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Cablegate: Argentina: Seizing the Bilateral Opportunity - Building On

VZCZCXYZ0005
RR RUEHWEB

DE RUEHBU #1263/01 2541913
ZNR UUUUU ZZH
R 101913Z SEP 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1989
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEHFR/AMEMBASSY PARIS 1447

UNCLAS BUENOS AIRES 001263

PARIS FOR USOECD

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV OPIC EXIM BEXP AR
SUBJECT: Argentina: Seizing the Bilateral Opportunity - Building on
GoA's Paris Club Repayment Pledge

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

1. (SBU) The GoA's surprise September 2 announcement that it will
soon pay all Paris Club debt, which would include fully clearing
some $402 million in arrears to the USG, opens the door to
Argentina's normalization with official USG credit agencies. Once
arrears to the USG are reconciled and cleared, our Eximbank, OPIC
and USTDA will be free to consider re-engaging in Argentina to
support U.S. exporters and investors by offering new sovereign
credits or facilitating programs that will help expand bilateral
commerce. Similarly, the U.S. military will be once again able to
consider offering Foreign Military Financing, Excess Defense
Articles, and Global Peacekeeping Operations Initiative programs.
The USG should move quickly to capitalize on the trade and
investment opportunities that this opening offers -- our European
and Japanese counterparts are certain to be doing the same. Post
recognizes that any decision to re-enter the Argentine market will
be made individually by USG agencies, and we stand ready to provide
any and all information requested. End Summary.

--------------------------------------------- -----
Paris Club Arrears Constrain USG Credits, Programs
--------------------------------------------- -----

2. (SBU) President Kirchner's surprise September 2 announcement that
Argentina will repay the nation's debt to Paris Club creditors
represents an important step in Argentina's normalization from the
financial and economic trauma of the 2001/2 economic crisis. GoA
officials have told us they intend to reconcile arrears with the
Paris Club Secretariat and finalize payments to sovereign creditors
by calendar year-end 2008. Once Argentine arrears to the USG -
currently estimated at $402 million -- are cleared, USG "Brooke" and
"620Q" sanctions will be lifted. (Brooke sanctions are triggered by
being in arrears for more than 12 months on USG loans funded through
the Foreign Operations Appropriations Act, while 620q sanctions are
triggered when the debtor is in arrears for more than 6 months on a
loan funded through the Foreign Assistance Act.)

3. (SBU) These sanctions, along with specific U.S. official credit
agency charter restrictions against lending into arrears, currently
prevent USG's Eximbank, OPIC and USTDA from supporting U.S.
exporters and investors by offering new sovereign credits or
otherwise facilitating programs that will help expand bilateral
commerce. These sanctions have also prevented the U.S. military
from offering Foreign Military Financing (FMF), Excess Defense
Articles through 505 Drawdown authority, and have limited use of
Global Peacekeeping Operations Initiative funding. Once Paris Club
arrears are paid down, U.S. credit agencies can re-assess their
interest in re-initiating activities in Argentina.

--------------------------------------------
Jump Starting Paris Club Debt Reconciliation
--------------------------------------------

4. (SBU) As of the last (April 2008) Paris Club Secretariat review,
the total stock of Argentine debt outstanding to Paris Club
creditors -- including arrears, late interest, and future principal
payments -- totaled $7.92 billion, of which $5.36 billion was in
arrears and $1.22 billion was late interest. Of this amount, the
total stock of Argentine debt outstanding to the USG totaled $425.4
million, of which $401.9 million was in arrears, including late
interest. Of the $425.4 million owed to the USG, the total stock of
debt outstanding to the U.S. Eximbank is $389.1 million, of which
$368.1 is in arrears, including late interest. The total stock of
debt outstanding to USAID is $36.2 million, of which all but $2.5
million is in arrears. While formal reconciliation of these credits
and arrears will be conducted through the Paris Club Secretariat, we
could assist the process by providing the GoA's Economy Ministry
Secretariat of Finance a detailed breakdown of credits along with
accompanying documentation.

--------------------------------------------
Eximbank: Engine for U.S. Export Generation
--------------------------------------------

5. (SBU) The GoA has made clear that one of the reasons it has
decided to pay down Paris Club arrears was to regain access to
export credit agency longer term financing to support needed

domestic infrastructure project development. Had the GoA decided to
negotiate a gradual pay-down of arrears, U.S. exporters would have
been placed at a competitive disadvantage versus their European and
Japanese competitors. While the U.S. Eximbank charter requires that
all/all arrears on Eximbank credits be cleared before the Bank can
consider going back "on cover" for sovereign exposure, it is unclear
whether other nations export credit agencies (Frances COFACE,
Germany's Hermes, Britain's ECGD, etc.) are similarly constrained.

