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Argentina Overview: The Nationalized Nightmare?

Argentina Overview: The Nationalized Nightmare?

The Nationalization of Argentina’s YPF

Over the past few years Argentina has seen the nationalization of pension funds, the re-allocation of central bank reserves and most recently they have experienced the nationalization of 51 percent of Yacimientos Petrolíferos Fiscales (YPF), a former state oil firm. The nationalization targeted specifically the shares of Repsol, a Spanish company who purchased the shares in 1999, six years after YPF was privatized.

YPF Summary
YPF specializes in exploration, production, refining and the commercialization of petroleum since it was founded in 1922 and had grown to become the largest company in its sector in Argentina. YPF was initially privatised in 1993, and six years later bought by Repsol in 1999. This merger led to the birth of Repsol YPF.

The company has revenues of approximately $13.7B USDwith profits at $2.1B USD annually. In 2011 YPF produced 100M barrels of petroleum output as well as 441B cu ft of natural gas output.

The Significance of the Energy Sector
The energy sector has become a weak spot for Argentina. In 2003 Argentina was a net exporter of energy. Since 2006, YPF has invested $11B in Argentina and paid out $3.5B in company dividends. The remaining portion of profits has been spent on extracting from existing oil fields as opposed to exploration and drilling of new ones.

The old gas fields have begun to dry up and there hasn’t been enough new drilling completed to offset these depleted gas fields. This is coupled with the growing economy and demand for energy – Argentina has been suffering an energy crunch and now uses 15% more hydrocarbons than it produces.

YPF accounts for 45% of Argentina's hydrocarbons and has suffered tremendously from the freezing of energy prices, which started in the 1990’s, as well as the more recent sharp currency devaluation.

Immediately following the sharp currency devaluation, the government in Argentina fixed prices in pesos and only began increasing them later very slowly. Because of this, in relation to its South American neighbours Argentina’s natural gas is roughly 75% cheaper, with electricity 70% cheaper. On top of this, the Argentine government has begun taxing oil exports, further hurting the profit margins of energy companies.

As any economist would have predicted, the price ceiling led to shortages and investments dried up while Argentina simultaneously began using excessive energy. In efforts to safeguard the depleting resources the Argentine government has resorted to intervention in hopes of rationing the resource.

Other Issues In Argentina
Argentina's growth started to slow as they went into 2012. To accommodate for the negative effects the energy industry was experiencing on the trade balance of the country, the government once again put in place a basket of restrictions to try and protect the economy. These restrictions included restricted imports on countless products and restrictions which made it difficult for citizens to exchange pesos for USD. 

View a complete analysis here and learn more about:

  • Currency & Trade Restrictions
  • Economic Overview
  • Comparative examples
  • Implications of nationalization
  • International fallout

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