The history of YPF can be traced back to 1922 when it started as a state corporation. It became the first state corporation in the world to deal with oil. The company was later privatized in 1993, following the passing of the State Reform Law in 1989. After privatization, majority of its ownership was acquired by Repsol, which was Madrid based. Repsol’s ownership at the time of nationalization accounted for 57.4% shares in YPF. Privatization caused YPF to perform poorly. Between 1999 and 2011, the reserves of natural gas and crude oil also fell to 67% and 60 respectively (Shever 83). Similarly, the general output of the firm also reduced. The reduction accounted for 54% of the country’s loss in oil production.
According to Repsol and analysts, the government of Argentina was to blame for such decrease, because it controlled exports, prospective leases, and domestic price controls. Repsol was accused of under investing the company and not keeping pace with the changing economic needs of Argentina. The nationalization of the company was received with mixed reactions. However, the government of Spain criticized the move while the Argentines highly welcomed it. Argentina later began importing oil in 2010, yet it had sufficient oil deposits and resources for its exploitation. Therefore, this paper seeks to discuss the economic, social, and legal effects of nationalization of YPF by the government of Argentina.
2.0 Economic effects of the Nationalization
Nationalization brought with it a number of effects. Different arguments have been raised for and against it. It is believed that the move was likely to affect Argentina, YPF and the world in general. The effects are either positive or negative, and ranges from social, economic and political. It is worth noting that when the company was run as a private company, Argentina suffered capital flight, increasing inflation, increasing government expenditure, and economic instability of the country. In addition, the company suffered decline in its oil production thus leading to an oil crisis that required a remedial action. Therefore, the expropriation bill was geared towards enhancing economic stability and providing solutions to the aforementioned economic problems.
2.1 International
The move to nationalize YPF has lead to a decline in Foreign Direct Investment (FDI). Nationalization was announced without proper procedures and the government has since blocked all the means of resolving the dispute. This raised questions on the uncertainty revolving around regulation of businesses, increasing diplomatic isolation and the probability of continuous unpredictable government policies. Therefore, investors tend to shy away, thereby affecting FDI in the main sectors of the economy (Philip 46). Currently, highly rated international companies are quitting sensitive sectors where there is fear of government’s interest. In addition, a lot of hurdles have been placed for foreign companies such as foreign exchange controls, import and export quota, high rates of import taxes and regulated prices. International companies holding shares in Argentina’s companies have also began selling their shares in fear of seizure without compensation. This has also lead to general decline in the foreign direct investments in the …