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<s>[INST] ___ Document 8 of 500 The Americas: Why Argentina has lagged as [/INST] an oil nation Author: Yeatts, Guillermo M Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 04 Oct 1996: A7. </s>

<s>[INST] accountid=28034 Abstract: Guillermo M. Yeatts says petroleum exploration [/INST] has lagged in Argentina because the earth's subsurface is still owned by the state. </s>

<s>[INST] Yeatts says under US law, riches found below [/INST] the surface belong to the individual who owns the surface, providing incentives for exploration. </s>

<s>[INST] He argues that privatization of the subsurface in Argentina, as in the US, [/INST] is the only way to make efficient use of Argentina's oil resources and make sure the state is out of the oil business for good. </s>

<s>[INST] Full text: In 1865, only seven [/INST] years after the oil business was born in Titusville, Pa. </s>

<s>[INST] , Leonardo Villa made the [/INST] first Argentine attempt at commercial oil exploration and production. </s>

<s>[INST] But this innovative pioneer collided with a brick [/INST] wall: In Argentina, the government owned the earth's subsurface and all its resources. </s>

<s>[INST] Villa had to request a permit from public [/INST] officials in the province of Jujuy, and later took his case to the national legislature. </s>

<s>[INST] Leonardo Villa's experience was an early indication of the [/INST] disincentives that are generated by state ownership of the subsurface and public intervention in market activities. </s>

<s>[INST] While he was probing [/INST] Argentina's bureaucracy, Pennsylvania's petroleum industry was booming. </s>

<s>[INST] Private ownership of the subsurface encouraged exploration; oil [/INST] became the fuel of choice for street lighting and at a relatively low cost. </s>

<s>[INST] Today, while Argentine politicians are frantically searching for ways to balance the [/INST] government's budget and boost a sluggish economy -- particularly in the poor provinces -- the earth's subsurface is still owned by the state. </s>

<s>[INST] The Argentine Congress is debating a new hydrocarbon proposal that would [/INST] make law the 1989 presidential decrees deregulating the oil industry, which have resulted in a 55% increase in Argentine oil production. </s>

<s>[INST] The oil industry hopes that if these decrees are made law, [/INST] it will avoid reliving 1963, when a presidential decree canceled oil reforms made by the Frondizi government in 1958. </s>

<s>[INST] Yet the proposed legislation reaffirms the state's ownership [/INST] of the subsurface and would not ensure that history will not repeat itself. </s>

<s>[INST] As long as the state owns the resources below private land, a return to [/INST] state intervention remains an easy option and the likelihood of aggressive exploration and development, which would help the economies of the poor provinces, is almost nil. </s>

<s>[INST] The U.S. law regarding the subsurface, derived from the English legal tradition, [/INST] is "he who owns the soil or surface of the land owns everything which is above or below it to an indefinite height". </s>

<s>[INST] This means that the riches found [/INST] in the subsurface belong to the individual who owns the surface. </s>

<s>[INST] By the end of the 19th century, [/INST] the U.S. oil industry was becoming an unexpected source of wealth. </s>

<s>[INST] It was bringing prosperity to [/INST] apparently barren areas and low-productivity farming regions. </s>

<s>[INST] The regions with oil potential were doomed [/INST] to oblivion and poverty; their inhabitants migrated to more prosperous areas. </s>

<s>[INST] The institutional tradition that has shaped Argentina from [/INST] the discovery of the Americas has resulted in only meager performance of the oil industry. </s>

<s>[INST] The cornerstone of this tradition -- public ownership [/INST] of the subsurface -- provides no incentive for the development of a robust oil market. </s>

<s>[INST] The fundamental connection between institutions and economic performance has been studied in recent years by Nobel Prize-winning [/INST] economist Douglas North, who wrote in 1993, "Institutions are the rules of the game in a society or, more formally, they are the limitations created by man to shape human action. </s>

<s>[INST] As such, they structure incentives [/INST] for human exchange, be it political, social or economic". </s>

