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ECONOMY | 22-05-2024 17:48

Argentina has really fallen out with its number two foreign investor

The reason why the two sides haven’t buried the hatchet probably comes down to two leaders who stand at opposite sides of the political spectrum and are happy and sufficiently media-savvy to know how to use this drama as a distraction from their problems back home.

What began with a Spanish suggestion that Javier Milei took drugs has rapidly descended into an all-out diplomatic brawl that’s among the worst since the British ambassador flew out of Buenos Aires over the Malvinas (Falkland) Islands more than four decades ago.

“From now on there won’t be an ambassador in Buenos Aires,” Spanish Foreign Minister José Manuel Albares announced on Tuesday at a press conference. 

Spats come and go. France and Italy have traded barbs over the Mona Lisa and made up. Argentina has had its fair share of fights with arch-rival Brazil but also Colombia, Ecuador and Venezuela. This particular brawl, though, could be more serious and more consequential, partly because of domestic politics at play between two nations that share historic yet prickly ties.

The fact is that within a space of mere weeks, Argentina has managed to have an epic fallout with its second-biggest foreign investor, and neither side seems to be seeking an off-ramp. 

Spain has a huge corporate footprint in a country known for its debt defaults, where the presence of Banco Santander SA and Telefonica SA are a key part of the social infrastructure. Spain also happens to be home to the largest Argentine community abroad. They share a common language and cultural references — and tend to love each other’s football.

What Spanish Prime Minister Pedro Sánchez has done “is really inexplicable,” Argentine Economy Minister Luis Caputo wrote on X. “The only thing he has done by taking something personal to a state level is showing his political immaturity, because there must be few countries that love each other as much as Spain and Argentina.”

The tit-for-tat dates to the start of May, when Spain’s transport minister said Milei had ingested “substances.” The minister was referring to a TV interview Milei gave during last year’s presidential campaign, when he asked people to stop talking in his ear, apparently because his ear-piece was malfunctioning. 

The reason why the two sides haven’t buried the hatchet probably comes down to two leaders who stand at opposite sides of the political spectrum and are happy and sufficiently media-savvy to know how to use this drama as a distraction from their problems back home.

Sánchez published a video during Argentina’s campaign last year, endorsing Milei’s rival, Sergio Massa — so that didn’t exactly endear him to the new power structure in Argentina.  

Milei then decided to make a point by attending a rally hosted by the far-right opposition Vox party in the past weekend and saying Tuesday that Sánchez should get counselling for his “inferiority complex” and get a lawyer for his wife, who is under investigation for alleged influence-peddling.

Back in Madrid, the Socialist leader had been contemplating leaving office over the public scrutiny of his wife’s affairs. In Buenos Aires, Milei himself is under scrutiny for being eccentric, with his country’s economy still a mess and his reforms a work in progress.

“This is exclusively for show,” said Diego Guelar, a former Argentine ambassador to China and the US. “Milei lent himself to this and this is Sánchez’s chance to polarise and improve his electoral prospects for June 9 — this circus ends in June.”

So who will blink first?

Milei, speaking by phone to local television station LN+ after Spain’s announcement, signalled his government wouldn’t retaliate. “Pedro Sánchez is making a huge mistake. I’m not going to be so stupid as to repeat the same mistake.”

by Rodrigo Orihuela & Ken Parks, Bloomberg

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