On Monday Argentina's government announced that they will seize control of YPF in a latest move of increased government intervention and state control. Over the weekend Cristina Kirchner furiously walked out of the Americas Summit in Cartagena after she was not granted uncompromised support against the UK over the persistent feud concerning the Falkland Islands.
These are only the most recent developments that leave statesmen and investors alike worried about the political and financial future of Argentina. It also sounds awfully similar to previous economic disasters that largely wiped out the country's middle class, which took years to recover after the most recent crisis of 2001.
Kirchner's conduct was not entirely unforeseeable. She nationalised private pensions during the financial crisis in 2008 and passed legislation that effectively allows her to use foreign currency reserves as her piggy bank. Yet, it seems like the aggregative effect as well as the increased lack of capital-friendly economic policy is what will ultimately bring the country over the cliff. The Economist has stopped using Argentina's official inflation figures and instead employs an alternative, private measure in its publications. It is widely known that inflation rages at around 20-30% with wages barely keeping up - in a country that was devastated by hyperinflation in the 1980s.
Growth driven by vast commodity resources and the agricultural sector has kept the population at ease. But Argentineans are increasingly aware of what is happening and have chosen to vote with their feet. Capital flights have been estimated at around US$ 10.2bn in 2011 alone. Further capital controls have made it increasingly difficult to shift money out but citizens are circumventing regulation, with money stored and transactions carried out abroad. There already exists an informal market for dollars with exchange rates at around 10% below the published rate.
Having said that, I am sitting in a parrilla, enjoying a bife de chorizo while writing this article. Argentine steak culture will survive once more as it has in previous crises. Unfortunately, this seems to be the attitude of the poorly organised political opposition as well, which is no match against Cristina Kirchner's surging popularity after her husband's death 18 months ago.
Economists claim the existence of two economic wonders: Japan's economic success given its lack of land, natural disasters and nonfavourable climatic conditions and Argentinas lack thereof given its fertile pampas and perfect temperatures. With Japan struggling and inflation, capital flights and a powerless opposition, it is only a matter of time until Argentina's economy is drenched in tears again.