<s>[INST] History has shown that where institutions create positive incentives, [/INST] people act on them productively, and where institutions create disincentives, private initiative is effectively deterred. </s>

<s>[INST] The institutions that Argentina inherited from Spain [/INST] determined that the Crown -- later the state -- owns the subsurface. </s>

<s>[INST] In the 12th century, the king [/INST] of Castile had claimed all the mineral riches in his territories. </s>

<s>[INST] This right became more encompassing in [/INST] the 15th century, when precious metals were discovered in the continent. </s>

<s>[INST] The disincentives that these institutions generated meant that at [/INST] the end of the 19th century the oil business in Argentina was but a tabula rasa. </s>

<s>[INST] The Ministry of Agriculture struck oil in 1907, [/INST] by sheer chance, when looking for drinking water for the population of Comodoro Rivadavia. </s>

<s>[INST] 13, 1907 -- is remembered as the day when oil was [/INST] discovered in Argentina, but in fact, 40 years earlier, Argentine entrepreneurs had already both discovered oil and attempted commercial production. </s>

<s>[INST] Unfortunately, the sovereign had shown no interest in [/INST] the discovery and it took an accidental occurrence to establish the oil industry. </s>

<s>[INST] Certain areas were reserved for exclusive state exploration and production, and [/INST] more regulations had to be observed, until, finally, the state created its own oil corporation, Yacimientos Petroleros Fiscales (YPF). </s>

<s>[INST] Notwithstanding all these restrictions, by 1934 [/INST] the private sector was producing 62.5% of Argentina's crude oil output. </s>

<s>[INST] A 1935 law pushed the [/INST] private sector out of the upstream activities altogether. </s>

<s>[INST] Over the years, the voracity of [/INST] the state further restricted private sector participation in oil production. </s>

<s>[INST] Economic nationalism, and its conception of oil [/INST] as a strategic resource, almost excluded private entities from the industry. </s>

<s>[INST] Regulation reached its peak in [/INST] 1949, when constitutional amendments nationalized all energy resources. </s>

<s>[INST] More than 130 years have passed since Leonardo Villa's request was denied, and state ownership of the subsurface continues to numb the same profit [/INST] motive that spurred the investment, risk-taking and technological innovation responsible for the extraordinary growth of the petroleum industry in the U.S. What is needed to secure Argentina's oil industry is fundamental institutional change -- the transfer of subsurface property rights to the owners of the surface. </s>

<s>[INST] While certainly a radical reform, [/INST] it would not be difficult to implement. </s>

<s>[INST] Privatizing the subsurface would allow regions now considered nonviable [/INST] to grow with an oil industry that has been artificially repressed for more than a century. </s>

<s>[INST] Oil production would create more jobs, giving [/INST] Argentinians the opportunity to work for their future and encourage permanent settlements. </s>

<s>[INST] Privatization of the subsurface is the only way to make [/INST] efficient use of Argentina's oil resources and make sure the state is out of the oil business for good. </s>

<s>[INST] --- Mr. Yeatts is president of Phoebus [/INST] Energy Ltd. and author of "El Robo del Subsuelo" (Ediciones Theoria, 1996). </s>

<s>[INST] ___ Document 24 of 500 Argentine Leader Turns Back on Labor --- Menem Proposes [/INST] Measures To Undermine Unions, Reduce Worker Costs Author: By Jonathan Friedland Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 27 Sep 1996: A14. </s>

<s>[INST] accountid=28034 Abstract: First, economic liberalization [/INST] put Argentina's once powerful labor unions on the ropes. </s>

<s>[INST] Now, President Carlos Menem is [/INST] trying to knock them out with a one-two punch. </s>

<s>[INST] Juan Domingo Peron, who 50 [/INST] years ago guaranteed Argentine workers a steak a day. </s>

<s>[INST] That allows Mr. Menem to deal a blow to [/INST] the unions, much as Richard Nixon's anticommunist credentials let him open the door to China. </s>

