Renationalization Under the Kirchners

November 23, 2016

In the early 2000s, re-nationalizations swept several South American countries, but few paid attention to this policy trend. This article fills the vacuum in the academic literature by showing how ideological and public opinion factors, which were largely ignored in previous works on regulatory governance, can integrate institutional models in explaining the renationalization process that occurred in Argentina between 2005 and 2013.


Government Opportunism in Argentina

On December 23, 2001, Argentina defaulted on $100 billion in private foreign debt obligations, the largest in the world to date. On January 4, 2002, Congress passed the Law of Economic Emergency, 25.561, which expanded the executive discretionary powers inherited from President Carlos Menem (1989-99). Among them was the clause that terminated the 1991 Convertibility Law (pegging the Argentine peso to the U.S. dollar), which prompted a devaluation of 70 percent within a year; but it also allowed the government to freeze all utility rates and set their benchmark in pesos rather than dollars; set new prices; and renegotiate privatization contracts signed in the 1990s.

Provisional President Eduardo Duhalde (2002–03), created the Comisión de Renegociación de los Contratos, CRC, which quickly put privatized firms on the defensive. A massive devaluation and creeping inflation made foreign and domestic inputs very expensive, since tariffs could not be adjusted accordingly. In 2002 alone, company earnings in water, telephone, electricity, and gas declined on average by two-thirds and continued to deteriorate in the next twelve years, forcing many investors, particularly in water and sanitation, to leave the country.

The crisis fostered public opinion and ideologies against the neoliberal reforms of the 1990s.  This paved the way for a further expansion of presidential powers that had already occurred under Peronist Menem and the redesign of regulatory governance espousing a statist agenda, which sanctioned into law government opportunism (defined as the incentives to expropriate resulting from institutional failures in regulatory governance) under the presidency of Nestor Carlos Kirchner (2003-2007) and Cristina Fernández de Kirchner (2007-2015). Following Spiller and Tommasi (2007) framework of analysis, this article shows how the concept of government opportunism can theoretically explain the causal link between regulatory governance and re-nationalization.  The argument presented here adds two contextual factors to Spiller and Tommasi’s institutional thesis.  This can better explain the nature of Argentina’s renationalization (when government takeovers targeted mostly money-losing firms) than could be possible by using recent models focusing only on commodity firms.


Ideology and Public Opinion

Public opinion and ideational factors contributed to this dramatic turn of events, as mentioned earlier.  According to a 2000 poll, 48 percent of the population still opposed re-nationalization while 36 percent favored it, but two months before the presidential elections of 2003, the latter group had risen to 68 percent. More specific polls on the performance of privatized public utilities confirmed the trend. By the mid-2000s people’s assessment of privatization had become very negative (Post and Murillo 2013).  For pollster Carlos Fara, the economic crisis of 2001 was the turning point as confidence in the neoliberal model broke down and fueled a more nationalist attitude and the demand for a greater state presence in the economy.

Between 2000 and 2010, Argentines displayed consistently one of the lowest levels of support for privatization in Latin America according to the Latinobarómetro. Not surprisingly, facing re-election, so did their legislators. Whereas in 1998 more than 30 percent of Argentine legislators favored the privatization of public utilities, in 2004 only 15 percent remained of the same opinion. Conversely, those who opposed it doubled during the same period (Urbiztondo et al. 2009:30). According to Fara, NCK took advantage of the anti-privatization mood and “deepened it” during the 2003 presidential campaign and thereafter through a strong state interventionist political discourse.

Likewise, the ideological shift grew in intensity over time. Whereas Duhalde’s response to the crisis was a pragmatic effort to revive domestic industry and diminish unemployment and poverty, the Kirchners gave to it a strong nationalistic flavor. Their “model” initially was based on three goals: a strong trade surplus, wealth redistribution, and state-driven industrialization. First, since the country was cut off from foreign financing, a balance of payments surplus through a competitive exchange rate was essential in order to bolster central bank reserves and export tax revenues. Second, under the slogan “development with social inclusion,” the Kirchners also launched far-reaching income distribution policies to appease their main constituencies among the lower classes. They included substantial wage increases, poverty alleviation programs demanded by left-wing grassroots movements outside Peronism, a wide array of consumer subsidies (energy, transportation), and price controls on many consumer goods.

The third goal aimed at bringing the “state” back in as the main engine of the country’s economic transformation by reviving the notion of economic nationalism through the enforcement of strict protectionism. Re-nationalizations, which started in 2005 on an ad hoc basis, gained momentum in 2007 and became a key component of the third goal as the growth of the private sector began to weaken.

