President Donald Trump and Argentine President Javier Milei have a special relationship. Each is engaged in a crusade to make his respective country's economy great again. Trump was all in on helping Milei win his elections earlier this year, and he has also offered the Argentines a $20 billion "lifeline" as they adjust to the bumpy path to needed free-market reforms.
The stakes are gigantic because the whole world is watching Milei's embrace of free-market "shock capitalism," which so far is working. He has restored sound money (by linking to the dollar) and taken a chainsaw to the bloated state bureaucracy as he privatizes rather than nationalizes government assets.
Argentina's tragic detour into the dead end of socialism drove the nation into a half-century-long economic ditch, with poverty rates skyrocketing.
But for Milei's capitalist comeback plan to succeed, he must uphold the rule of law and fairly compensate injured parties who lost tens of billions of dollars when the Peronista government stole/confiscated their property. If that fair compensation isn't secured, the international investment that Milei needs to attract to rebuild the economy is more likely to be repelled.
A case in point is the closely watched dispute involving the 2012 nationalization of YPF, the Argentine energy giant that had raised over a billion dollars from American investors. The company was traded on the New York Stock Exchange. When leftist Cristina Kirchner was elected president of Argentina in 2007, her government seized a controlling stake of the company and ripped up YPF's contractual bylaws that required a buyout of minority shareholders. This nationalization scheme was straight out of Fidel Castro's playbook in Cuba.
The investors in YPF won a $16 billion legal judgment in Petersen v. Argentina. The courts ruled that Argentina violated commercial contracts governed by U.S. securities law. Now, YPF and the government in Buenos Aires are threatening to ignore the court's ruling.
That's highly inadvisable. To walk away from financial obligations will make it much more difficult for Argentines to attract new capital. The Wall Street Journal recently noted that investment banks are skittish about pouring new money into Buenos Aires as a result of unresolved disputes like this.
If investors believe that their legal rights aren't secure, capital investment will stay out.
That outcome would be a lose-lose situation for everyone: the Argentines who need jobs, the American investors who were cheated, and all of South America and the Third World, which is looking to see whether Milei's experiment in free-market capitalism is the path to economic prosperity.
On the other hand, the mostly American banks and investors placed a risky multibillion-dollar bet on YPF at a time of political turbulence in the country.
The best outcome for all parties is fairly obvious: Investors will need to agree to take a haircut on their compensation, and the Trump administration -- or some other neutral arbitrator -- should negotiate a fair deal to build confidence that the rule of law has been restored in Argentina.
The big winners will be the Argentine people, the Trump administration, and the future of free-market economics around the world.
Stephen Moore is a former Trump senior economic adviser and the cofounder of Unleash Prosperity, which advocates for education freedom for all children.
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