Argentina’s Lower House voted on Thursday to approve the expropriation of 51 percent of YPF SA, the country’s largest oil company. Expect more international outrage in weeks to come, when President Cristina Fernandez de Kirchner announces how little she plans to pay Spain’s Repsol YPF SA, the previous owner, for its stake, which it values at more than $10 billion.

Then take a deep breath and move on, because most efforts by other nations to punish Argentina promise to be ineffectual and counterproductive. That’s a job best left to the markets.

The YPF takeover is just the latest snook that Argentina has cocked at investors, creditors and policy makers around the globe: In 2007, Fernandez’s predecessor (and husband) Nestor Kirchner began skewing the country’s official inflation rate, prompting censure by the International Monetary Fund. In 2008, Fernandez nationalized $24 billion of private pension funds. In 2009, she did the same to Aerolineas Argentinas SA.

In 2010, Fernandez forced out the central bank’s governor and began tapping its reserves to pay off debt. Yet Argentina still owes the members of the Paris Club $9 billion from its infamous 2001 default, has not settled with several private debt holders, and has more cases pending with the International Center for Settlement of Investment Disputes than any other nation.

High Dudgeon

Argentina’s trading partners and investors have responded to its wayward behavior with high dudgeon. Spain has threatened to cut imports of Argentinian biofuels. The European Union has delayed economic talks. The IMF has closed its office in Buenos Aires and given Argentina until September to rectify its statistics on inflation and gross domestic product. The U.S. announced in September it would vote against multilateral loans for Argentina until further notice, and last month it revoked trade preferences for Argentina because of its failure to pay arbitration awards to two U.S. companies.

Fernandez, however, has Argentine public opinion on her side. Her takeover of YPF was backed by more than 60 percent of those polled. Mixing high drama with low politics, she has repeatedly wrong-footed her weak and disorganized domestic opponents and successfully played on public resentment over the rushed privatizations of the 1990s (which included Aerolineas and the pension funds) and the huge privations that followed after the 2001 default.

Moreover, thanks partly to a commodity boom, Fernandez has kept Argentina’s economy growing and unemployment low, even as she has manipulated economic policies. She has demonstrated time and again that she doesn’t care what the outside world thinks.

That doesn’t mean Argentina should be allowed to violate international agreements and obligations with impunity. Members of the World Trade Organization should vigorously pursue their complaints about Argentina’s rising wall of import restrictions. The IMF and its members should push Argentina to bring its statistics up to snuff. Companies and their national governments should keep the pressure on Argentina to make good on damages that have been awarded.

But if such pressure is not carefully targeted, it can backfire. Consider the U.S. decision to vote against almost all multilateral loans for Argentina. The U.S. lacks the clout to make the ban stick -- at the Inter-American Development Bank, for example, no other country has followed its lead. To the extent that the move sends a signal, it is an unfortunate one: the familiar heavy hand of Uncle Sam, albeit one now holding a rather diminished stick. Moreover, some of these loans -- like one approved last November to buttress Argentina’s finance ministry -- are intended to strengthen the administrative sinews of Argentina’s public sector, whose weakness has been exploited by Fernandez. The U.S. should reconsider what seems a largely self-defeating strategy.

Argentine Borgia

The U.S. should also keep in mind that Fernandez’s political maneuvers have more in common with the Borgias than with Fidel Castro of Cuba or Hugo Chavez of Venezuela. In 1993, she and her husband supported YPF’s privatization. Now she has reversed it. At the same time, she’s also soliciting offers from foreign oil companies to operate some of YPF’s fields. She would doubtless welcome foreign investors willing to develop Argentina’s shale gas reserves -- and, given that they are the world’s third largest, inevitably they will come, regardless of Repsol’s unhappy experience and whatever outlandish terms she sets.

Eventually, her misguided economic policies may cause her government’s undoing. Argentina’s refusal to settle with its holdout creditors has cut it off from global credit markets, and left it reliant on increasingly dubious mechanisms to service its rescheduled debts. Foreign investment is shrinking. Capital flight is growing. Subsidies on utilities and transportation are increasing government deficits, and caps on rates have made it less profitable for energy companies to invest. Private economists put Argentina’s inflation at more than double the government’s stated figure of around 9 percent.

Rather than play the role of outside oppressor in Fernandez’s well-scripted narrative, the U.S. and other countries should let Argentina’s house of cards collapse of its own accord. Don’t restrict visas for Argentinian officials or try to throw it out of the Group of 20, as some have recommended; instead, rely on countries like Mexico and Brazil to apply suasion at June’s G-20 meeting, and otherwise do what can be done to strengthen Argentina’s democratic institutions.

From regional power politics and United Nations peacekeeping to nonproliferation, the U.S. has interests with Argentina that go beyond just collecting unpaid bills. The best way to advance them is to take the high road and the long view.

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