Starting with the 2003 presidential campaign, the Kirchners exploited public anger against Menem’s neoliberal reforms by denouncing the principles that inspired them. This resulted in a hostile attitude toward the George W. Bush administration, the International Monetary Fund (IMF), and foreign investors. Indeed, NCK singled out the IMF as the culprit behind the crisis, claiming that it humiliated sovereign countries such as Argentina by forcing it to adopt draconian policies which promote poverty, a criticism that quickly endeared him to many Argentines who, at the time, shared the same view.

This change of attitude strengthened when, in 2005, Economy Minister Roberto Lavagna, who originally had been appointed by Duhalde, drove a tough bargain with private bondholders, who accepted roughly a 75 percent “haircut” on the principal and new bonds at lower interest rates with longer maturities compared to pre-2001 accords. Additional negotiations under similar terms in 2010 reached an acceptance rate of 93 percent.

Emboldened by these successes and a booming economy, the Kirchners veered farther to the left as time went on. After NCK’s death in 2010, his wife entrusted key macroeconomic policy decisions to a small group of advisers headed by Axel Kicillof, a young left-wing academic. Kicillof was a strong advocate of nationalizing the commanding heights of the economy, and blasted the concept of the “rule of law” as a cover-up to protect big business.

The anti-liberal twist was further reinforced by the rise to power of La Cámpora, a nationalist, left-wing youth organization created by the Kirchners’ son Máximo, whose members quickly occupied posts in both the public administration and some nationalized companies after 2007. In 2012, former minister Daniel Filmus summed up how renationalization fit in the Kirchners’ “model” as follows: “The nationalization of the oil company Yacimientos Petrolíferos Fiscales (YPF) clearly shows that one of the principal successes of the process set in motion by Néstor Kirchner in 2003 and continued by Cristina has been cultural: the Argentine people’s rediscovery of the notion that the State must play a dominant role in leading the socioeconomic model as well as in managing the resources that are essential to secure it continuation and consolidation” (Filmus 2012).

Consistent with this ideological approach, Argentina ceased to be the closest U.S. ally in South America and sought instead an active collaboration with Venezuela, Bolivia, and Ecuador. Thus, under the Kirchners, Argentina became a symbol of defiance against the IMF and neoliberalism. The economic and foreign policy turn to the left proved expedient in 2006, when NCK paid off Argentina’s liabilities with the IMF, totaling US$9.8 billion, thanks in part to a loan from Hugo Chávez. The decision, which earned widespread support at home, allowed NCK to make Argentina “economically independent,” but most important, ended the IMF’s surveillance over the country’s macroeconomic management.

In short, by the early 2000s, the table had turned against privatized firms. Public opinion had become very negative toward them, and politicians’ change of heart mirrored such a development even before the 2001 crisis. The Kirchners exploited this trend and added a strong nationalistic twist to macroeconomic policy, which justified a major departure in government regulation, both ideologically and practically. This became evident when, in 2004, NCK demanded that private companies terminate their legal challenges in international courts as a precondition for contract renegotiations. Government regulation was now being used to corner companies into a defensive position, paving the way for a score of re-nationalizations between 2005 and 2013.


Government Opportunism

It is important to underscore that, in the beginning, the Kirchners’ takeovers were justified on the claim that private firms had breached its contractual obligations, ranging from service provisions to investment requirements.  Invariably, such firms rejected such claims, arguing that they could not be held responsible for honoring contracts that had been severely distorted by a combination of massive devaluation and tariff freezes.  In later cases, takeovers targeted firms regarded as of “strategic importance.”

The first company to be renationalized was the Correo Argentino (Argentine Postal Service) in 2003, whose management contended that it had fallen into arrears, partly due to the government’s failure to pay its own bills. This was followed by the nationalization of Thales Spectrum, which controls the Argentine radio and telecommunication sector, in 2004; several water and sanitation companies, including the largest one, Aguas Argentina, in the Buenos Aires metropolitan area, in 2006, and most railway companies in cargo and long distance and urban transportation (2004–13). Re-nationalization picked up in scope and breadth once CFK became president. She first took over the national flagship Aerolineas Argentinas (2008), followed by the seizure of $30 billion in private pension funds (2008) and the confiscation of YPF (2012).

Although it is beyond the scope of this work to analyze the performance of the new SOEs, some reports estimated that their cost to the treasury was roughly $6 billion by the end of 2012 (Economist 2012). Equally disturbing was that some of the new SOEs resisted disclosing their financial results to the Auditoria General de la Nacion. In short, the new SOEs displayed again an old problem of the privatization era: opacity. Let us now examine how changes in regulatory governance led to government opportunism during the Kirchners’ era, according to Spiller and Tommasi’s three factors: institutional costs, executive powers, and electoral cycles.


