Argentina's economy minister: from 'flaming Red' to pragmatic negotiator

BUENOS AIRES Fri Jun 13, 2014 6:35am EDT

Argentine Economy Minister Axel Kicillof speaks during a news conference in Buenos Aires January 21, 2014.  REUTERS/Enrique Marcarian

Argentine Economy Minister Axel Kicillof speaks during a news conference in Buenos Aires January 21, 2014.

Credit: Reuters/Enrique Marcarian

BUENOS AIRES (Reuters) - When he became Argentina's economy minister late last year, many in the business community feared Axel Kicillof, who was once described by a critic as a "flaming Red Marxist," might plunge Latin America's No. 3 economy deeper into isolation in the name of ideology.

Instead, the enigmatic scholar who previously lambasted foreign firms for "looting" the country, has in a few months resolved some of Argentina's long-running disputes with companies and creditors, in a bid to attract investment back into the country.

Deals with the Paris Club of creditor nations to pay back almost $10 billion in debt and with Spanish oil major Repsol to compensate it for the seizure of energy company YPF have sent Argentine bonds and equities climbing as investors show renewed confidence in a country that has been cut off from global credit markets since a 2001/02 default.

The key test of Kicillof's new conciliatory approach will be whether he can secure a deal with "holdout" bondholders who refused Argentina's prior debt swaps - the main obstacle to putting the default behind it. If the U.S. Supreme Court decides this week not to hear Argentina’s case against the holdouts, and Kicillof fails to negotiate a deal, Argentina faces the prospect of defaulting again.

In debt exchanges in 2005 and 2010, 93 percent of Argentina's bondholders took a 65 percent haircut, or loss, on their holdings, leaving a handful of holdouts who demand they be repaid in full.

"He has switched from being ideological to being pragmatic," one executive who has dealt with the 42-year old former economics professor extensively told Reuters. "Contrary to appearances, he has a very businesslike streak."

The executive, like others spoken to for this story, declined to be named, fearing it could impact relations with the government.

Kicillof declined to comment for this story.

Analysts say it was President Cristina Fernandez' defeat in last year's mid-term elections and a perilous decline in Argentina's foreign reserves that prompted her government's reluctant switch towards a more orthodox approach to foreign investors.

It is unclear to what extent Kicillof's apparently new pragmatic approach is driving the agenda or whether Fernandez has had a change of heart. He is close to both the president and to her son's influential youth movement.

Some policy experts fear Kicillof wants to prop up Argentina's ailing economy until the end of the president's term next year by boosting foreign investment instead of undertaking tough reforms of subsidies, trade and capital controls that are the root cause of the country's poor growth outlook.

"These are tactical decisions that are more liberal than before but at the same time, the government maintains its controls over the economy - and that's not liberal at all," said Ricardo Rouvier, an analyst who now runs his own consultancy and is a former adviser to Fernandez.

Still, top businessmen and foreign officials told Reuters they were impressed by the speed and ability with which Kicillof has gone about sealing deals.

A source present at the Paris Club talks earlier this month said he made a good impression by making a case for the deal on solid financial grounds rather than political ones.

Known for his aversion to ties, Kicillof's casual style and hands-on approach surprised them. He whipped out his laptop to draft the deal himself, rather than delegating to aides, prompting some to quip "where's the minister?".

Another business executive who meets him regularly said he was not the "tough guy" he had initially appeared to be.

Unlike the previous strongman in Fernandez's economics team, pugnacious Peronist Guillermo Moreno, who once took a boxing glove to a tense business meeting as a threat, Kicillof was "friendly, polite and well-educated", said the Argentine business executive.

"He has his vision of things, and you won't convince him otherwise, but when he wants to see a result he is capable of getting out of his tunnel vision."

The young minister was raised in the exclusive Buenos Aires district of Recoleta and went to an elite school. He was top of his class at university. An economist who first knew him then, said that in contrast to others in Fernandez's cabinet, he was more of a left-wing intellectual than a populist Peronist.

He is, though, appealing to a younger demographic more than many politicians. With glacial blue eyes and dark sideburns, Kicillof has been dubbed "the pretty face of Argentina's economy" by the Spanish daily El Pais.


Investors had plenty of reason to be wary of Kicillof. He first made international headlines when, as deputy economy minister in 2012, he masterminded the seizure of YPF from Spain's Repsol and defended the move in fiery speeches. It was around this time that Walter Molano, an analyst at U.S.-based BCP Securities, made the "flaming red Marxist" comment.

"We were all freaking out about this guy, when people started talking about him being economics minister," said Alberto Bernal, head of emerging markets at Miami-based investment bank and broker Bulltick Capital Markets. "The way I would label him now is someone who is still very ideological, a Marxist, but a Marxist who is willing to talk to Wall Street."

Bernal said that on a December trip to Buenos Aires with investors, he got the warmest welcome he had received from Argentine officials in more than a decade of such trips. “I felt a big interest from the Argentine government,” he said. “The attitude of the government was totally different.”

When appointed, Kicillof had little experience in either business or politics, having spent most of his career in academia, giving classes and writing about John Maynard Keynes and Karl Marx.

At news conferences, he still lectures for hours, often  underscoring his dislike of economic liberalism. After the Paris Club deal, he boasted of having avoided the involvement of the International Monetary Fund, which forced prior Argentine governments to reduce social spending and privatise companies.

Critics say if Kicillof had been less ideological and accepted IMF auditing, he might have got a more generous repayment schedule. His strategy was, though, broadly celebrated in a country where the IMF is vilified by many people.

An old-school ideologue who criticises the tenets of 21st century globalism, he says Argentina's path to prosperity is through strong domestic demand and he has expanded welfare programs.

