Argentina: Oil nationalization and currency controls divide a nation

Argentina is no stranger to financial crises. In fact, in the past 40 years, one has erupted every decade. This means many Argentines are skittish when it comes to controversial government decisions like nationalizing the country's biggest energy company or receiving warnings from international bodies who condemn it for misreporting economic statistics.

Last month, an estimated 200,000 people marched through the streets of Buenos Aires protesting a recent string of government policies aimed at curbing capital flight and fortifying Argentina’s central bank reserves.

Together with controversial nationalizations and import limitations, Argentina’s currency controls form part of an interventionist, protectionist economic strategy that President Cristina Fernández de Kirchner’s government says is needed to boost national industry.

Mercedes Marcó del Pont, president of the central bank, said the current measures will lead to a “winning decade [for Argentina], while developed countries are experiencing a lost [one].”

But as inflation skyrockets to an unofficial rate of 24 percent, the highest in South America, President Kirchner’s economic policies are dividing the country and putting it at risk of a future crisis, analysts say.

This is “an attack on my liberty,” says María Pagano, one of the protesters, who denounced tightening restrictions on purchasing dollars, which many Argentines prefer for saving because of the historic instability of the peso.

The divisions have spread beyond Argentina as well, with the International Monetary Fund (IMF) recently debunking Argentina's reported and projected growth, fueling the fire for nationals who believe the government is not respecting democratic processes.

History of financial crises

Argentina has experienced its fair share of financial crises and subsequent political turmoil. In the 1970s there was the mega-devaluation of the peso, known as "el Rodrigazo"; In 1989, the cause was hyperinflation; And in 2001, when former president Fernando De La Rúa fled rioters in a helicopter, it was the unraveling of a decade-long peg of the peso to the dollar.

Since its $100 billion default in early 2002, Argentina has been frozen out of international credit markets and uses central bank reserves to help settle its restructured debt – including a final installment on its $19 billion Boden bond in August.

Kirchner’s administration says the recent dollar restrictions are needed to bolster reserves and stop capital flight estimated at $20 billion in 2011, around 4 percent of GDP.

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