Low Institutional Costs in Reneging on Contractual Obligations

The Kirchners faced low indirect institutional costs in defying their contractual obligations. After Argentina defaulted on its debt, foreign governments, international investors, and multilateral agencies ceased to have any leverage. Moreover, between 2003 and 2011, Argentina experienced an unexpected export boom, which bolstered the Kirchners’ defiant attitude toward the international community. Appeals by the Spanish, French, and Italian governments, whose companies had dominated privatization transactions in the 1990s and after 2001 suffered major financial losses due to the new regulatory approach, were systematically dismissed.

What emboldened the Kirchners’ tough approach were the mounting foreign reserves, which made Argentina self-sufficient in terms of financing its import needs and sheltered the Kirchners from retaliation from foreign creditors. Likewise, NCK’s payment of Argentina’s debt with the IMF further strengthened his bargaining position with multilateral agencies. Thus, privatized firms, whose contracts had been suspended, could not count on the IMF and the World Bank to put pressure on Argentina.  The arbitration role of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), which only a decade earlier was supposed to serve as a strong deterrent against government opportunism, proved ineffectual. Although foreign investors filed as many as 50 lawsuits before the ICSID (second only to those filed in Venezuela) for breach of contract, the Kirchner administrations responded by issuing a policy of noncompliance with the ICSID rulings, which lasted until October 2013. As a result, by mid-2008 only two contracts had been renegotiated.

These events show that the Kirchners did not leave much room for negotiations. Foreign and domestic investors were left with two options: either leave (and several in the water and sanitation sector did) or sue in international court, since both domestic courts and regulatory agencies were sympathetic to the government agenda and could not be counted on to give a fair hearing.


Strong Executive Powers

The Kirchners over time expanded the discretionary powers inherited from Menem and Duhalde, which could easily overcome checks and balances from other branches of government (legislature, judiciary, auditing agencies). Congress actually paved the way for the Kirchners’ power grab strategy because between 2005 and 2009 and again from 2013 to 2015, a pro-government coalition controlled the legislative agenda and supported executive bills.

For instance, a year after the nationalization of Aguas Argentinas in 2006, the government submitted to Congress a new law regulating the water and sanitation services. The pro-Kirchner majority approved it without any meaningful debate, and the board of directors of the new water regulatory agency (Ente Regulador de Aguas y Saneamiento, ERES) was appointed without a public competition or legislative approval.

Much of the same happened with the laws nationalizing the pension funds and YPF. The loyalty of the pro-Kirchner majority in Congress was also instrumental in renewing the Law of Economic Emergency in 2011, which delegated to the executive a lot of authority in terms of regulation and macroeconomic management. Moreover, Congress watered down the 1994 constitutional restrictions on the use of decrees of necessity and urgency (decretos de necesidad y urgencia, DNUs) and allowed them to remain in place even after an emergency situation had expired, unless they were explicitly repealed through a legislative vote. The DNUs’ significance is that they enabled the Kirchners on several occasions to change regulatory policy, unilaterally terminate utility concession rights, and confiscate assets without congressional oversight. As Ferreira Rúbio remarked, by 2007 the combination of emergency laws, executive superpowers, and DNUs had turned Congress into a nonexistent institution.

For its part, the judiciary was mostly ineffectual. Article 17 of the Argentine Constitution sanctions that “Property is inviolable, and no inhabitant of the Nation can be deprived thereof except by judgment based on law. Expropriation for a public purpose must be authorized by law and compensated.” However, in practice, the judiciary failed to stop government takeovers despite their doubtful legal grounds. This is not surprising, since the Kirchners appointed to the Attorney General’s Office first Esteban Righi (2004–12) and later Alejandra Gils Carbó (2012–current), were both highly supportive of the controversial government policies.

Federal judges fared no better. As noted, the Kirchners told privatized companies that their contracts could not be renegotiated unless they switched their lawsuits from international to domestic courts, as the latter were more politically malleable. The Supreme Court, which under the Kirchners gained a good reputation in upholding human rights, steered away from the re-nationalization issue. However, when push came to shove, the court, under heavy pressure from the government, upheld one of CFK’s most controversial initiatives, which a lower court had ruled unconstitutional. In 2013 it approved a law that aimed at forcing the Clarín Group, a media conglomerate highly critical of the Kirchners, to sell some of its most important assets.

