corporate security. Repsol has exhausted all means of negotiating with the Argentine government, but the decision was finalized at the end of January when Kirchner and her government redoubled their threats to nationalize YPF.
Sowing doubts over the course of the past several months looks like a strategy for paring down YPF's share price in order to lower the cost of the expropriation. Repsol has fallen six percent during this time and is currently discounting the possible loss of its Argentine subsidiary.
Respol, a Spanish multinational company, is losing important investments that it made in oilfield prospecting in Vaca Muerta. Oil reserves here could provide Argentina with all of its petroleum needs. But there is a problem. Digging in this region would require highly sophisticated technology and large amounts of capital investment, both of which Argentina doesn't have.
Kirchner's despotism is directed at Repsol and against Spanish interests, because small stakeholders in Argentina and North America have not been expropriated. For that reason, Kirchner has no qualms about alienating Argentina economically.
