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Cablegate: Argentine Economy Minister Prioritizes Paris Club

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E.O. 12958: N/A
TAGS: AR ECON EFIN ETRD
SUBJECT: Argentine Economy Minister Prioritizes Paris Club
Resolution, Investment Climate

Ref: (A) 07 Buenos Aires 2292

(B) 07 Buenos Aires 2271
(C) Buenos Aires 154

This cable contains sensitive information - not for internet
distribution.

-------
Summary
-------

1. (SBU) GOA Economy Minister Martin Lousteau, in his second meeting
with the Ambassador, called a Paris Club settlement an important --
but not urgent -- priority of the Cristina Fernandez de Kirchner
administration. He called any formal role for the IMF in a
rescheduling politically unpalatable and looked forward to
senior-level engagement with the USG to explore "alternatives" to
resolve this outstanding friction, including by sending his
Secretary of Finance to Washington soon. Lousteau expressed

SIPDIS
interest in upgrading bilateral economic engagement, including by
considering invitations
to attend a regional finance ministers' meeting on the margins of
the April IDB conference in Miami and to keynote a Council of the
Americas' conference in May. He also agreed to receive Codel Engel
on February 21. Noting GoA sensitivity to a number of public USG
reports that describe the Argentine economy, Ambassador explained
that these are not policy documents and are not intended to transmit
USG views on these issues. Ambassador noted the USG is closely
following efforts by U.S. bond holdouts to resolve their outstanding
claims, as well as a number of arbitration suits filed by U.S.
multinationals in the aftermath of the 2001/2 economic crisis.
Ambassador encouraged the GoA to resolve these bilateral frictions
both to normalize Argentina's relations with international capital
markets and to improve the nation's investment climate. Ambassador
also briefed Lousteau on ongoing discussions of outstanding claims
on the GoA, including those by U.S. insurance company TIG, U.S.
printer Bowne, and the human rights case of Eduardo Saiegh.
Finally, Lousteau noted expanding U.S. investment in Argentina's
high tech and "creative" services sector and his Ministry's
cooperation with the American Chamber of Commerce to encourage new
investor interest. He and Ambassador agreed to explore ways to help
meet Argentina's growing demand for well-trained tech sector
employees, including by encouraging U.S./Argentine university to
university links.
End Summary.

--------------------------------------------- -------
2nd Meeting with Econ Minister: Invitation to Engage
--------------------------------------------- -------

2. (SBU) Ambassador, DCM, and EconCouns met February 13 with Economy
Minister Martin Lousteau, Finance Secretary Hugo Secondini and
Counselor Ignacio Perez Cortes. At their first meeting on December
3 (Ref A), then-President of the state-owned Buenos Aires Province
Bank Lousteau had already been named, but not yet sworn in, as
Minister.

3. (SBU) Ambassador passed Treasury Secretary Paulson's invitation
to Lousteau to join an April 7 regional finance ministers' meeting
on the margins of the upcoming IDB annual meeting in Miami and noted
former Minister Peirano's attendance at the last October 2007
meeting. Lousteau agreed to have Secondini join a March 4 Deputies
call on this. AmbaQ,Em1QM5Q>\>,Q , and Codel Engel's request for a
meeting with Lousteau February 22. More broadly, Ambassador
emphasized our desire to have senior USG officials engage their GoA
economic counterparts in Argentina, in the U.S., and in multilateral
fora to broaden our working relationship and to move our common
economic agenda forward. Lousteau expressed enthusiasm for an
expanded bilateral agenda and agreed to meet with Representative
Engel's congressional delegation.