As for the regulatory agencies, after the 2001–02 financial crisis they lost whatever formal independence they still had. NCK used the suspension of all concession contracts to further politicize their renegotiations. Indeed, he did not even trust the CRC created by Duhalde to do its job through a transparent process, and replaced it with a new administrative unit (Unidad de Renegociación y Análisis de Contratos de Servicios Públicos) under the control of Planning Minister Julio De Vido, his closest aide. The result was that his administration institutionalized the use of direct negotiations with investors. Consequently, regulatory agencies’ decisions simply executed orders coming from the presidency. Moreover, despite NCK’s campaign pledge to strengthen the role of citizens in the regulatory process, in reality, the opposite was true. For instance, the new regulatory agency ERES, created after the nationalization of Aguas Argentinas, was effectively shielded from any input from consumer associations.


Electoral Cycles

The Argentine electoral cycle (presidential elections every four years punctuated by midterm elections in the middle of a presidential term) exacerbated politicians’ short time horizons and opportunistic behavior during the 2000s. In describing the Argentine policy process, Urbiztondo et al. (2009:11) argue that each political actor “behaves opportunistically and tries to maximize short-term benefits.”

NCK’s political actions were a textbook case of such behavior. While governor of the province of Santa Cruz in 1992, when the privatization effort was at its peak, NCK, as president of the Organización Federal de Estados Productores de Hidrocarburos, was instrumental in persuading fellow governors to approve Menem’s plans to sell YPF in return for $654 million in royalties, which he eventually transferred abroad.

However, the crisis of 2001–02 created the incentives for the Kirchners to abandon their early support for state divestiture and switch toward economic nationalism to broaden their appeal (which in early 2003 was rather slim) beyond the Peronist electoral base. Thus, electoral competition motivated the Kirchners to adopt a redistributive platform favoring consumers over privatized firms, which contributed to their victories in the presidential elections of 2003, 2007, and 2011.



Consistent with Spiller and Tommasi’s framework of analysis, the article showed how the concept of government opportunism can theoretically explain the causal link between regulatory governance and re-nationalization.  However, the argument presented here adds contextual and institutional factors, which can better explain the nature of Argentina’s re-nationalization (where government takeovers targeted mostly money-losing firms) than it could be possible using recent models focusing on commodity prices.  Obviously, the case study nature of this article cautions against easy generalizations.  Nonetheless, it provides a number of insights which show that despite some country-specific conditions there are institutional factors (low institutional costs, large executive discretionary powers, electoral cycles) that at critical junctures (economic crises punctuated by public opinion swings and the emergence of contending ideologies) may tip the balance in favor of re-nationalization and, as such, can relate to other cases displaying similar features.

Note: Originally published as Renationalization in Argentina, 2005–2013, by Luigi Manzetti, in Latin American Politics and Society, vol. 58, no. 1 (Spring 2016), pp. 3–28. Copyright © 2016 University of Miami. DOI: 10.1111/j.1548-2456.2016.00295.x. 


Filmus, Daniel. 2012. Un estado recuperado. Página 12, April 25.

Post, Alison and Victoria Murillo. 2013. “The Regulatory State under Stress: Shocks and Regulatory Bargaining in the Argentine Electricity and Water Sectors.” In The Rise of the Regulatory State of the South: Infrastructure and Development in Emerging Economies, edited by Bronwen Morgan and Navroz Dubash, 115-134. Oxford, UK: Oxford University Press.

Spiller, Pablo and Mariano Tommasi. 2007. The Institutional Foundations of Public Policy in Argentina. A Transaction Cost Approach. New York, Cambridge University

The Economist. 2012. “Argentina’s state-owned firms: So far, not so good,” May 12.

Urbiztondo, Santiago, Marcela Cristini, Cynthia Moskovits, and Sebastián Saiegh. 2009. “The Political Economy of Productivity in Argentina: Interpretation and illustration,” Working Paper Series, 102. Washington D.C.: Inter-American Development Bank.

About Author(s)

Luigi Manzetti's picture
Luigi Manzetti
Luigi Manzetti specializes in issues that include governance, corruption, and market reforms in Latin America. He is the author of The IMF and Economic Stabilization (Praeger, 1991), Political Forces in Argentina (with Peter G. Snow, Praeger, 1993), Institutions, Parties and Coalitions in Argentine Politics (Pittsburgh University Press, 1993), Privatization South American Style (Oxford University Press 2000) and Accountability and Market Reform Failures: Eastern Europe, Russia, Argentina, and Chile in Comparative Perspective (Penn State University Press, 2010). He has also published journal articles in World Politics, Comparative Political Studies, Comparative Politics, Political Research Quarterly, Electoral Studies, the Quarterly Review of Economics and Finance, the Latin American Research Review, and Latin America Politics & Society.