By Steve Hank (*) – On August 4, Argentina, the world’s biggest deadbeat, announced that it had reached a deal with its creditors on its US$ 65 billion worth of defaulted debt. The next day, the United Nations Decolonization Committee — the C24 — unanimously passed a resolution urging the United Kingdom and Argentina to resolve their differences over the sovereignty of the Falkland Islands. Or, are they the Malvinas?
For 187 years, the United Kingdom has controlled the Falkland Islands, a small archipelago off the coast of Argentina populated by 3,480 Falklanders. Argentina claims that the Falklands are part of Argentina and, in fact, are not even the Falklands, but the Malvinas. These claims have resulted in the U.K. and Argentina coming to blows. In 1982, the Argentines met their match in the person of Prime Minister Margaret Thatcher. The Iron Lady was in no mood to be pushed around by Argentina. After being challenged by Argentina, she sent part of the British fleet down to the Falklands for a ten-week undeclared war that resulted in 900 casualties. In the end, the Falklands remained the Falklands.
With the swearing in of President Alberto Fernandez on December 10, 2019, it became clear that Argentina would once again attempt to seize control of the territory. Indeed, Fernandez formally established the National Council of Affairs Relating to the Malvinas, South Georgia, South Sandwich Islands and the surrounding maritime spaces on July 28. Its goal: to establish territorial control of the Falkland Islands for Argentina, once and for all.
Just what advantages do the Falkland Islands provide Argentina? Admittedly, since the “war,” the Islands’ small population diversified its economy away from its traditional (and unsatisfactory) dependence on sheep farming and British subsidies into fishing, thanks to a massive expansion in the Islands’ fishing rights in 1986. Fishing now makes up between 50%/60% of total GDP, and a tourism industry has developed. Nevertheless, the Falklands still rely on communications and supplies from neighboring nations to survive, and its annual GDP is only about US$ 370 million. That said, Britain maintains a strong military presence on the archipelago and has recently declared that its new “multi-role combat aircraft,” the Typhoon, will be employed there for defensive purposes in the near future.
So, it seems that Argentina is entangling itself in a fight against a superior military power over a territory that provides little economic value. This, however, is a superficial reading of reality. While patriotic, populist sentiments in Buenos Aires flare up from time to time as a distraction from Argentina’s domestic economic problems, that is only part of the current story. The crux of the recent Argentine challenge is found beneath the surface of the sea.
Oil exploration and the discovery of hydrocarbon reserves around the Falkland Islands have accelerated considerably since 2012. Oil companies from Britain and Argentina are now vying intensely for hydrocarbon control. In 2015, an Argentine judge ordered the seizure of goods and assets worth US$ 156,432,000 belonging to British multinationals drilling in the Falkland Islands, claiming it an “unlawful assertion of jurisdiction over the Falkland Islands’ continental shelf.” In 2019, the Argentine government issued a stern warning to British drilling companies Rockhopper PLC and Premier Oil over drilling on the shelf, claiming that they were violating international law. The formation of the National Council of Affairs Relating to the Malvinas, South Georgia, South Sandwich Islands and the surrounding maritime spaces is a clear reassertion by Argentina that the hydrocarbons and minerals of the Falkland Islands belong to Argentina in its own right.
How should the conflicting claims over sovereignty and property rights be settled? Years ago, after the U.K–Argentina dust-up, Sir Alan Walters — Mrs. Thatcher’s economic guru — and I developed a transparent market solution that bestowed voting rights upon the settlers of the Falkland Islands. This plan was delivered to Mrs. Thatcher by Sir Alan. We advocated a binding referendum in which qualified Falklanders would vote on whether to uphold the status quo (British rule) or to agree to an Argentine take-over. If the required super-majority of Falklanders (say, 80%) voted in favor of Argentine rule, the United Kingdom would peacefully transfer administration of the Islands to the Argentine government. It’s time for our proposal to be resurrected.
Unlike the 2013 referendum, when Falklanders voted 1,513 to 3 in favor of remaining a U.K. overseas territory, the Walters-Hanke referendum would require compensation from Argentina to the Falklanders — who are English speakers and British by custom, institutions, and loyalties — should they choose to transfer sovereignty over their lands and resources to Argentina. The referendum would be designed so that Argentina would offer a cash incentive if the islanders voted in favor of Argentina’s rule. Prior to the referendum, Argentina would deposit an amount (say, US$ 20,000,000) in escrow in Swiss accounts for every person who can prove their Falkland Islands citizenship.
If 80% of the Falklanders agreed to Argentine citizenship, Argentine sovereignty, and a name change from the Falklands to the Malvinas, the funds in escrow would be transferred directly to each Falkland Islander. Since the archipelago has a population of roughly 3,480, the total escrowed amount would be US$ 69.6 billion.
The best way for the United Kingdom and Argentina to bury the hatchet about the Falklands is to embrace a market-based referendum in which the Falklanders themselves decide their own destiny.
(*) Steve H. Hank, is a professor of Applied Economics at the Johns Hopkins University in Baltimore. He is a senior fellow and director of the Troubled Currencies Project at the Cato Institute in Washington, D.C.