-------------------------------------------
Paris Club: Alternatives to IMF Monitoring?
-------------------------------------------

4. (SBU) Lousteau confirmed the GoA position that dealing with the


longstanding Paris Club (PC) impasse was "important but not urgent,"
a phrase he had used previously with the domestic media. He noted
that Finance Secretary Secondini had met February 11 in Paris with
PC Secretary Musca and French Treasury authorities, and later in
Berlin with German Treasury authorities to outline GoA PC views.
Lousteau confirmed that any "traditional" IMF role in a PC
rescheduling remains politically unacceptable to Argentina. "We
want a deal, but our country has suffered in its relations with the
Fund," Lousteau explained. Ambassador noted a general perception
among PC creditors that Argentina has the capacity to pay and
recalled discussions of some possible alternatives, including
substantial voluntary payments, by Lousteau's predecessors with
major PC creditors, but that the GoA has yet to present any formal
proposal to the PC. Resolving PC arrears, the Ambassador said,
would clearly be a positive step forward for both countries, and the
Embassy has worked extensively on this issue with Lousteau's two
most recent predecessors -- Ministers Miceli and Peirano -- and
their staffs. Ambassador suggested that Lousteau consider
submitting a voluntary proposal to the Paris Club Secretariat and
emphasized that any such plan should include provisions to begin
making up-front payments on arrears as a sign of good faith.
Lousteau offered to have his Finance Secretary Secondini travel to
the U.S. in the next few weeks for more substantive discussions of
GoA concerns and "creative" alternatives.

5. (SBU) Note: In an earlier conversation with EconCouns, Secondini
had informed EconCouns that the GoA is preparing an analysis for the
PC Secretariat that he said would debunk PC creditor perceptions
that Argentina has the capacity to clear its arrears immediately and
justifying Argentina's need for creditor "relief." The paper should
be completed within the month. Secondini probed for "space for a
Paris Club resolution that uses alternative monitoring mechanisms
and reflects Argentina's political and economic reality," including
allowing the French Treasury, perhaps in combination w5[QZ)QnQinked debt
payment capacity.

-----------------------
Bond Holdouts and ICSID
-----------------------

6. (SBU) Ambassador noted his frequent conversations with former
Economy Ministers Miceli and Peirano and their staffs about the
issue of bondholders who did not participate in the 2005 debt
exchange. He emphasized this is an issue of great interest in
Washington, with U.S. citizen holdout bondholders, in addition to
their legal actions against the GoA, continuing to forcefully lobby
the USG and Congress. Congressman Engel, in his upcoming visit to
Argentina, will certainly raise this issue, the Ambassador
concluded.

7. (SBU) Lousteau replied that Argentina has a law that defends
Argentina's sovereign interests vis-a-vis bond holdouts. (The law
prevents the re-opening of the original 2005 exchange under better
terms than the original proposal, changing the debt exchange offer
and/or making in-court or out-of-court settlements with creditors
not participating in the 2005 debt exchange.) He called the bond
holdout issue important, but a second-tier issue pending resolution
of Paris Club arrears. Finally, he noted President Cristina
Fernandez de Kirchner's disinterest in engaging on the holdouts,
saying "the less time CODEL Engel spends on this issue with the
President, the better their meeting will be." Without showing any
willingness to alter the GOA's dug-in position, he encouraged the
Ambassador to convey to the CODEL's members that they would be
well-advised to discuss the issue with him instead.

8. (SBU) Ambassador noted a number of high-profile international
arbitration cases that derive from the 2001/2 economic crisis are
coming to their final conclusion within the ICSID tribunal process.
(The first ICSID case that has fully concluded was that of CMS
Energy's investment in Argentine natural gas pipeline company TGN).
Ambassador outlined USG views on this case, originally presented in
November 2007 to former Argentine Ambassador to the U.S. Bordon by
A/S Sullivan: the GoA had earlier given formal assurances to the
ICSID Annulment Committee that the GoA would pay, in accordance with
the ICSID Convention, if Argentina lost the annulment appeal;
Argentina did lose the annulment appeal; our expectation is that the

GoA will pay the CMS award in accordance with its ICSID commitments;
and we are concerned that a failure to make a timely payment will
send the wrong signal to potential foreign investors.

9. (SBU) Finance Secretary Secondini noted the Economy Ministry's
familiarity with the issue and said that his Secretariat has
discussed the potential contingent liability these ICSID and
UNICITRAL cases imply. Counselor Perez Cortes noted provisions of
Argentine law and of the ICSID Convention (Article 54) that he said
require any final ICSID claims being "executed" through domestic
institutions. (Note: In an earlier conversation with EconCouns,
local CMS counsel argued that any such requirement for local
execution was against the spirit, if not the letter, of ICSID
arbitration and was a transparent GoA ploy to tie up outstanding
ICSID claims for another decade in Argentine courts.)