<s>[INST] Mr. Menem has picked a sensitive moment to pick [/INST] a fight with the unions, still a key source of political support for his ruling Peronist Party. </s>

<s>[INST] His personal popularity is at [/INST] its lowest since he was first elected in 1989. </s>

<s>[INST] With unemployment at near-record levels and only a tentative economic recovery under [/INST] way after an 18-month recession, many Argentines worry they will lose their jobs or suffer further salary cuts, says pollster Graciela Romer. </s>

<s>[INST] Full text: BUENOS AIRES -- First, [/INST] economic liberalization put Argentina's once powerful labor unions on the ropes. </s>

<s>[INST] Now, President Carlos Menem is [/INST] trying to knock them out with a one-two punch. </s>

<s>[INST] Juan Domingo Peron, who 50 [/INST] years ago guaranteed Argentine workers a steak a day. </s>

<s>[INST] That allows Mr. Menem to deal a blow to [/INST] the unions, much as Richard Nixon's anticommunist credentials let him open the door to China. </s>

<s>[INST] Next week, the Argentine president sends to Congress laws that [/INST] will fatally weaken the negotiating strength of organized labor and undermine its main source of funding, mandatory health-care schemes. </s>

<s>[INST] He threatens to enact the [/INST] laws by decree if Congress doesn't act quickly. </s>

<s>[INST] "Our labor costs are among the highest [/INST] in the world, and this we cannot afford," he said in an interview. </s>

<s>[INST] "We cannot hope to raise productivity [/INST] and to cut unemployment quickly without bringing down those costs". </s>

<s>[INST] Mr. Menem has picked a sensitive moment to pick [/INST] a fight with the unions, still a key source of political support for his ruling Peronist Party. </s>

<s>[INST] His personal popularity is at [/INST] its lowest since he was first elected in 1989. </s>

<s>[INST] With unemployment at near-record levels and only a tentative economic recovery under [/INST] way after an 18-month recession, many Argentines worry they will lose their jobs or suffer further salary cuts, says pollster Graciela Romer. </s>

<s>[INST] These fears fueled a 36-hour general strike launched [/INST] yesterday by Argentina's main union confederation, the Confederacion General del Trabajo, or CGT. </s>

<s>[INST] Although most Argentines view the CGT as at best mildly effective and at worst a den [/INST] of thieves, some tens of thousands of them, waving banners and banging bass drums, gathered in the Plaza del Mayo in the center of Buenos Aires to protest the new measures. </s>

<s>[INST] Mr. Menem derided the strike as a [/INST] "good excuse" for a four-day weekend and said it wouldn't blunt his proposals. </s>

<s>[INST] The strike "isn't about improving their negotiating [/INST] position," he said of the union leaders; "it's all about maintaining their privileges". </s>

<s>[INST] In many respects Mr. Menem's [/INST] changes will simply formalize trends already under way. </s>

<s>[INST] A number of Argentine unions, including the one representing food-industry workers [/INST] headed by current CGT leader Rodolfo Daer, have signed labor agreements far more flexible than required under the country's current laws. </s>

<s>[INST] Mr. Menem's proposed legislation will end industrywide collective [/INST] bargaining and overhaul a severance pay system that makes it prohibitively expensive to fire workers. </s>

<s>[INST] It will also give employers greater leeway [/INST] in hiring part-time employees and in setting work schedules and vacation time. </s>

<s>[INST] The new regime "will be similar to that of the [/INST] U.S., Chile or New Zealand, all countries that have managed to bring down unemployment," the president said. </s>

<s>[INST] But analysts say that what really galls union leaders is [/INST] Mr. Menem's proposal to allow workers to choose among different union-run health plans, known as obras sociales. </s>

<s>[INST] Workers now are required to belong to [/INST] the obra social of their profession, funded through an obligatory 8% payroll contribution. </s>

