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Cablegate: Argentina: Finance Secretary Says Debt Swap Moving Ahead

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E.O. 12958: DECL: 2020/02/25
TAGS: ECON EFIN EINV PGOV PREL AR
SUBJECT: Argentina: Finance Secretary Says Debt Swap Moving Ahead
Despite More Negative Market Environment

REF: 10 BUENOS AIRES 118

CLASSIFIED BY: Tom Kelly, DCM; REASON: 1.4(B), (D)

Summary

-------------


1. (C) Argentine Finance Secretary Hernan Lorenzino expects the
GoA's proposed debt swap agreement to be fully approved by
international regulatory authorities and ready for launch by
mid-March. Noting the recent negative market environment, he said
that the exchange might have to go forward without the new money
component that was earlier thought to be a key part of the proposal
- the USD 1 billion that was to be raised from institutional
investors as part of the deal. Lorenzino dismissed the attempt by
the political opposition to tie Barclays, the lead bank working on
the debt swap, to the British oil rig exploring for oil off the
coast of the Falkland/Malvinas Islands. He said Barclays was not
associated with the rig's owner and that its position working on
the holdout proposal is secure. Regarding the Paris Club debt,
Lorenzino said that the GoA would focus its attention on the issue
after the holdout debt restructuring is completed; separately,
however, he is telling at least one European Embassy that the GoA
is unwilling to submit to an IMF Article IV consultation. He also
discussed the imminent transfer of ARP 24 billion in 2009 Central
Bank (BCRA) profits to the Treasury, calling it "business as
usual." Finally, with regard to the Azurix ICSID negotiations,
Lorenzino said that the case was moving forward and that new
Treasury Attorney Da Rocha would be meeting with the Chief of
Cabinet or President in the next few days to discuss it. End
Summary.


SEC Still Asking Questions

------------------------------------


2. (C) Secretary of Finance Hernan Lorenzino told EconCouns on
February 22 that the GoA is waiting for U.S. Security and Exchange
Commission (SEC) approval to be able to move ahead with the
proposed debt restructuring. He explained that the disruption
caused by the snow storms in the U.S. had somewhat delayed the
SEC's review process. The GoA expects to receive a new round of
SEC questions and requests for clarifications imminently.
Lorenzino said that he will not be able to estimate with any
confidence when the holdout transaction would be ready to launch
until he sees the number and complexity of these questions.
Following authorization by the SEC, the regulatory agencies of
Luxembourg, Italy and Japan will also examine the proposal. He
noted that Luxembourg has already begun reviewing the documentation
and sent several questions which the GoA expected to answer within
the next few days. The Italian regulatory agency (Consob) has also
begun an informal review of the filing. (The Italian Ambassador to
Argentine Guido La Tella told the Ambassador February 18 that he
had also met recently with Lorenzino and was given the same upbeat
presentation on the deal's prospects.) Despite continuing
uncertainty about the status of the SEC review, Lorenzino expressed
the hope that all of the international regulatory agencies involved
would complete their review processes within the next two to three
weeks, and that the GoA would be able to launch the swap in
mid-March.


New Money Component May Be Dropped

--------------------------------------------- ---------


3. (C) Lorenzino acknowledged that while the present market
environment is becoming somewhat less positive, this does not
overly concern him. The GoA's top priority is to secure all the
necessary regulatory approvals to get the transaction ready for a
global launch. However, he did indicate, for the first time, that
the more negative market environment might require the exchange to
go forward as a stand-alone transaction, without a new money
component. (Conventional wisdom up to now has been that in order
to support the proposals, the Kirchners had demanded that at least
USD 1 billion in new money be raised from institutional investors
as an integral part of the debt swap.)