--------------------------------------------- -
Sensitivities on USG Public Economic Reporting
--------------------------------------------- -

10. (SBU) Ambassador noted recent media attention to the publication
of USG annual reports that touch on the Argentine economy, including
our Background Notes, the Investment Climate Statement/Country
Commercial Guide, the National Trade Estimate, and the Special 301
Report. These reports, the Ambassador explained, including a recent
Background Notes update that touched on Argentine inflation
calculation methodologies, are not policy documents and not intended
to transmit U.S. government views on issues. Ambassador noted the
assistance provided to INDEC staff by the U.S. Bureau of Labor
Statistics (BLS) and underlined the importance of GoA statistics
agency INDEC taking steps -- including rolling out a new CPI
calculation methodology -- to restore public and international
confidence in the organization's economic data reporting. Lousteau
understood the nature of USG public reporting and said he
appreciated the assistance of the U.S. BLS and the Bureau of the
Census in meeting with INDEC officials to brief them on U.S. CPI
calculation methodologies.

------------------------
Outstanding Claims Cases
------------------------

11. (U) Ambassador noted Embassy's close collaboration with the
Economy Ministry on several disputes involving U.S. companies,
including two disputes related to the claims of TIG Insurance
company and Bowne. He hoped these cases could be finally resolved
soon. Despite the lack of a response from the Department for our
request for front-channel guidance on the matter (ref c), Ambassador
also noted Embassy's work with the Economy Ministry on the status of
Argentine citizen Eduardo Saiegh's effort to attain compensation
from the government for his kidnapping in 1980 and the loss of his
stake in Banco Latinoamericano. (Mr. Saiegh claims that he was not
only a victim of kidnapping and torture, but also a victim of
anti-Semitism.) Lousteau expressed ignorance about the case, but
asked Finance Secretary Secondini to coordinate with the Embassy on
these issues.

--------------------------------------------- -------
Cooperation to Expand Services, High Tech Investment
--------------------------------------------- -------

12. (U) Lousteau highlighted Ministry of Economy efforts to support
the growth of Argentina's burgeoning service sector, particularly in
the high tech and "creative" fields where Argentina's well-educated
and capable labor pool offer the nation a strong competitive
advantage. He noted a recent meeting with an American Chamber of
Commerce delegation where Lousteau expressed the GoA's desire to
have more U.S. companies centralize their regional back-office
operations in Argentina. He cited IBM as an exemplar, with over
5,000 engineers based in Buenos Aires providing back officer
services for IBM affiliates throughout the hemisphere. Ambassador
suggested that Lousteau participate in the upcoming Montevideo
Innovation Forum April to spotlight Argentina's competitive
strengths. Ambassador noted that Secretary of Commerce Gutierrez
would be pleased to meet with Lousteau either in Uruguay or on the
margins of the upcoming Washington Council of the Americas annual
meeting in May. To help meet Argentina's growing demand for well
trained tech sector employees, Ambassador and Lousteau discussed the

benefits of expanding links between U.S. and Argentine
universities.

-------
Comment
-------

13. (SBU) With recent bilateral frictions linked to the "suitcase"
scandal receding, the Economy Ministry appears eager to engage on
our common economic agenda items and expand senior-level bilateral
contacts. This is certainly welcome. But other than preparing a
justification for its request for Paris Club "relief" on outstanding
arrears, Lousteau's Economy Ministry has yet to go beyond restating
its allergy to a formal IMF role in a Paris Club rescheduling.
Hopefully, meetings later this month by Finance Secretary Secondini
with senior State and Treasury officials can move the Paris Club and
the related bond holdout processes forward. Post will continue to
encourage GoA focus on ICSID and other outstanding company claims as
a tangible sign of the GoA's intent to improve its investment
climate.

KELLY

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