But analysts say they believe that the nation's dwindling reserves must have also made him aware of Argentina's urgent need for foreign funds to keep the economy afloat and continue financing his and Fernandez's shared dream of "social inclusion".

The economy is currently in or close to a recession, and is set for its first decline in Gross Domestic Product since 2002 this year, as industrial output falls and one of the world's highest inflation rates hits consumer spending and investment.

"What they've basically done is gone about tackling each of the issues still in the way of Argentina getting back to the market," said David Rees at Capital Economics research group in London.

Still, negotiating with holdouts, many of whom bought Argentina's debt at a massive discount and are now demanding payment back in full, would be more of a bitter pill to swallow - and much more contentious politically than other deals to date.

Last month, Argentina's cabinet chief said the country might consider a deal with holdouts, including hedge fund NML Capital Ltd, but NML said it had still not been contacted by the Argentine government despite "repeated requests to negotiate".

Argentina is “doing everything backwards," said a source familiar with NML's thinking. "Paying the Paris Club doesn't really open the market for them, only in small ways."



Kicillof's popularity with the President and the pro-government youth movement founded by her son gives him a stronger negotiating position than previous economy ministers.

Ignacio Labaqui, analyst for consultancy Medley Global Advisors, said he is the first Argentine minister in almost a decade to control nearly all areas of economic policy.

Fernandez consults with him frequently throughout the day, by mobile or in person over lunch, and praises him in her speeches. Kicillof will need to wield this influence if he wants to get her approval for negotiating with holdouts, a step she has previously refused to support.      

"He influences her and her economic policies a lot," said a mid-level official at the presidential palace, the "pink house".

(Additional Reporting by Nicolas Misculin, Eliana Raszewski and Alejandro Lifschitz in Buenos Aires Leigh Thomas in Paris and Daniel Bases in New York; Editing by Martin Howell)

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Comments (3)
GermanHoldout wrote:
Argentina’s nightmare default, this since 2002 ongoing HORROR must finally have an end!!!
We, the holdouts, have been suffering for more than a decade!!
Since 2002, Argentina has not paid a cent to the holdouts!

Most of the Holdouts are “before default buyer”, who have bought their bonds at an average of 100% or even higher. That is why we cannot accept similar offers as they were in 2005 and 2010.

It would be a historic event, and the whole world would be very pleased, if the government of Cristina Kirchner finished this since 2002 ongoing NIGHTMARE-DEFAULT!

In the “Pari Passu” issue the Holdouts are 100% right! There is nothing to discuss. In the bond contracts “Pari Passu” is clear defined. Also, in the bond contracts Argentina has explicitly waived its sovereign immunity.
It would be helpful, if the US Supreme Court rejected ASAP Argentina’s unjustified appeal. Then, Argentina and the holdouts could immediately negotiate a solution.
The best scenario for the Holdouts (and finally also for Argentina) would be, if the court rejected the case. If this happens, the government of Cristina Kirchner and the Holdouts would be forced to sit down and negotiate immediately an acceptable solution.
Probably under the review of Judge Griesa, who also invited Argentina and the Holdouts to negotiate a solution.

If Argentina and the holdouts made already NOW A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO) clause in December 2014), seizure risks and a technical Default would be immediately averted. Argentina could immediately return to the capital market and thus Argentina could refinance the payments to the holdouts, without using reserves. And also the old bonds would be immediately traded at an predictable and fair price.

Holdouts want a simple solution.
Holdouts DO NOT want such exotic financial constructs, as they were the swap conditions in 2005 and 2010, with an exorbitant Haircut, with many new bonds, with only Discount bonds above $50000, GDP Warrants etc., and with maturities in the eternity. Such “shares like” financial constructs are inacceptable.
A swap from the defaulted old bonds to new bonds is unacceptable also for tax reasons.
In Germany, for example, if you accepted a swap, then you would have to pay for the new bonds 30% extra tax…

Following simple conditions might be acceptable for the Holdouts and maybe also for Argentina on the basis of the old bonds.(Without swapping from old to new bonds, also because of tax reason):

Argentina makes a buyback offer of about 130-140% for the holdouts ( for owing capital+ accrued interest between 2002-2015).
(Argentina owes to today about 230%, a cash buyback of 130-140% would so mean for Argentina already a debt relief of about 100%)

Jun 13, 2014 1:42pm EDT  --  Report as abuse
gi4c0ph wrote:
130% for principal and accrued interest?? You gotta be kidding!

Those Argentinian thieves are illegally holding my savings against my will, and I’ve been waiting for more than 12 years for getting MY MONEY back. Now, do you think they could be allowed to come out of it with just a 30% penalty, that would barely cover our legal expenses?? Just forget it!

Such a privileged treatment would encourage even more rogue states to SCAM and robber other unwitting private investors, such as retired people, etc.
No, sir: they must be SEVERELY punished for their disgraceful conduct, with a penalty high enough to make a deterrent example of them, so I won’t content myself with less than 200% of invested principal.

Jun 14, 2014 9:00am EDT  --  Report as abuse
Errata wrote:
The history of Argentina, including recent events involving Kicillof, leaves little doubt about this country’s much deserved reputation for its criminal unwillingness to respect contracts, for repeated defaults, for expropriation and theft of foreign investor assets, for deliberate fraudulent manipulation of economic statistics, for massive corruption at all levels, for preventing repatriation of capital, and for the selective and capricious treatment of creditors. In Argentina there is a huge difference between its “making a deal” and “actually paying what is owed.” No sensible and responsible person who has any sense of history will invest there.

Jun 15, 2014 11:03am EDT  --  Report as abuse
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