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Cablegate: Argentina: Government Clears Legal Hurdles to Paris Club

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O 192012Z SEP 08
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TO RUEHC/SECSTATE WASHDC IMMEDIATE 2072
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RUEHFR/AMEMBASSY PARIS IMMEDIATE 1464
RUEHMD/AMEMBASSY MADRID IMMEDIATE 2127
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UNCLAS SECTION 01 OF 02 BUENOS AIRES 001312

SENSITIVE
SIPDIS

Ref: Buenos Aires 1303 AND PREVIOUS

E.O. 12958: N/A
TAGS: EFIN ECON PREL PGOV AR
SUBJECT: ARGENTINA: GOVERNMENT CLEARS LEGAL HURDLES TO PARIS CLUB
PAYMENT

-------
Summary
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1. (SBU) With little fanfare, the GoA has moved to amend the
Argentine Central Bank's (BCRA) Charter to allow for the legal use
of BCRA reserves to pay Paris Club debts (see reftels for
background). The GoA added an article to this effect to the decree
issued September 16 amending the 2008 budget law (septel), which it
submitted to Congress September 18. There are differing opinions
over whether Congress must actively ratify the decree or whether it
will automatically enter into force if Congress does not object.
Regardless, Post's GoA and BCRA contacts agree that this amendment
should clear the way for Argentina to pay arrears due Paris Club
member countries. GoA officials held their first conference call
with the Paris Club Secretariat September 18 to begin reconciling
debt figures, and are confident the process can be completed within
one to two weeks. BCRA officials caution that the process could
take longer, but expect the GoA to complete the process this year.
End Summary.

--------------------------------------------- ----
New GoA Decree Includes Amendment to BCRA Charter
--------------------------------------------- ----

2. (SBU) With no accompanying press statements or other fanfare, the
GoA published special Decree 1472 (a Necessity and Urgency Decree --
DNU -- that is equivalent to law) in the Official Gazette on
September 16, and then submitted it to Congress for review on
September 18. This decree amends the 2008 Budget Law to allow for a
36 billion peso (roughly $12bn) increase in spending. Decree 1472
also includes a brief Article (Art. 16) amending the BCRA's Charter
to allow the use of reserves to pay Paris Club (PC) debt. (See
Reftels for background on President Cristina Fernandez de Kirchner's
September 2 announcement that the GoA would pay PC debt using BCRA
reserves.)

3. (SBU) Specifically, Article 16 of Decree 1472 establishes an
exemption to the BCRA prohibition on long-term lending to the GoA.
(Limited short-term lending has always been allowed.) This
exemption allows the BCRA to issue a loan to the GoA for the purpose
of paying public debts as specified by Decree 1394, which the
President signed September 2, declaring the GoA's intention to pay
100% of debts owed to PC using reserves. By including it as one
minor article in an eighteen-article decree about the current year's
budget, the GoA kept press attention to a minimum. Those few in the
media who picked up on it seem to have done it by accident when
analyzing the 2008 budget increase. This is also how Post
discovered it. (Comment: This below-the-radar approach to change
the BCRA Charter contrasts with the high-profile manner in which the
GoA handled the January 2006 payment to the IMF using reserves, when
it issued a DNU specifically for that purpose. End Comment.)

4. (SBU) Post has confirmed with both Economy Ministry and BCRA
officials that this amendment eliminates any legal restrictions on
the BCRA and thus clears the way for Argentina to pay arrears due PC
member countries. Nevertheless, there are differing opinions among
Post's various GoA and BCRA interlocutors over whether Congress must
actively ratify the decree or whether it will automatically enter
into force absent Congressional objection.

5. (SBU) Since Decree 1472 is a special DNU, it carries the force of
law. According to regulation, DNUs are sent to a special commission
in Congress. If that commission does not reject the decree,
Congress' tacit approval is assumed. Given that the GoA has a
majority in Congress (and on this special commission), Post's
contacts see Congressional approval as a done deal. (Comment: On
occasion, particularly with high-profile DNUs, Congress has actively
ratified them into law, and BCRA contacts expect that will be the
case with Decree 1472. Either way it should not affect the final
outcome. End Comment.)

6. (SBU) Decree 1472 establishes that the Economy Ministry will
issue a tradable bond to the BCRA for up to the total amount owed to
PC creditors. The decree does not provide the financial conditions
of the bond, nor does it provide an exact figure for payment.
(Comment: As explained reftels, during the President's September 2
speech, she cited the incorrect figure of $6.7 billion as the total

BUENOS AIR 00001312 002 OF 002


debt owed to official creditors. However, Paris Club Chairman
Xavier Musca subsequently clarified that the full amount due is $7.9
billion, including roughly $6.7 billion principal and interest
arrears and approximately $1.3 billion in outstanding principal.
End Comment.)

7. (SBU) Economy Ministry and PC Secretariat officials held their
first conference call September 18 to start the process of
reconciling the difference between these two figures. (GoA
officials tell Post that there are over 200 separate credit lines to
17 separate PC creditor nations.) A GoA official who participated
on that call subsequently told Econoffs that the process should flow
relatively easily. He even speculated that the full reconciliation
process should take not longer than two weeks to accomplish. Post's
BCRA contacts suspect the process may take longer, given that the
Economy Ministry's own estimates are only about $7 billion (higher
than the incorrect figure cited by the President but still
significantly lower than the PC's estimate). Nevertheless, BCRA
contacts see no reason why the GoA should not be able to complete
the process in 2008.

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