Madrid - Spain has threatened to retaliate against Argentina
for nationalising a Spanish energy firm, but Madrid will find it hard to put
pressure on a maverick nation that has been shut out of world debt markets and
has ignored international fines in previous disputes.
Argentine President Cristina Fernandez said this week she
would fulfil a lifelong dream and solve her country's energy shortage by seizing
control of its biggest oil company, YPF, a subsidiary of Spain's Repsol.
Madrid immediately threatened economic and diplomatic
“consequences”. But given Argentina's record with international investment and
the restrictions on what sort of retaliation Spain can take, the threat may
well be hollow.
"The threat really has very little credibility. What
measures can they take?" said Jose Ignacio Torreblanca, head of the Madrid
office of the European Council on Foreign Relations.
He said Argentina has little investment in Spain, while
Spanish companies with investments in Argentina's highly regulated
telecommunications and utilities sectors could suffer if tensions escalate
between the two countries.
Under Fernandez and her husband and predecessor, the late
Nestor Kirchner, Argentina has antagonised investors but still enjoyed strong
economic growth and growing employment on the back of high prices for soy
beans, its biggest export.
However, persistent investor jitters mean foreign investment
in Argentina has fallen behind more business-friendly countries such as Brazil,
Chile and Peru.
Given the business environment in Argentina, Repsol had
already been working on scaling back its exposure to the country, so the effect
of the nationalisation will be limited.
Argentina hasn't paid settlements
There is little leverage outsiders can put on Argentina
except, perhaps, China, which buys 75% of Argentine soy beans and much of its
processed soy as well.
Under the rules of the World Trade Organisation (WTO) and
the European Union, Spain cannot take unilateral trade action against
Argentina, say by restricting imports of Argentine biodiesel or soymeal.
Its main recourse would be to take the Repsol-YPF case to
the World Bank's International Centre for Settlement of Investment Disputes,
known as the ICSID, to demand fair compensation for Repsol over the
expropriation.
But Argentina could argue that it is in its public interest
to expropriate YPF and a fight over the valuation of the firm is already on, as
Argentina has said it does not intend to pay the $9.3bn Repsol is demanding for
its 51% of YPF.
Argentina also has a bad record at the ICSID. Fully
one-quarter of all global cases handled by the body have been brought against Argentina.
"Argentina is among the worst in terms of compliance
with ICSID judgments, if not the very worst," said Ana Palacio, a former
secretary general of the ICSID and former Spanish foreign minister.
In March, US President Barack Obama said he would suspend
trade benefits for Argentina because it has failed to pay more than $300m in
compensation awards in two disputes.
European Union officials have publicly lamented Argentina's
move against Repsol, but Torreblanca of the European Council on Foreign
Relations said the EU would give little more than moral support to Spain.
An EU trade official said Spain cannot limit any imports
from Argentina without winning a dispute at the WTO. The EU's 27 members would
also have to agree on the limitations.
“We don’t do tit for tat.
"Just because there is a knee-jerk action by Argentina
does not necessarily mean that there should be a knee-jerk reaction from the
European Union," said another EU official, who asked not to be named.
Global rule-breaker
Despite years of warnings that Argentina risks isolation,
Fernandez has reinforced the country's reputation as a global rule-breaker,
which began when it staged the biggest sovereign debt default in history in
2002.
And with the YPF move Fernandez has only cemented policies
rooted in an ideology that has aligned Argentina with Venezuela's leftist
President Hugo Chavez.
Argentina has repeatedly flouted world trade rules - drawing
criticism from 40 countries earlier this year - by restricting all kinds of
imports as it tries to reduce its trade deficit to increase foreign currency
reserves to use to pay down debt, since it cannot access global credit markets.
Private companies, both domestic and foreign, have long been
cowed by Fernandez and Kirchner, who have publicly called for boycotts or
launched tax investigations against companies that got on the wrong side of
their government.
The Argentine government even has an enforcer, Domestic Commerce Secretary Guillermo Moreno, who personally calls company executives to warn them to keep down prices of products and limit purchases of foreign currency.