Argentina has given responsibility for turning around its biggest oil producer to a 40-year-old political high-flier whose experience in corporate management consists of a six-month stint at the money-losing state airline.
President Cristina Fernandez de Kirchner on April 16 charged Deputy Economy Minister Axel Kicillof with helping Planning Minister Julio De Vido run YPF SA (YPF:US) when she announced the appropriation of 51 percent of the company from Spain’s Repsol YPF SA. (REP)
The next day, Kicillof, sporting long sideburns and an open-neck shirt, took the lead in defending the takeover to a roomful of dark-suited senators. Speaking for more than two hours, the former student activist laid out Fernandez’s plans for YPF, justified her intervention in the economy and criticized economists who condemn her for tightening foreign exchange controls, limiting imports and using central bank funds to finance spending.
“He’s a rising star,” said Rosendo Fraga, a Buenos Aires- based political analyst. “He’s part of the new generation the president wants to promote.”
Kicillof told senators that the expansion of South America’s second-biggest economy, which has averaged 7.7 percent annually since 2003, was thanks to government policies.
The economy is forecast to expand 3 percent this year, according to the median estimate of seven economists in a survey by Bloomberg, down from growth of 8.9 percent in 2011. Economists estimate annual inflation is 23 percent, more than double the 9.8 percent reported by the government.
“When there is a deep crisis the worst one can do is to think that the state is bad, that the state is the problem,” he said. “The state is the solution. When there is recession and economic crisis the state becomes a key actor in revitalizing demand and production.”
A leader of La Campora, a youth wing of the Peronist party that is linked to the president’s son Maximo Kirchner, Kicillof took charge of finances at Aerolineas Argentinas SA in 2009, the year after the flagship airline was nationalized. He spent six months in the post.
In 2010, Aerolineas’s losses were trimmed to $486 million from $943 million in 2008, according to a company statement.
Last year, he was named to the board of Siderar SAIC (ERAR), the country’s largest steelmaker, as representative of the social security agency that manages pension funds seized by Fernandez in 2008. Kicillof, who holds a doctorate in economics from the University of Buenos Aires, moved to the Economy Ministry in December, when Fernandez began her second term.
Kicillof’s press office didn’t return phone calls seeking an interview or comments.
In a March 15 speech, the president joked that, because Kicillof never wears a tie, he had been branded a Marxist.
“How can you expect people not to say Kicillof is a Marxist, given how he dresses?” Fernandez said to an audience that included Kicillof. “A shirt, no tie, you aren’t traditional. Officials wear a suit, tie and have a serious face, and they are older.”
Since Kicillof took charge of the ministry’s economic policy secretariat, Argentina has boosted import restrictions, changed the central bank’s charter to give government more access to reserves and boosted restrictions on Argentines’ access to foreign currency.
The nation’s borrowing costs yesterday rose above those of Venezuela for the first time since June 2009 on concern the YPF nationalization will discourage investment and curb growth.
The extra yield that investors demand to own Argentine dollar debt over U.S. Treasuries swelled 51 basis points to 1,044, while the yield premium for Venezuela rose 21 basis points to 1,030, according to JPMorgan Chase & Co.’s EMBI Global index. A level exceeding 1,000 is considered distressed.
In the late 1990s and early 2000s Kicillof headed a student political movement he had founded at the University of Buenos Aires. He wrote a doctoral thesis and published two books on the ideas and legacy of John Maynard Keynes, the 20th century British economist who argued that governments should run budget deficits to stimulate economic growth during downturns.
“He was always a brilliant person,” said Gabriel Bezchinsky, a professor at the university who employed Kicillof as an assistant in 1996. “He had excellent analytical capacity and understanding of economic problems.”
While Kicillof has studied the works of Karl Marx, he isn’t a Marxist “and doesn’t consider himself an expert in Marxism,” said Miguel Teubal, another professor at the university.
In his April 17 presentation to lawmakers, Kicillof rejected Madrid-based Repsol’s claim that the company’s stake in YPF was worth $10.5 billion.
“The numbers that some executives talked recklessly about in valuing the company will be revised as we review the fine print and the secret information managed by the company,” Kicillof said.
His comments caused YPF shares (YPFD) to plunge the most on record in Buenos Aires and New York yesterday. Shares fell 29 percent to 77.05 pesos in Buenos Aires, the most since 1994 when Bloomberg records begin. The company’s American depositary receipts plunged a record 33 percent to $13.12 as trading resumed after a halt imposed April 16.
Senate committees yesterday approved the YPF takeover plan with some opposition support. The legislation will head for a full vote on April 25.
Repsol Chairman Antonio Brufau said Argentina will have to pay a fair price for YPF because courts won’t be swayed by the government’s “demagoguery.”
“The country will have to pay us sooner or later,” Brufau told reporters at the opening of an upgraded refinery in Cartagena, Spain yesterday. “Mr. Kicillof won’t set the price. I don’t think he knows much about valuing companies.”
Repsol spent $16 billion on acquiring control of YPF in 1999. The Argentina government first sold part of the former state-owned company to private investors in 1993, during a wave of privatizations by then-President Carlos Menem.
Argentina has taken control of YPF as the government seeks to curb declining oil production after reserves fell 18 percent between 1998 and 2010, according to data compiled by the Argentine Oil and Gas Institute. YPF is the largest oil producer in the country, with about 34 percent of output, Energy Secretariat data show.
Argentina holds untapped shale oil reserves estimated to hold at least 23 billion barrels of oil, of which about 13 billion belong to YPF, according to a YPF report published in February. The company said developing the reserves will require decade-long investments of at least $25 billion dollar a year.
Kicillof’s designation was probably based more on his support of Fernandez’s policies than his capacity to reverse the decline in output at YPF since Repsol took control of the company, said political analyst Jorge Giacobbe.
“For Cristina, loyalty is more important than talent,” Giacobbe said in a telephone interview from Buenos Aires. “This was proved with the YPF announcement.”
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