The Malvinas versus Argentina

I hope someone has the cheek to send Argentine President Cristina Kirchner a copy of the Statistical Yearbook 2014 published by the Falkland Islands Government—preferably without giving too many hints of their identity, if they want to avoid serious trouble. Regardless of what one thinks about the sovereignty issue, few documents in recent memory are more humiliating for Buenos Aires.

In 1982, of course, Argentina and the United Kingdom went to war over the Malvinas (Falkland Islands), an archipelago in the South Atlantic held by the Brits since the 19th century and to which Argentina has a long-standing claim. At the time, there was little more than sheep farming. Now the islands’ three thousand Kelpers boast a per capita GDP of $122,000, not far behind that of Luxemburg, the richest country. If we take oil and gas exploration out of the equation, its per capita GDP equals that of Japan. What a contrast with Argentina, now in a recession, whose per capita GDP is just over $11,000 (about $18,000 in purchasing power parity terms).

Lo and behold, the Malvinas’ success has come about thanks to private enterprise, property rights and commerce, while Argentina’s failure has resulted from the severe dose of statism inflicted by Kirchner. The government of the Malvinas represents only 12 percent of the value “added” to the islands’ economy (if one must accept the fact that the government can add value to an economy); private enterprise in everything from commercial fishing to organic agriculture, transportation and retail services, and hydrocarbon exploration has done the rest. This, in a territory where after the war the Falkland Islands Company sold the sheep farms it controlled to the government!

In Argentina, by contrast, the Kirchner government has gone from absorbing 27 percent of the wealth produced by its citizens every year to 46 percent. It has engaged in a frenzy of nationalizations, including the private pensions that constituted the basis of the nation’s savings, and overtaxed the most productive segments of the economy. The only private wealth that has grown in terms comparable to those of the Malvinas is that of President Kirchner herself—by a factor of ten.

While private enterprise has been active in hydrocarbon exploration in the Malvinas, in Argentina the authorities nationalized YPF, the main oil and gas producer (an affiliate of Spain’s Repsol) in 2012. Through price controls, they ruined the industry, which has suffered from undercapitalization and production deficits. Buenos Aires even tried to prevent oil exploration in the Malvinas by making it a criminal offense for energy companies to drill near the islands. While oil majors such as British Petroleum and Chevron kept away, others disregarded the threats. Which is why Premier Oil, Falkland Oil & Gas, Edison, Noble, Borders & Southern and others have been trying to get their hands on the oil believed to be lying under the sea bed surrounding the Malvinas. Some has been found, and Premier Oil is the closest to production.

If Argentina is ever to persuade the Malvinas folks that they will be better off becoming Argentineans, it will need to start by looking at what those tiny islands have done for themselves.

A word of caution. The problem with wealth creation is that even the government that makes it possible by removing obstacles will eventually be tempted to get its hands on it. The Falkland Islands Government is already talking about a 26 percent corporate tax on future oil production. It sounds as if the Kirchner spirit may be spreading across the South Atlantic…

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