Financial Times: Kirchner's folly: “Mr Kirchner's decision to order a boycott of Shell has sent out exactly the wrong signal to the private sector” (ShellNews.net) 14 March 05

Published: March 14 2005

There was always a danger that President Nestor Kirchner would use Argentina's successful debt restructuring as a trampoline for an aggressive and populist approach towards Argentina's economic problems.

And so it seems to have proved, at least judging by Thursday's ill-judged decision to order a boycott of Shell's petrol stations after the company increased prices by up to 4 per cent.

With one eye on the electoral calendar, Mr Kirchner may feel that such tactics will boost further his popularity. Unfortunately they can only make it more difficult to attract the investment needed to ensure that a cyclical economic recovery is converted into sustainable long-term growth.

Two weeks ago the unexpectedly positive response by creditors to Argentina's ungenerous debt exchange offer gave the president a perfect opportunity to confront the residual problems stemming from the financial collapse of 2001.

In particular, utility companies have not been allowed to pass on increased costs to customers. They need to be able to do so if they are to be in a position to make fresh investment.

More generally, although Argentina's economy has been growing steadily, expanding by more than 8 per cent in 2003 and 2004, there are signs that capacity is being stretched in a number of sectors, a development that underlines the need for an increase in investment and is also indirectly contributing towards inflationary pressures.

With its debt burden still about 75 per cent of gross domestic product, Argentina has relatively little leeway to increase capital spending by the public sector, so it has to persuade private companies to invest more.

Instead, Mr Kirchner's decision to order a boycott of Shell has sent out exactly the wrong signal to the private sector. As Latin America found out to its cost in the 1980s, price controls do little to dampen inflationary pressures or attract fresh investment.

The deployment of demonstrators from the unemployed movement - the so-called "piqueteros" - to block petrol stations reflects an official tolerance for the politics of the street that will further dampen business confidence.

To make matters worse, the campaign is likely to end up mainly damaging the franchise owners that run Shell's petrol stations, exactly the kind of small business that Mr Kirchner wants to help.

The most obvious alternative would be to make efforts to negotiate commonly accepted rules of the game with the private sector and establish an effective and consistent regulatory regime in order to assuage public concern about possible abuses.

Over the past 15 years Argentina's neighbour Chile where Mr Kirchner is making a state visit today has with some success blended social objectives with the requirements of a dynamic market economy. The Argentine president would do well to study its example.