Cablegate: Argentina: U.S. Private Sector Players Downbeat On

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DE RUEHBU #1673/01 3442039
ZNR UUUUU ZZH
R 092039Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2651
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001673

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV AR
SUBJECT: Argentina: U.S. Private Sector Players Downbeat on
Economic/Political Reality

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Summary
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1. (SBU) U.S. private sector players in the finance, accounting, and
energy fields are downbeat on Argentina's medium-term economic
prospects. In a November 25 lunch hosted by Ambassador for visiting
State Department CFO Brad Higgins, they predicted the Kirchner
administration's political base will weaken in line with declining
growth and agreed that the GoA's private pension fund
nationalization had exacerbated the impact of the global financial
crisis on Argentina's economy by spooking capital market players and
diminishing already low investor confidence. The majority also
predicted that really serious problems would likely not hit the
Argentine economy until after 2009. Notwithstanding the economic
downturn, U.S. company reps noted broad profitability through the
second half of 2008 and agreed that Argentina still offers U.S.
companies some of the best human capital in the region. All
participants agreed that foreign capital investment in primary
infrastructure had dried up, particularly in the energy sector.
Established U.S. companies who face slow growth and regulatory/tax
uncertainties won't leave Argentina, but company reps felt that few
new U.S. companies will seek to enter the challenging Argentine
market in the near term. End Summary.
2. (U) Ambassador hosted a November 25 lunch for Assistant Secretary
Assistant Secretary of State for Resource Management and Chief
Financial Officer Brad Higgins. Attendees included Jose Maria Zas,
President of American Express Argentina; Lorna Martin, Managing
Director, Fitch-Ibca Credit Rating Argentina; Guillermo Fiad,
President, Duke Energy International Southern Cone; Facundo Gomez
Minujin, Managing Director JP Morgan Chase Argentina; Jorge Bacher,
Managing Partner Price Waterhouse Coopers Argentina; and Econcouns
(notetaker).
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Economic Decline Impact on CFK Political Fortunes
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3. (SBU) Chase saw the Cristina Fernandez de Kirchner (CFK)
administration's ability to push the private pension fund
nationalization through Congress with relative ease making the CFK
administration politically stronger, calling it now better placed to
win Congressional support of the annual renewal of its controversial
Emergency Law/Superpowers authority. Fitch disagreed, arguing that
CFK's political base will evaporate when economic growth stops.
Fitch believed that Argentina had reached an economic tipping point
in late November, with consumers pulling back and stores and
restaurants empty. Duke agreed that Argentina's economic prospects
"would get worse before they get better" and predicted a rough
October 2009 mid-term election for the CFK administration as a
consequence. Duke argued that a cowed Argentine private sector was
responsible for CFK administration policy excesses. "We're to blame
- who would have thought we'd let them take the pension funds," Duke
said.

4. (SBU) All U.S. company participants agreed that the CFK
administration's strong-arming of the private pension fund
nationalization had exacerbated the impact of the global slowdown on
Argentina's economy by spooking capital market players and
diminishing already low investor confidence. Chase noted the loss
of the private pension funds as key institutional investor capital
providers had been extremely disruptive to local financial markets.
Chase ascribed the "outsized" losses on Buenos Aires equity markets
to fears in financial circles that the GoA would use its newly
acquired holdings in private banks and companies (via the pension
fund nationalization) to expand state controls on the private
sector. Chase cited the Central Bank's placement of "observers" in
bank foreign exchange trading floors as an object-lesson case in
point. Chase projected possible stagflation in the run-up to 2009
elections, with inflation high due to union pushes in a pre-election
year to make up for prior year wage increase shortfalls. However,
led by Price Waterhouse Coopers (PWC), the majority of company reps
present said that it was most likely the government will not face
major economic problems until 2010 and that it will prime the
electoral pump for 2009 with public works spending.

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Economic Downturn Bites
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5. (SBU) PWC noted that earnings of U.S. companies operating in
Argentina had remained strong through the second quarter of 2008 and
that, slowdown notwithstanding, Argentina still offered some of the
best human capital in the region to U.S. companies. PWC said it is
building up its local employee base to service other PWC affiliates
in the region, and noted Exxon's recent move to increase the size of

its back office engineering service center by 20%. Chase noted they
had recently moved a financial analysis hub from Mumbai, India to
Buenos Aires to take advantage of Argentina's more attractive time
zone and lower junior analyst turnover rates.

6. (SBU) All participants agreed that foreign capital investment in
primary infrastructure had dried up, particularly in the energy
sector. Duke Energy noted that an uncertain Argentine investment
climate mandated a short three-year timeframe for a full return on
any new capital invested, versus a 7-10 year norm for the
electricity generating industry worldwide. Chase opined that
established U.S. companies won't leave Argentina in light of the
economic downturn and regulatory/tax uncertainties, but that very
few new U.S. companies will seek to enter the challenging Argentine
market in the near term, especially if they need to count on more
than a three year return on investment. PWC lamented that, in the
100 years since Argentina had reached its democratic and economic
highpoint in 1916, there had been an almost continuous downtrend of
wealth destruction.

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American Companies Best Employers in Argentina
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7. In discussion of A/S Higgins resource management responsibilities
at the State Department, American Express (Amex), named one of
Argentina's best companies to work for in a recent employee survey
by leading daily Clarin, credited the company's open management and
flex-time polices for the satisfaction of its union-free labor
force, whose average age is 30. Compensation is not a major job
satisfaction issue, according to Amex, since financial service
sector salaries are union-driven and standardized across the banks
and non-bank financial institutions. Amex noted that, economic
downturn notwithstanding, its operations in consumer credit-starved
Argentina are growing faster than those in the United States or in
Europe.

WAYNE

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