WELCOME REFORMS IN ARGENTINA

International oil companies have reasons beyond the obvious to applaud Argentina's latest step in petroleum industry privatization. Yet even by themselves the obvious reasons are welcome and significant. The Peronist government of President Carlos Saul Menem apparently intends to finish the industry reform it began late in 1989. The result should be a full menu for companies scouting the world for opportunities.

Sept. 23, 1991

3 min read

The Peronist government of President Carlos Saul Menem apparently intends to finish the industry reform it began late in 1989. The result should be a full menu for companies scouting the world for opportunities.

Now-unprofitable physical assets of state owned Yacimientos Petroliferos Fiscales-including producing properties, refineries, pipelines, tankers, and distribution facilities-will be sold. For the first time, acreage in the Austral basin and perhaps other central areas will become available to private companies through joint ventures with YPF, instead of under service contracts as before. Next year the government will sell 50% of a streamlined YPF through an international stock offering. It also will sell assets of Gas del Estado to private investors.

TERMS CRITICAL

Pitfalls exist, of course. The government will have to get the terms right. Competition is fierce for international petroleum industry capital these days. Non-Argentinean companies haven't always been pleased with the government's participation terms, especially its provisions for repatriating profits from oil and gas production. So far in the latest privatization step, all the international industry has heard is an expression of intent; the deal making has yet to begin.

Still, the expression of intent seems clear enough. "If Argentina's oil industry is to grow," says YPF President Jose Estenssoro, "it's going to grow because of participation by the private sector." Refreshing words, these.

New opportunities are just the obvious reasons for private oil companies to cheer. Less obvious but more significant is the prospect that the rest of Latin America will follow Argentina out of the state-centered economic muck in which too much of the region, largely for antiquated nationalistic reasons, languishes now.

Argentina changed because it had to. By the late 1980s, decades of statist inefficiency had sapped what once had been Latin America's most advanced economy to the point of near collapse. When Menem began privatizing the petroleum industry and others, lifting price and wage controls, and rationalizing tariffs, he wasn't just responding to his country's deprivation; he was trying to overhaul Peronist party orthodoxy. The process has been anything but smooth. But the early results are an apparent end to the wild inflation of a few years ago and signs of genuine economic growth.

Better still, Argentineans seem to recognize that a large dose of capitalism, harsh though it be in the early going, is what their country needs. Earlier this month, they voted for Peronists in most key gubernatorial and congressional elections. The outcome amounted to strong ratification of Menem's political and economic reform.

GETTING THE MESSAGE

It's too bad Argentina had to fall as far as it did, victim to the quaint and dreadful notion that government can create and sustain wealth. At least it recognizes a message in the economic wreckage. It seems determined to get on with the business of making real its rich potential and developing its abundant resources by freeing its people to create and prosper.

If it works, the transformation should provide a model remedy for other Latin American countries now choking on statist economic poison, in many cases patterned after the Peronism of yesteryear. It will work if Menem and his successors stay on course and make the right deals.