Argentina’s Energy: What Can We Expect From Javier Milei?

On December 10^th we witnessed President Javier Milei’s inauguration in Buenos Aires. Considered by many a controversial, far-right libertarian, Argentina’s new head of state is thought of as a wild card for many. At the same have also seen a return of the “conventional” right into his cabinet. So, what can we expect for Argentina’s energy sector?

The South American country has a wide range of natural resources at its disposal; relating to energy it has a strong potential for shale oil and gas, hydroelectric generation, biomass, and battery metals—notably lithium. With such endowments, it is not only important for global commodity markets; it has a strategic role to play in the energy transition.

President Milei’s win in the second round meant, for most financial markets, good news. While the peso fell against the dollar, in New York Argentine stocks and bonds shot up on news of his victory. In particular, investors scrambled for shares in YPF, the state-owned oil and gas firm, formerly a subsidiary of the Spanish Repsol.

Who is calling the shots?

Argentina also has a strong labour movement that is expected to put up resistance to austerity measures and privatisations. They were a large obstacle for former president Mauricio Macri (2015-2019). His attempts to implement a neoliberal agenda met with strong opposition. In the end, he could neither fully deploy his policies nor bring his opponents on board: he was a one-term president, and the Peronists that preceded him came back to power.

Although Sergio Massa lost the election, the party he represented and affiliated organisations have deep roots. From day one, these mass organisations have already said they will take to the streets. They are still the largest single coalition in the legislative houses—remember that Massa was the most voted in the first round. We can expect them to act as with the presidency of Mauricio Macri, potentially turning the country into an ungovernable mess.

Incidentally, Milei’s policies will rely on Macri’s party: Juntos por el Cambio (commonly abbreviated as JxC). The new president’s party is only the third-largest in both legislative houses, and he will need a stronger ally every step of the way. This means that JxC will set much of the agenda, or Milei will face a hostile congress.

Before the election, few envisioned the almost complete takeover by the “conventional right” of Macri of Milei’s cabinet. The Defence, Security, and Economy—which includes the treasury—ministries are in the hands of key figures from the former president. For Energy, we have a former advisor to an older government: that of Carlos Menem (1989-1999), known for mass privatisations.

The Secretary of Energy will be Eduardo Rodríguez Chirillo, a lawyer and consultant who has also worked for Spain’s Iberdrola. The department, previously under Sergio Massa’s “economy super-ministry” will be within the Ministry of Infrastructure, with career consultant and executive Guillermo Jose Ferraro.

Plan for energy: Let private decide

We already discussed the defeated opponent, Sergio Massa’s grand plans for energy exports, to solve the trade balance deficit. What does Milei intend? So far, the plan is essentially to carry out a laissez-faire policy, and we can see signs for privatisations of state-owned enterprises, notably YPF—just as it was promising large increases in shale production from the Vaca Muerta field.

Among Massa’s plans were to complete the pipeline network that would first serve to fulfil domestic demand, and then take oil and gas to Argentina’s ports. Many parts are already complete, so it is easy to expect the project to be finalised, even in private hands.

Argentina already experienced a wave of privatisations in the 1990s, with former president Carlos Menem. They included water, railways, and other public services and industries. This policy was widespread across the region and the developing world, after a cycle of “developmentalism”. Up until that point, it was favoured that states intervened heavily to promote industrialisation and modernisation.

At the time that Menem came to the presidency—though he came from the Peronist movement—state-owned enterprises had built a reputation of overburdening the state and the economy with inefficient subsidies, tariffs, and other costs. Argentina, like other countries, had heavy debt burdens to clear.

With privatisations, came fast growth, but it became a bubble that burst. Investment rushed in, only to rush out a few years later. GDP per capita rose from $2,382 in 1989 to $7,753 ten years later. But by 2002, came the crash, and the same measure was at $2,580—using World Bank data.

Argentina and the broader region face problems beyond the private versus public dilemma. On one hand, the state sector has shown that in many cases it can be overly bureaucratic, corrupt, and subsidise failing firms. On the other, privatisation becomes plunder when there is no incentive to reinvest in the country. Many Argentinians remember what happened to its railways: they were sold, and the new owners allowed them to run down as they took the money abroad, rather than reinvest it.

Source : Forbes