Argentina’s President Christina Kirchner launched the Kirchner Era’s latest heterodox initiative by announcing that the country’s largest oil company, YPF, will be forcibly nationalized. A public sector takeover of a privately owned firm is always a big deal, but this is a particularly big deal for three reasons. One is that YPF’s majority owner is a Spanish energy company called Repsol which has managed to turn this into an international issue. A second is that YPF was a publicly owned firm for decades after its founding in 1920, and only privatized in the 1990s as part of a big wave of Washington Consensus reforms, so this is read as a sign of a larger shift in the winds. The third reason is that I’ll be flying to Argentina on Friday for my honeymoon so if accelerated capital flight and precipitous decline in the value of Argentina’s currency are going to occur I’d like them to occur quickly.
More seriously, Argentina’s trajectory over the past couple of years tends to highlight what I think is some of the reasoning behind insistence on policy orthodoxy even in situations where it’s counterproductive. The logic is basically that a country that uses currency devaluation and debt repudiation as a policy tool risks falling into a “once you pop, you can’t stop” trap. Argentina got a nice growth pop out of its devaluationa and default about a decade ago but now seems arguably addicted to policy measures like pension nationalization, capital controls, and now seizing whole foreign-owned companies all of which will tend to reduce savings and investment in the country and stifle long-term growth. Then there’s the Big Mac funnybusiness designed to hide inflation.
As a counterpoint, I would say the lessons of Argentina aren’t that you should stick with orthodoxy even when it’s inappropriate. The lesson is that you should do the right thing all the time. It was addiction to hard money orthodoxy that killed Argentina’s neoliberal era and now it’s addiction to these expedients that will ultimately kill off its populist era. The European concept of pairing labor market reform in Spain and Italy with misery-inducing fiscal austerity and too-tight monetary policy mostly serves to ensure that reform will be an unpopular political failure. Successful countries like Sweden manage to zig when you should be zigging and zag when you should be zagging.