Two weeks ago, I wrote that the government of Argentina was contemplating a takeover of the former national oil company YPF SA (YPF). Yesterday - April 16 - in the afternoon, the La Nacion reported that President Cristina Kirchner has sent a bill to the legislature authorizing a government takeover of YPF. According to the paper, the Argentine government will own 51% of the oil company and the provinces will own the balance. There is no reason to believe the legislature will not pass the bill.
Government leaders from Latin America, including Mexico and Chile, plus the Spanish government have condemned the action. The current administration running Argentina has a record of ignoring the desires of other countries in the region.
The underlying reason for the Argentine government actions is a coordinated attempt to keep capital in the country. On the energy front, the country imported about $10 billion worth of oil and gas in 2011, which counts as outgoing capital. The push is for more exploration to increase in-country energy supplies. During the recent summer vacation, the country posted cash sniffing dogs on the borders to keep wealthy citizens from moving dollars to Uruguay during their annual vacation to the Punta del Este beaches. Free trade agreements with Brazil, Paraguay and Uruguay are being ignored to slow imports and the outflow of cash. The government is happy to sell exports such as grains and manufactured goods, but does not want money leaving the country.
For investors, this means that high yield Argentine ADR stocks could be restricted from paying out dividends to foreign investors. Examples are Telecom Argentina S.A. (TEO) with a posted 10% dividend yield, BBVA Banco Frances S.A. (BFR) with a 19% yield and Petrobras Argentina S.A. (PZE) currently yielding 3.7%. All of these ADR stocks are extremely dangerous for U.S. investors.
The actions of the CFK administration appear to be the work of some one desperate to stave off a collapsing economy. However, somehow Argentina seems to always take these actions in stride and somehow muddle through situations which would turn other countries into Greece. Ms. Kirchner was re-elected in 2011 for another four-year term, so investors should cross any investments from the country off their list for at least the next three years.