6. (SBU) In 2007, U.S. goods exports to Argentina totaled $5.3
billion, of which the single largest category comprised equipment
and intermediate capital goods, the type that can benefit from
Eximbank financing. A scarcity of foreign direct investment in the
development of Argentina's primary infrastructure - in part due to
investment climate concerns and in part due to the lack of
competitive long-term financing - has led the GoA to take on
significant new infrastructure development, including the
development of new electricity generation plants, on its own. There
are significant opportunities for U.S. exporters at hand: for
example, General Electric's local management tells us that company
electricity turbine, diesel locomotive, and medical equipment sales
to the GoA would all be supported by renewed access to export credit
agency financing.

--------------------------
OPIC: Strong GoA Interest
--------------------------

7. (SBU) New OPIC exposure in both insurance and financing has been
limited by 620Q sanctions under the Foreign Assistance Act. The GoA
has expressed strong interest in exploring a range of OPIC programs.
The GoA's investment promotion agency, PROSPER-AR, has been working
with both the World Bank and Inter-American Development Bank to
promote local venture capital fund development. Both PROSPER-AR and
the state-owned Banco de la Provincia de Buenos Aires, the nation's
oldest bank, have expressed interest in tapping OPIC venture capital
fund expertise and financing. For its part, the GoA's Planning
Ministry is eager to access OPIC expertise and financing to promote
the development of low and middle income housing projects,
particularly in the nation's interior. The Planning Ministry's
Secretariat of Energy has expressed interest in exploring OPIC's
Clean Energy Initiative to encourage and support projects that
incorporate energy efficiency and clean technologies. A number of
the almost 500 U.S. companies working in Argentina have expressed
interest in exploring OPIC long-term risk insurance programs.

--------------------------------------------- -
USTDA: Promoting U.S. Technology and Standards
--------------------------------------------- -

8. (SBU) The U.S. Trade and Development Agency (USTDA) advances
economic development and U.S. commercial interests in developing and
middle-income countries by funding technical assistance, feasibility
studies, training, orientation visits, and business workshops that
support the development of a modern infrastructure and a fair and
open trading environment. Since the agency's creation in 1981,
USTDA investments in Latin America and the Caribbean have produced
over $6.1 billion in U.S. exports. USTDA's re-engagement in
Argentina would help enhance U.S. Embassy -- and particularly
Foreign Commercial Service -- efforts to stimulate U.S. exports. In
the past, USTDA has been an effective tool to promote the adoption
of U.S. technology and standards for major Argentine infrastructure
projects among Argentine government and industry decision-makers.

-----------------------------------------
U.S. Military: Tool to Broaden Engagement
-----------------------------------------

9. (SBU) While a limited Brooke sanctions waiver has permitted the
Department of Defense to continue offering Argentina IMET training,
it has effectively stopped major purchases supported by Foreign
Military Financing, transfer of excess defense articles through Sec.
505 drawdown authority, and material purchases offered through the
Global Peacekeeping Operations Initiative (GPOI). The Military
Group in Buenos Aires (the Embassy's security cooperation office)
has started to engage with Argentine Ministry of Defense and service
personnel about potential expanded engagement opportunities that
full relief from these sanctions makes possible. Some examples of
broadened engagement could include the provision of either new
material purchases or transfer of excess defense articles to satisfy

standing Argentine military requirements for additional rotary and
fixed-wing aircraft, tracked and wheeled vehicles, and command and
control equipment along with spare and sustainment parts for U.S.
origin equipment currently in their inventory. Additionally, the
availability of GPOI funding for material will offer the possibility
to procure sorely needed command and control equipment for the
combined Argentine/Chilean peacekeeping unit "Cruz del Sur."

-------------------------------
Comment: Seizing the Initiative
-------------------------------

10. (SBU) The USG should move quickly to capitalize on trade and
investment opportunities that the GoA's welcome decision to pay down
Paris Club debt offers. We can begin preparations now while work is
ongoing to implement the GoA's decision to pay. Our European and
Japanese counterparts are certain to do the same. We recognize that
any decision to re-enter the Argentine market will be made
individually by USG agencies based upon standard USG risk assessment
criteria. Post stands ready to help research and provide any and
all information requested by these agencies.

11. (SBU) For our part, Post will poll American Chamber of Commerce
members here on their historical use of U.S. export credit agency
programs and their specific interests in new credits, programs, and
products. Initial steps Washington credit agencies may want to
consider include reaching out to the senior GoA delegation
(including Planning Minister De Vido) who will accompany President
Kirchner to meetings in late September with U.S. business
representatives in New York (on the margins of the UN General
Assembly) at the Council of the Americas and at the Business Council
for International Understanding. The opportunity for USG credit
agencies to re-engage with Argentina is compelling and speaks to our
interest in supporting the U.S. private sector and in deepening our
already strong bilateral ties.

WAYNE

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