Barclays Position as Lead Bank Secure

--------------------------------------------- -------


4. (C) EconCouns asked whether the position of Barclays Bank as
the lead bank working for the GoA in the development of the holdout
proposal was endangered by opposition accusations that the bank
held a significant position in the British-owned company Desire
Petroleum, which is leading the controversial effort to explore
for oil and natural gas in the waters off of the Falkland/Malvinas
Islands. Lorenzino responded that Barclays position was secure.
He said that the company does not own any part of Desire Petroleum.
Rather, Barclays owns a fund that manages third-party funds which
are invested in that company. He emphasized that the Barclay's
business unit hired to work on the debt exchange has no connection
whatsoever to anything related to the Falklands/Malvinas and would
continue in its present role with regard to the holdout proposal.


Paris Club After Holdouts

---------------------------------


5. (C) Lorenzino said that while full attention is now focused on
the debt exchange, the GoA has the will to move forward to solve
the problem of the debt owed to the Paris Club creditors. He
explained that his people have been working on a strategic plan --
which has been presented to the Minister of Economy -- to make
progress on this issue after the completion of the debt
restructuring. He added that discussions have progressed to the
point where the government has met with various financial experts
who may potentially advise it regarding how to proceed with the
issue. (Italian Ambassador La Tella told the Ambassador that
Lorenzino described the GoA's Paris Club game-plan in greater
detail in a recent conversation, and that it is, to put it mildly,
unorthodox. In lieu of an IMF Article IV consultation, the GoA
will propose that the Paris Club accept a "peer review" of
Argentina's economy in the G20, in which Argentina is a member, or
in the OECD, in which it is not.)


2009 BCRA Profits to Treasury

-----------------------------------------


6. (C) Lorenzino confirmed press articles which said that about
ARP 24 billion in 2009 BCRA profits would be transferred to the
Treasury. He said that this has been standard practice for the
last couple of years. He compared it to a dividend payout received
by stockholders in private companies, explaining that the profit on
the BCRA's assets came mainly from the peso devaluation and the
interest on bonds in the BCRA's portfolio. The transfer will take
place after the BCRA's Board of Directors approves the transaction.


Azurix ICSID Case

-------------------------



7. (C) Lorenzino explained that the Treasury Attorney's office
(Procuracion General del Tesoro) has the lead on the Azurix ICSID
case negotiations and that the Ministry of Economy's role is
secondary. He mentioned that he recently participated in two
meetings related to Azurix with the new Treasury Attorney Joaquin
Da Rocha, in one of which Economy Minister Boudou participated. In
those meetings, they discussed the general budgetary impact of
ICISD cases, including Azurix, CMS, and two similar cases which had
been decided in favor of the companies involved and awards were
granted. Regarding the Azurix case specifically, they discussed
how to deal with the complication of the involvement of the
Province of Buenos Aires in the case and how that would affect the
flow of money from the Treasury to the company. Despite that,
Lorenzino said that he was not aware of any problems that would
delay an agreement, saying that the case is moving forward, and
that Da Rocha will meet in the next few days with the Chief of
Cabinet and/or the President on the issue.


Comment

--------------


8. (C) Lorenzino still seems to have the full support of the
government to carry the debt restructuring through to a conclusion.
In fact, the government seems so intent on pushing the process
forward that it appears to be displaying unprecedented flexibility
in the terms it is willing to accept, i.e. the potential dropping
of the new money component. However, the one thing that could
still derail the agreement is the possibility that Minister of
Economy Boudou might be fired. Over the last few days, there have
been press reports to the effect that Boudou is on his way out due
to the problems caused to the government by his handling of the
BCRA leadership imbroglio and the controversial Bicentennial Fund.
Embassy sources discount these rumors at this point, and say that
he is likely to stay on at least until the debt swap is completed.
(And Boudou got a new public vote of confidence from Cabinet Chief
Fernandez on February 24.) Given that he has been the champion
within the government of a solution to the holdout problem, his
continued presence is crucial. If he goes now, it is unlikely that


the restructuring agreement will be completed anytime soon.
MARTINEZ

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