The move is widely considered an economic catastrophe for Argentina but the nationalization of former state oil enterprise YPF, a hallowed mark in Argentina, will not only address energy and cash shortages but may also shore up the president’s popularity.

Yet, many find this most recent move by Cristina Fernández disturbing because, like Venezuelan President Hugo Chávez, she has increasingly turned to spending central bank reserves, imposing currency controls, and raising barriers to trade to prop up Argentina’s flagging economy.

YPF’s oil fields have logged decreased output for years. Long-term, bringing YPF into government ownership and, concurrently, any profits generated will likely have the same impact in Argentina as it had in Venezuela: decreased output and competitiveness.

Criticism of Repsol and the Reasons for Nationalization of YPF

Cristina Fernández has criticized Spanish oil company Repsol, the owner of the remainder of YPF, for not properly utilizing Argentina’s reserves of gas and oil obtained from unconventional sources. Meanwhile, private investment will likely sour at the prospect of nationalization. Further, Argentinean fuel price controls insure an atmosphere in which investment in developing new reserves is not only discouraged but actually economically unwise.

On top of Cristina Fernández‘s nationalization of YPF comes a push for constitutional reform that would create a more parliamentary style government and allow her to run for president without term limits.

While many in Latin America and Europe, particularly Spain, have criticized this shift toward more socialist style policies in Argentina, Brazil and Uruguay, two of Argentina‘s neighbors, have praised Cristina Fernández‘s economic reforms. In addition to seizing a privately held business, Argentina also remains in default to the Paris Club and has not paid out monies it owes due to a settlement in favor of foreign companies from the World Bank’s International Settlement of Investment Disputes.

See Also: After a Two Month Detention in Ghana, Argentine Ship ARA Libertad Released

Argentina seizes control of YPF

[The Economist]