Crisis strains Argentina's Spanish relations

Spanish stocks were hard hit by the chaos in Argentina

By Flora Botsford in Madrid

Spain is experiencing a period of ambivalence regarding its relationship with Argentina.

While Spanish couples still flock to the ever-popular tango classes, many Spanish business leaders could be regretting their decision to invest billions in Argentine privatisations.

In all the main utilities - water, gas and electricity - as well as telecommunications, transport and banking, Spanish companies have taken the lead in foreign investment.

Companies like Gas Natural, Endesa, Repsol-YPF, Aguas de Catalunia, Telefonica, Iberia, BBVA, BSCH are all Spanish companies badly affected by the Argentine economic crisis.

Spanish banks will lose out

"Spain has taken a great interest in privatisations in Argentina," says financial analyst Guillermo de la Dehesa.

"With 45 billion euros invested, representing 12% of Argentina's GDP, Spain is now the biggest foreign investor in the country."

And the love-affair is not over yet, he argues.

"The companies want to negotiate with the government. They are part of Argentina and have big stakes there. They knew the risks they were taking and they are there for the long term."

Blood ties

Watching the news from Argentina can be difficult for the large number of Argentines who have made Spain their home.

Many of them had the right to dual nationality by dint of parents or grandparents of Spanish origin.

When many thousands of people in Spain were hungry and out of work in the last century they went to Argentina, leaving especially from the northern region of Galicia.

Any Spaniard living in Latin America is known as a 'gallego'.

Now, there are queues of Argentines outside the Spanish embassy in Buenos Aires, hoping to prove their Spanish heritage and start a new life overseas. And Galicia is sending emergency food supplies to Argentina.

Argentines camped outside the Spanish embassy in Buenos Aires

Beatrice Romero is eight months pregnant and still teaching tango in Madrid with her husband, Pablo Ojeda.

She came to Spain from Argentina 13 years ago and says most people here have been very supportive.

"We feel very bad," she says. "Everything is very bad over there, and we're not even living through it. We're over here, but so many people are affected by the situation.

"It's terrible. Everyone we meet in Spain asks us, how are things in Argentina? They really seem to care."

But much of the public anger in Argentina has been focused against Spanish companies, as witnessed in many riots.

The Spanish companies are widely seen as greedy and exploiting Argentina's rich resources, when so many in the country are poor.

Under the government's new economic measures, almost everybody in Argentina is poorer than they were just weeks ago.

Corporate woes

But the same can be said of Spanish companies, who have been losing heavily on the Spanish stock exchange and stand to lose millions more when the new measures begin to take effect.

Major Spanish banks will be vulnerable to the proposed conversion of dollar loans into pesos. Repsol-YPF is facing an export tax on petroleum. And Spanish utilities could see a cap imposed on their tariffs.

The Spanish government is extremely concerned, both on its own behalf and in its role as president of the European Union. It has been negotiating directly with the Argentine president to "protect foreign investment".

At the same time, the Argentine president has complained about the 'pressure' he is receiving from Spanish companies to change his policies, often via anonymous quotations in an increasingly negative Spanish press.

Spain's love-hate relationship with Argentina looks set to continue.