The Falklands Discussion: Some Interesting Comments on Argentina and its Foreign Policy

In a recent discussion on Argentina’s expropriation of YPF there was much commentary on how the Falklands issue was still one of great importance. Seeing Argentina as independent and able to move ahead, despite having poor relations with the Europeans, created a healthy debate on the issue. As the moderator of the posts I create, I tried to give differing perspectives not often seen in English language media. I believe placing this discussion as part of its own post will give the issue the attention it deserves. Comments and responses are presented below:

Camila asks: do you think is possible for a country to survive without foreign investment?

Response: I think it can be difficult to survive without any investment, and even for Argentine investors they would lose money with a nationalisation of a Spanish oil company or a Argentine toy maker, the issue is that if it becomes too risky to invest, all investors; even portenos, would have issue with putting their money at risk. I think what occured was that Chinese investment plus future oil revenues plus a negative image of Repsol’s actions over Argentine oil plus oil getting into the Falklands issue gave Cristina Kirchner enough reason to nationalise, but what I do not understand is whether or not she believes she can expropriate YPF and not pay compensation. Even Iran paid compensation after 1979 to European and American companies, as did Chavez not long ago..I think she will end up compromising in the end as actions like that could destroy Repsol or similar companies and it is extremely risky to buy a home or company or invest if the government can take it away at any time without compensation. The way it was done has no balance, and no one wants to return to 1938 when Cardenas in Mexico nationalised a British oil company. A good question is whether she would do the same if Sinopec had majority share in YPF?

John states: There were no indigenous peoples inhabiting the Falkland Islands before the first Europeans arrived and after 1833, British control and possession was asserted, which by 1850, Argentina had agreed to respect. Unfortunately, with the violent invasion of the Argentine Military Junta on 2 April, 1982, all prior negotiation and any UN “anti-colonial” discussions were set aside. With liberation of the Falkland Islanders on 14 June 1982, their British citizenship was confirmed and the Islanders have expressed no interest in being a part of Argentina. The UN Charter supports self-determination, which is what the Falkland Islanders desire, under the protection of Britain. Britain has included the Falkland Islands as one of its listed Overseas Territories for the EU, just like that of Denmark, France, Netherlands and Spain. Argentina has no right to impair or impede Falkland Islanders commerce, as it seeks to do with its blockade efforts of cruise ships, its attempt at legal blackmail of oil exploration, or its refusal to cooperatively manage fishing with the Falklands. It was very good that both President Obama and Canadian Prime Minister Harper stood up for the Falklands and prevented a Latin America “consensus” statement at the recent Summit of the Americas conference in Cartagena.

Response: Yes, the Summit of the Americas did show the clear divide between Canada and the US and the rest of the Americas, but that divide has a good chance of extinguishing the OAS and other American dominated agencies altogether over many issues like Falklands. The support by almost all countries in the region may not be agreed with, but should be taken seriously as their protests have real consequences. The UK and Argentina should both enter serious discussions where all points of view are considered as there are many regions that have gone to one power or another when the rules benefitted one power over the other, and then have changed for mostly political reasons as opposed to legal ones. Regarding having cultural heritage, many ex-Soviet countries have large ethnically Russian minorities that change the balance of power between the West and East in the new independent republics, but it is not a determinant of who claims sole possession of a territory or their policies, as well I will not get into the Middle East, but land claims and references to international standards by one party or another do not always produce effective solutions. Israeli author Amos Oz said that in order to produce a real peace in his disputed territory, he would shut off the microphones of any delegates that brought up the past, as it will never lead to any solution. Speaking of Canada, a former British colony itself, there have been many violent protests between native groups and the government over old British treaties that favoured the Crown and gave some concession to the native populations in Canada, but were not honoured by Britain or Canada afterwards as claimed by the natives. Whether one agrees with their protests or not, the end result of claiming rights over disputed territory without giving a voice to the other side often pushes issues into armed conflict when there is no forum for discussing the issue or when the more powerful of the parties dominates the decision making process. The Falklands may be a more black and white issue than most, but there certainly is no solution in any full claim by either side in the matter.

Fellow Blogger Chris Celius asks: Do you think Kirchner’s move makes good economic sense and developmental sense for the country, given its huge debt. I assume that investors will be compensated. Otherwise her move would backfire and chase potential investors as a result.

Response: I happened to study an entire law course on this very issue and since 1938 there has never been a positive view of any expropriation by any investor anywhere. Not counting 2001 and its shrinking debt due to exports to China, I think Madam Cristina figured future oil revenues, her popularity, and a strong destination for her exports would benefit her more in the long run. I can see her point of view in some ways as often middle powers can be more nationalistic over their natural resources (I live in a similar place) and she might make enough revenues this way to pay away Argentina’s debts, but everyone needs investment and it took her and her late husband over 10 years to bring credit back to Argentina. She likely torpedoed the country’s reputation once she fired her Central Bank chief (I saw him in person a long time ago, he apologised to us for Argentina’s bad economic policies before his term) and then issued this expropriation. If it was legal, when members of her party claimed no compensation will come to Repsol, it went well beyond the accepted norm in international law. This is why the past Central Bank chief fought with her, as he knows such policies make economists into engineers as it burns all bridges to investment from abroad. Legally, expropriations can be done in a legal manner and it is similar to a situation everyone can relate to in their own towns and cities. It happens on occasion that some city projects need to build a highway or other public works and a private citizen’s house is in the way. For the public good they would have to take your home, but they need to compensate you fully and in a fair way, considering any future profits you might have made from your home. You should not incur a loss for the benefit of a public good, and if you were a foreign national living in Buenos Aires no one should be able to take your home over your neighbour, as your property rights should be protected. Before the 2008 Olympics in China, to build one of the stadiums some private homes had to be destroyed. I do not know if those Chinese citizens were compensated, or compensated enough, but it angered people enough so that the Olympic committee had to deal with protests over the treatment of Chinese citizens for the sake of some sporting events no one cared about. Even if those homeowners had no rights under Chinese law, the natural right for someone to have their own place truly exists and Chinese citizens are well aware of corruption and issues with their government that could possibly take their basic rights away. So if you were an average investor, would you buy a home knowing that in a year it might be torn down to build a road? Likely not, even if you were compensated. Would you then buy the same home knowing that you will lose your investment and home in the same period of time? Whether you are local or foreign, you would put your money in a safer place. I doubt Repsol would not be compensated in the end as while YPF can be expropriated legally, under the current international laws and I assume many local laws in Argentina, compensation not only needs to be given, but must be given in full with future profits included. If Argentina pays billions in this case, any funds earned from taking YPF would be paid out and cost Argentina in the long run. I agree they should have a national oil company, but this way of creating it makes investment too volatile, even if Cristina’s intentions are noble.

Please feel free to add to the debate on Argentina’s foreign policy. Much thanks, Rich.