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Cablegate: Argentina: Debt and Investment Issues Discussed with Labor

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #2352/01 3521254
ZNR UUUUU ZZH
R 181254Z DEC 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 9921
INFO RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6730
RUEHCV/AMEMBASSY CARACAS 1629
RUEHMN/AMEMBASSY MONTEVIDEO 6934
RUEHSG/AMEMBASSY SANTIAGO 0945
RUEHBR/AMEMBASSY BRASILIA 6614
RUEHLP/AMEMBASSY LA PAZ DEC SAO PAULO 3605
RUEHRI/AMCONSUL RIO DE JANEIRO 2407

UNCLAS BUENOS AIRES 002352

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: AR ECON EFIN BEXP OVIP VE
SUBJECT: Argentina: Debt and Investment Issues Discussed with Labor
Secretary Chao


SIPDIS

Ref: (A) Buenos Aires 2338
(B) Buenos Aires 2271
(C) Buenos Aires 2112

This cable contains sensitive information - not for internet
distribution.

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

1. (SBU) Secretary of Labor Chao, in a December 12 meeting with
incoming Finance Secretary Hugo Secondini and Argentina's proposed
new Ambassador to the U.S. Hector Timerman, emphasized the
importance of addressing Paris Club arrears as a first step in
regularizing Argentina's access to international capital markets.
Secondini acknowledged the importance of resolving this issue which
he said needs to be done quietly and "not in the press." The GoA
also plans to address the bond holdout issue, but on the GoA's own
schedule, not one defined by U.S. and European holdout lobbying
groups. On Venezuela's support in placing Argentine bonds,
Secondini said "we know who and what we are dealing with."
Secretary Chao said she appreciated the recent visit of senior GoA

SIPDIS
statistical agency officials to her Department's Bureau of Labor
Statistics to review U.S. consumer price index calculation
methodologies. In response to the Secretary's questions on the
investment climate, Timerman called Argentina's success in
attracting new service sector foreign investment a function of
Argentina's capable and well-educated human capital. Ambassador
noted the need for an investment climate that welcomes needed new
infrastructure investment as well, particularly in the energy
sector.
End Summary.

--------------------------------------------- ------
Department of Labor Hosts GoA Statistical Officials
--------------------------------------------- ------

2. (SBU) On December 12, Secretary of Labor Chao met with incoming
Ministry of Economy Finance Secretary Hugo Secondini and incoming
Ambassador to the U.S. (and current Consul General in New York City)
Hector Timerman at the Ambassador's residence. Secretary Chao noted
the recent visit of senior INDEC (GoA official statistical agency)
officials to the Department of Labor's Bureau of Labor Statistics
(Ref C) to review U.S. consumer price index calculation
methodologies. Secondini thanked the Secretary for DoL's courtesy
and said the "updating" of Argentina's inflation calculation is a
priority of incoming Economy Minister Lousteau (Ref B).

---------------------------------------------
Bond Holdouts, Paris Club and IMF-Pre-payment
---------------------------------------------

3. (SBU) Secretary Chao noted the American Task Force Argentina, a
bond holdout advocacy group, had requested that she raise their
longstanding repayment claims with senior GoA officials. Secondini
said that the GoA will certainly address holdout issues, but on the
GoA's own schedule, not one defined by U.S. and European holdout
lobbying groups. The GoA position remains clear and consistent, he
said: "In 2005 we gave all bondholders the option of accepting a
deal, and the GoA is now legally prohibited from re-opening this
offer." The Argentine economy, he concluded, remains "under stress"
and requires a flexible approach to dealing with holdout creditors.
Ambassador noted that he had followed the GoA's 2005 bond exchange
offer from his previous Washington-based position as the State
Department's Assistant Secretary for Economic Affairs and suggested
that Argentina could have increased participation in the exchange by
10-15% had the GoA shown more flexibility in structuring its offer
(bondholders of 76% of the total value of GOA defaulted bonds
swapped their bonds in this exchange at roughly $0.34 on face value
dollar). Nevertheless, it is clear that U.S. bondholders will remain
active seeking a re-opening of talks.

4. (SBU) Secretary Chao and Ambassador emphasized the importance of
addressing Paris Club arrears as a first step in regularizing
Argentina's access to international capital markets, so that
Argentina can once again access needed official export credit agency
financing. Secondini agreed, noting the Economy Minister Lousteau

has publicly acknowledged the importance of resolving this
outstanding issue. "We need to take this step-by-step," he said,
"and we certainly don't want to negotiate this sensitive matter in
the press." Secondini offered to meet with the Embassy's economic
team to review GoA discussions with Paris Club creditors to date.


5. (SBU) Secretary Chao noted that the GoA had significantly
increased its cost of funding by pre-paying relatively inexpensive
IMF debt in January 2006 and funding with sovereign and
Venezuela-supported issues at significantly higher rates --
especially since international capital markets began re-pricing risk
in August 2007. The GoA's decision to pre-pay IMF debt, Secondini
responded, was a largely political one, with a broader political
cost/benefit calculus. On Venezuela's support in placing Argentine
bonds, he said "We know who and what we are dealing with."

6. (SBU) Current Argentine Consul General in New York City and
Ambassador-designate to the U.S. Hector Timerman joined the
conversation late. He noted that he is pending "agrement" (USG
approval) and is eager to take up his duties in Washington. In
response to Secretary Chao's question on who in the GoA is
responsible for attracting needed foreign investment to Argentina,
Timerman distinguished between investment in basic infrastructure,
under the purview of Planning Minister Julio De Vido, and service
sector (information technology, creative arts) investment, under the
responsibility of Argentina's investment promotion agency head
Beatriz Nofal. Timerman called Argentina's success in attracting
new service sector FDI a function of Argentina's capable human
capital. Ambassador noted strong growth in Argentina's automotive,
IT, tourism and creative sectors and praised the caliber of
Argentina's labor pool. He agreed that the rapid expansion of U.S.
investment in Argentina's service sector was a function of the
nation's well-educated, highly capable and relatively inexpensive
workforce. Ambassador noted the need for an investment climate that
welcomes new infrastructure investment as well, particularly in the
energy sector. Timerman noted the boom in U.S. tourism to Argentina,
with Buenos Aires elected in one recent U.S. survey as the second
most popular tourist destination.

7. (SBU) Secretary Chao noted that she had arrived in the U.S. as an
immigrant and asked about Argentines living abroad. Timerman
estimated there are roughly one million Argentines overseas, with
70,000 in Israel, 500,000 in Europe (where Spain and Italy offer
automatic citizenship to third generation returnees) and 200-300,000
in the U.S., concentrated in Los Angeles, Miami, and New York City.
New York's Major Blumberg, Timerman said, had commented to him on
the caliber of the Argentine immigrant population in New York.
Finally, Timerman noted the concentration of educated Argentine's
working in New York City's financial sector, including his own
brother, who trades foreign currencies at Bear Sterns. He
recommended the recently published book "Golden Boys," which
documents the exploits of Argentine investment bankers on Wall
Street.

WAYNE

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