<s>[INST] Under this scheme, unions [/INST] garner an estimated $2.5 billion a year. </s>

<s>[INST] Government economists say as little as 20% of [/INST] this amount goes toward health care while the rest is spent at union leaders' discretion. </s>

<s>[INST] "They dip into the funds [/INST] however and whenever they like," says one economist. </s>

<s>[INST] Carlos West Ocampo, secretary-general of the health workers union and a [/INST] member of the CGT board, says the legislation will tip the negotiating table too far in favor of employers. </s>

<s>[INST] "The essential function of unions is to achieve better [/INST] salaries and more job security than would be naturally allocated by the market," says Mr. West Ocampo. </s>

<s>[INST] ___ Document 47 of 500 U.S. Scholar Puts Stamp on Latin Markets --- [/INST] Arnold Harberger Nurtured Key Policy Makers Author: By Jonathan Friedland Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 12 Sep 1996: A10. </s>

<s>[INST] accountid=28034 Abstract: Milton Friedman may be more famous, but the [/INST] real godfather of the free-market revolution in Latin America is his former University of Chicago colleague Arnold Harberger. </s>

<s>[INST] Now 72 years old and a professor at the University of [/INST] California at Los Angeles, Mr. Harberger helped establish a doctoral program in economics for Latin students at Chicago in the mid-1950s. </s>

<s>[INST] Since then, he has been a mentor to three generations [/INST] of economists from the region, many of whom are now government ministers, central-bank governors and top businessmen. </s>

<s>[INST] To get some idea of the pivotal role he has played [/INST] in training the region's policy makers, consider the recent reshuffling of the heads of central banks in Argentina and Chile. </s>

<s>[INST] The two who left their [/INST] jobs are former students of Mr. Harberger's. </s>

<s>[INST] But the new appointee in Argentina is also [/INST] a former student, as is the designated successor in Chile, who is awaiting congressional approval. </s>

<s>[INST] Full text: BUENOS AIRES -- Milton Friedman may be more famous, [/INST] but the real godfather of the free-market revolution in Latin America is his former University of Chicago colleague Arnold Harberger. </s>

<s>[INST] Now 72 years old and a professor at the University of [/INST] California at Los Angeles, Mr. Harberger helped establish a doctoral program in economics for Latin students at Chicago in the mid-1950s. </s>

<s>[INST] Since then, he has been a mentor to three generations [/INST] of economists from the region, many of whom are now government ministers, central-bank governors and top businessmen. </s>

<s>[INST] "He's been a tremendous influence," says [/INST] Gerardo della Paolera, rector of the Universidad Torcuato di Tella here. </s>

<s>[INST] To get some idea of the pivotal role he has played [/INST] in training the region's policy makers, consider the recent reshuffling of the heads of central banks in Argentina and Chile. </s>

<s>[INST] The two who left their [/INST] jobs are former students of Mr. Harberger's. </s>

<s>[INST] But the new appointee in Argentina is also [/INST] a former student, as is the designated successor in Chile, who is awaiting congressional approval. </s>

<s>[INST] That is partly because the University of Chicago was, until recently, alone [/INST] among major U.S. schools in admitting large numbers of Latin doctoral students in economics, as many as 20 in a single year. </s>

<s>[INST] Among Mr. Harberger's students currently in office [/INST] are Argentina's economy minister, Mexico's trade minister and its deputy central-bank governor. </s>

<s>[INST] But their numbers aren't [/INST] the only thing that sets them apart. </s>

<s>[INST] Mr. Harberger and his colleagues at Chicago have minted [/INST] technically skilled policy makers with a fervor for free-market solutions and a disdain for state intervention. </s>

<s>[INST] People all over Latin [/INST] America know them as "Los Chicago Boys". </s>

<s>[INST] The tide began to turn against statist economic policies in the mid-1970s when [/INST] a group of Mr. Harberger's Chilean students convinced military dictator Augusto Pinochet to radically revamp government economic policy to respond to market incentives. </s>