RESOURCE NATIONALISM IN ARGENTINA

C O N F I D E N T I A L BUENOS AIRES 000103

SIPDIS

SIPDIS

STATE PASS EEB FOR GLENN GRIFFIN

E.O. 12958: DECL: 01/27/2018
TAGS: AR ENRG EFIN ECON EMIN EINV EPET PGOV EAGR
SUBJECT: RESOURCE NATIONALISM IN ARGENTINA

REF: A. 07 SECSTATE 150999

B. BUENOS AIRES 58

C. 07 BUENOS AIRES 2313

D. 07 BUENOS AIRES 1892

E. 07 BUENOS AIRES 1819

F. 07 BUENOS AIRES 1278

Classified By: Ambassador E.A. Wayne, Reasons 1.4 (b and d).


1. (U) Post's response to Reftel A inquiry about the presence
of resource nationalism in Argentina is tracked to reftel
questions.

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EXAMPLES OF ACTIONS/POLICIES MOTIVATED BY RESOURCE
NATIONALISM
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2. (C) The Government of Argentina (GOA) has in recent years
enacted frequent changes of rules that have affected
hydrocarbon and mining activities and can be at least
partially attributed to resource nationalism. Recent
examples include the increased export taxes on crude and
refined hydrocarbons, the 2006 unilateral abrogation of tax
exemption laws in the far southern province of Tierra del
Fuego, and the November 2007 enactment of new federal mining
export taxes (ref C). The GoA also recently began to apply
to the downstream oil industry the Peron-era Supply Law,
which obligates companies to provide sufficient supply to
meet demand, even if it means operating at a loss. This has
reduced downstream margins by requiring companies to import
diesel at high world prices and sell to local consumers at
much lower local prices. If they do not comply, firms face
fines and even possible prison terms for company executives.
The tax measures have increased resource nationalism in the
sense that they have increased the GOA's share of sector
rents and also have encouraged some foreign companies to sell
their assets, often to local parties favored by the
government. However, it is important to note that there are
other compelling GOA motives for increasing hydrocarbon and
mining tariffs and taxes: to maintain domestic prices below
world market levels in the cases of oil and gas (by making
their exports more expensive),and to strengthen GOA revenues
in order to maintain a healthy fiscal surplus. These motives
were probably a higher priority for decision makers when
imposing the questional measures.


3. (C) Another important example of resource nationalism has
been more subtle -- and controversial. The GoA has
intervened directly and indirectly in the hydrocarbon,
mining, and broader utilities (natural gas, electricity,
water) sectors. GoA actions include frequent and often
arbitrary changes of rules and regulations, increased taxes,
and frozen electricity tariffs. These interventions have
devalued existing company assets and are a strong
disincentive to investors. Foreign oil, gas, and mining
companies have told Post that they consider Argentina to be a
less attractive place to do business than many other
competing venues. As noted above, over the past decade some
companies have decided to reduce investments, sell their
(often discounted) assets, or abandon Argentina alltogether.
Some private sector analysts have openly speculated that this
sometimes difficult business environment has made it easier
for local and sometimes well-connected businesses to take
over these assets at a discounted price. The GOA has openly
stated its desire to increase ownership by Argentine
companies and individuals of Argentina-based assets. Over
the past two years alone, energy majors CMS, Total, and
Electricite de France have departed the Argentine market,
selling their assets cheaply to local interests (ref D).
Spain-based Repsol/YPF recently sold a 14.9% share of YPF to
a local banker (ref F). Media reports also speculate that
Esso's reported interest in selling its local assets are
motivated at least in part by the same reasons (ref D).

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INCREASING NUMBER OF SUCH ACTIONS?
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4. (C) In recent years, from the beginning of the post-crisis
recovery in 2002 to the present, the general trend of
resource nationalism, as described above, appears to be
increasing.

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BENEFICIARIES OF RESOURCE NATIONALISM
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5. (C) The beneficiaries of these policies, whether
explicitly intended or not, appear to be those local
companies and individuals, and in some cases, those who are
close to senior GOA officials.

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ADDRESSING RESOURCE NATIONALISM?
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6. (C) Post is in regular contact with U.S. companies
operating in Argentina and affected by GoA actions that have
complicated doing business here. Due to high world commodity
prices, many companies in the affected sectors continue to do
well, or at least adequately, and most expect the situation
to improve over the next five years. Given current
(hopefully temporary) bilateral tension between the USG and
GoA, any USG action, public or private, should be limited so
as to avoid a backlash (perceptions of U.S. interference,
ulterior motives). Even in the aftermath of a bilateral
rapprochement, high-profile USG action would likely inflame
this country's historically rooted resource nationalism
tendencies, and could complicate the situation of U.S.
companies. This is not to say that there is nothing that can
be done to influence Argentine thinking. In a low-key
manner, we seek to identify reasonable interlocutors within
the GOA leadership, media, and in civil society and talk to
them, in a non-didactic way, about the costs of heavy-handed
intervention in the economy overall, and in the
hydrocarbon/mining extraction sector in particular. Our
message is that, whatever their motives, such policies harm
the economy and national development and scare off potential
investors. We argue to Argentine interlocutors that open
economies have proven more effective than interventionist,
autarkic ones in dealing with the development challenges
posed by our globalized international economy.


7. (SBU) Post believes the best course of action is to
continue to reinforce our low-key, company-specific and to
date effective advocacy in this often difficult market, and
to also continue to emphasize the benefits of U.S. investment
to GoA leaders and the Argentine public. We also believe
that building on Post's already prodigious efforts will
positively affect Argentine views. In order to refine and
coordinate our message, we also will continue to consult
regularly with other embassies, companies, and IFIs in
relation to resource nationalism.

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COMMENT
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8. (SBU) GoA leaders likely believe that there is real
political value to intervening in natural resource-related
markets, as such actions are seen by many of the government's
core constituencies (particularly by organized labor and the
poor) as demonstrating renewed sovereignty over Argentine
resources. According to polls, the Argentine public by wide
margins is suspicious of foreign investment and foreign
control of national industries. INR's Office of Research
September 2007 Opinion Analysis on Argentina's future noted
that "in studies going back more than a decade, Argentines
have been consistently distrustful of trade agreements and
foreign investment." The report continues that Argentines
believe that more open trade transactions with other nations
and FDI is a zero-sum game, with Argentina likely to be on
the losing end. The same report indicated that by strong
majorities the public believes that the state should be more
involved in all aspects of the economy. Therefore, GOA
actions to reassert control over national resources conform
to a inherent, longstanding bias in Argentine public opinion
towards such an approach.
WAYNE