Falklands Still A Hot Spot In A Cold Southern Ocean

Thirty years ago, Britain and Argentina fought a 74-day war that killed around 1,000 soldiers and sailors. When my daughters were in their teens, I told them about the Falklands conflict. They thought it was one of those stupid stories dads like to make up.

In their eyes, modern wars always took place somewhere east of Paris. But the Falklands War was real. It resulted from a long-simmering dispute between a fading Old World power and an ambitious but underachieving New World nation.

Now the treeless, chilly, sparsely settled South Atlantic islands are becoming a hot spot in international relations once again. Britain and Argentina are still at the center of the dispute, but larger powers including Brazil and the United States could easily get dragged into the mess this time as well. The Falklands continue to command attention far beyond their intrinsic worth to anyone who does not live there.

The British-ruled territory is situated 300 miles from the Argentine coast. It has a total land area of 4,700 square miles, less than the state of Connecticut. Its two main islands, and around 750 smaller islands, are collectively home to fewer than 3,000 residents.

But there may be a lot of oil nearby. “The area is underexplored and highly prospective,” Evan Calio, a New York-based Morgan Stanley analyst, told Bloomberg. Together, four oil wells planned for development this year could produce about 8.3 billion barrels of oil. That much oil is enough to light some serious political fires; in the Falkland Islands, there are plenty of old conflicts to ignite.

The French first settled the islands, which had no indigenous population, in 1764. They were soon displaced by Britain and Spain, from which Argentina was cleaved in 1816 as part of the United Provinces of South America, which also included parts of modern Uruguay, Brazil and Bolivia. After Argentina emerged from the breakup of the United Provinces, it attempted to start a colony on the Falklands (known as Las Malvinas in the Spanish-speaking world) in 1829. But the British never abandoned their claims, and they established permanent control of the islands in 1834. For the past 177 years (excepting the two months after the 1982 Argentine invasion), the islands have been under British administration, and most of the current residents are of British descent. Argentina, however, continues to press its claim.

The 1982 crisis broke out when Argentine troops landed in a sudden attack. Argentina was in the thick of its Dirty War, and its military junta – led by Gen. Leopoldo Fortunato Galtieri – was desperate to retain power. The invasion seems to have been an attempt to rally the Argentine population and to distract Argentines from the economic malaise and human rights violations that were laid at the junta’s doorstep. The British, under Prime Minister Margaret Thatcher, assembled a task force that retook the islands from the Argentines, hastening the collapse of the junta. Despite the change in government, however, Argentina continued to claim that the islands should be Argentine property.

Now, with the promise of new oil wealth, tensions are rising again. Members of the Mercosur trading bloc, which includes Argentina, Brazil, Paraguay and Uruguay, together with associate member Chile, announced that they would bar vessels flying the Falkland Islands ensign from docking in their ports. Argentina has also allegedly tried to undermine the Falklands fishing industry by instructing its boats to capture squid before the creatures’ migration takes them into Falklands British waters.

British Prime Minister David Cameron announced last week that he has held official discussions on how Britain would defend the Falklands in the event of another invasion attempt. “It is important for Britain to send a clear message that as long as people in the Falklands want to remain British, we respect that right of self-determination,” he said. He accused Argentina of a colonialist desire to force the island residents to accept a government they didn’t choose.

Falklands residents have supported Cameron’s declaration. Patrick Watts, a radio broadcaster, told the British paper The Telegraph, “Everyone here was very heartened by this show of support from London and relieved that Britain hasn’t forgotten the incredible sacrifices of 30 years ago. The Argentine threats brought back very unwelcome memories of 1982 for us here, and so we felt very reassured by Mr. Cameron’s comments.”

Argentina, meanwhile, claims that the islands’ residents, most of whose families have been present for generations, are imported occupiers who have no right to determine the territory’s sovereignty. “David Cameron is pursuing a policy of piracy and aggression because at home the economy is collapsing, there are riots in London, and Scotland and Wales want to escape the English empire,” Carlos Kunkel, a member of Argentina’s ruling party, said. Argentine President Cristina Kirchner has promised, however, that her country will consider only peaceful methods of exerting pressure.

The historical claims of the two nations are difficult to unravel. It’s possible, albeit doubtful, that Argentina has some legitimate grounds for claiming it should have been the rightful possessor of the islands back in the 1830s. However, those claims have little relevance to the modern world. No one alive today was aggrieved by Britain’s land grab, if that is what it was, over 175 years ago. American actions at that time were equally expansionist. So was Argentina’s own southward march to the bottom of the continent, which led to decades of war with Native Americans and protracted border disputes with Chile. Argentina’s Mercosur allies have their own histories of aggressive expansionism.

What is relevant today is that the long-time residents of the Falklands are satisfied with their current government. Argentina, which has a history of taking and keeping things to which it was not entitled (ask bondholders whom the nation stiffed in its default just a decade ago), is behaving true to form. It does not deserve much international sympathy.

Americans are prone to side with Britain and the Falklanders. Brazil, however, seems to be set on supporting Argentina’s claims, no matter how ill-founded they are. This is consistent with a general Central and South American tendency toward skepticism of the English-speaking world, whose nations are often perceived as arrogant and imperious. Brazilians may not always consider themselves to be Latin Americans, but in a dispute between a Spanish-speaking neighbor and faraway England, they are apt to identify with the former.

Brazil’s support of Argentina raises the stakes in any potential conflict. Unlike Argentina, Brazil is a relatively well-managed and important emerging power, with growing sway in international affairs. A fight in which the United States takes one side and Brazil takes the other could get ugly.

The best way to defuse the threat is to bring Brazil’s interests more closely into line with those of the world’s better-organized economies. Many U.S. policies, including visa requirements, fail to recognize Brazil’s relative stability and prosperity, instead treating it in much the same way as turbulent Central American nations such as Guatemala. This is very irritating to Brazilian officialdom. The United States and Brazil also lack a tax treaty – practically a necessity for major trading partners – let alone a free-trade agreement. Instead of fostering close trade relations with Brazil, we discriminate against key Brazilian products, including ethanol and citrus.

By opening more doors for Brazil to participate in international trade as a member of the developed world, we can encourage it to use its regional influence in defense of the principles that make trade and development possible.

With or without Brazil’s help, however, it is clear that the Falklands are going to require outside protection, at least for a while. Further oil exploration continues to add more fuel to the old disputes. We need to be prepared to help douse any flames.

About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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