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Economy & Business - May-June 2012 (ISSN 1741-7430)

ARGENTINA: Provinces bear the brunt of the YPF takeover

“We are not Argentina or Venezuela”, insisted Colombian, Mexican and Panamanian officials at recent events with prospective investors in London, as they sought to reassure Europeans that investments in their jurisdictions were safe. Even before Argentina’s recent re-nationalisation of Yacimientos Petrolíferos Fiscales (YPF) from Spain’s Repsol, Foreign Direct Investment (FDI) in Argentina was already one of the lowest in Latin America in 2011, according to the UN [EB-12-04]. But the prospect of reduced FDI is not the only challenge facing Argentina in the wake of the federal government’s move on YPF. Many cash strapped Argentine provinces, which are already struggling under the weight of mounting fiscal deficits, are now facing higher interest rates in international financial markets as lenders lose confidence in Argentina as a safe destination for their funds. The provinces have little hope of being bailed out by the federal government, which itself has lost its twin (fiscal and trade) surpluses.

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