Mexico suffers a similar energy crisis as Argentina

Elections in Argentina showed the ruling party and the opposition having unsubstantial disputes. There is yet no awareness about the severity of the accumulated problems and the costs of carrying on with bad policies. No proposal emerges to overcome this critical situation. Thus, analogies between the oil crisis in Mexico and Argentina offer a very sobering testimony of the difficulties both countries face and the political difficulties that surge in trying to reverse the consequences of demagoguery and voluntarism.

The oil crisis in Argentina is caused, among other factors, by unreasonable price controls, discretionary interventionism, distortive taxes and redistribution through hidden subsidies. Bad policies induced a sharp decline in oil extraction investment. The strategy adopted against this blunt failure was not to correct the wrong policies, but to re-nationalize YPF.

During the first semester of 2013, the country's total trade surplus decreased by U$S 1,700 million, of which almost all of it (U$S 1.600 million) corresponded to an increase in fuel and lubricant imports (U$S 1.128 million) and the decline in oil, gas and gasoline exports (U$S 481 million). This is the first sign that the re-nationalization of YPF does not help reverse the decline in oil production.

Facing such disappointing results, it may be of interest to analyze the experience in Mexico's oil sector. In Mexico, the Constitution establishes that only the state can exploit oil, thus Petroleos Mexicanos (PEMEX) was created and run under state management. It is a model based on a pure state monopoly even more intense than that imposed in Argentina. The results for both countries are:

·  In the early '70s, both Argentina and Mexico produced around 25 billion cubic meters of oil.

·  In 1998, Argentina reached its record at 49 billion while Mexico reached it in 2004 at 196 billion cubic meters.

·  In 2013, oil production in Argentina fell 34% from the record high and in Mexico fell by 25%.

The data shows that oil production in Mexico fell as much as in Argentina. This occurred even with the strong growth of the international oil prices (between 2004 and 2013 the crude price went from U$S 38 to U$S 111). The comparison is valuable because Mexico has greater oil potential than Argentina and is one of the countries with the largest oil exploiting state monopoly. PEMEX has not taken advantage of the situation since its monopoly status has resulted in profit grabbing by the National State to cover its fiscal deficit, the politization of its management, overstaffing, bureaucratization, corruption and waste of resources.

The crisis is so intense that the current Mexican government, led by Enrique Peña Nieto, proposed to amend the Constitution in order to allow the entry of private investment in the oil sector. But the proposal has generated heated controversy and rejection among the opposition and much of the population. This shows that, although the fall in output strongly demonstrates the failure of the state monopoly, it is very difficult to reverse the strategy. The Mexican experience points out that it is necessary to consume a lot of political assets to overcome the results of bad policies.

Mexico's experience provides an important lesson for Argentina. The electoral victory of the opposition is based on the natural deterioration of a government that’s been ruling for more than a decade. But so far very few new ideas have been raised by the winners to overcome the accumulation of errors of the last decade. For example, proposals to increase oil investment or eliminate the deficit and the wasting of re-nationalized companies have been bypassed. In other areas, the proposals for the Universal Child Allowance is limited to the insubstantial change of regulating it by law, but have not critically addressed its many deficiencies as a social program. Considering the income tax, proposals aim to reduce its burden among employees but fail to explain how to reduce fiscal spending, up to now the only idea is to counter the effect of the loss in revenue with a tax on financial profit which is clearly insufficient.

It is the responsibility of all political leaders to help raise awareness about the grimness of the Argentine’s problems and the high dose of rationality and dispassion needed to solve them. The alternative to keep feeding the demagoguery and voluntarism has enormous economic and social costs, as its being evidenced by the dramatic deepening energy crisis faced by the country.