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Cablegate: Argentina Economic and Financial Review, August

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DE RUEHBU #1011/01 2512017
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P 082017Z SEP 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 4318
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3956
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BUENOS AIRES 001011

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: ARGENTINA ECONOMIC AND FINANCIAL REVIEW, AUGUST
27-SEPTEMBER 3, 2009

1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period August 27-September 3, 2009.
The unclassified email version of this report includes tables and
charts tracking Argentine economic developments. Contact Econ OMS
Megan Walton at WaltonM@state.gov to be included on the email
distribution list. This document is sensitive but unclassified. It
should not be disseminated outside of USG channels or in any public
forum without the written concurrence of the originator. It should
not be posted on the internet.

-----------------------------------
GOA EXCHANGES INFLATION-LINKED DEBT
-----------------------------------

2. (SBU) The Ministry of Economy announced September 1 that it will
broaden the ongoing swap of inflation-linked debt for a new floating
rate bond (the Bonar 2015) by adding as eligible securities the
Boden 2014 and certain series of Guaranteed Loans that were not
previously included, all of which total ARP 14 billion ($3.6
billion). The GoA had previously launched on August 27 an offer to
exchange up to ARP 8.3 billion ($2.1 billion) of inflation linked
debt for a Bonar 2014. In both offers, the GoA exchanges
CER-adjusted bonds for a floating debt instrument that pays Badlar
(the time deposit interest rate for deposits of ARP 1 million ) plus
a spread of 2.75 and 3.00 percentage points for the Bonar 2014 and
the Bonar 2015, respectively. Both offers close September 7. With
these exchanges, the GoA seeks to improve its maturity profile for
the next two years, with GoA debt obligations of $13 and $12 billion
due in 2010 and 2011, respectively.

--------------------------------------------- -------
RESULTS OF TAX AMNESTY AND CAPITAL REPATRIATION PLAN
--------------------------------------------- -------
3. (SBU) On September 1, President Cristina Fernandez de Kirchner
announced that the GoA achieved better-than-expected results in the
tax amnesty and undeclared-capital repatriation incentive plan that
closed on August 31. The capital repatriation section of the plan
had spawned a major debate over whether it facilitated money
laundering. In an August 31 press interview, the former FATF
President Antonio Gustavo Rodrigues indicated that Argentina's
compliance with money laundering regulations will be assessed in
November.
4. (SBU) According to AFIP (the tax authority equivalent to the
IRS), the main results include:
-- About 35,789 individuals took advantage of the plan to legalize
ARP 18.1 billion in undeclared funds, of which only 4% (ARP 725
million) came from abroad; [Note: The capital repatriation plan
allowed undeclared capital held abroad by residents to be brought
onshore after paying an 8% tax, which would be reduced to just 1% if
the capital was invested in real estate or goods producing
industries.]
-- Just under 170,000 companies and individuals took advantage of
the tax amnesty plan, paying about ARP 14.7 billion in back taxes
and social security debt owed to AFIP;
-- The status of 330,547 previously informal workers was legalized.
5. (SBU) Some analysts criticized the results of the plan, saying
that the repatriation of ARP 18 billion (USD 4.7 billion) paled in
comparison to capital outflows of USD 23 billion in 2008 and USD
11.2 billion in the first two quarters of 2009. They note that this
figure represent only 3% of the estimated USD 150 billion held
abroad by Argentines. Also, the 330,000 workers whose status was
normalized represent only about 8% of the informal labor market,
according to private sources.

-------------------------------------------
NOMINAL AUGUST TAX COLLECTION UP 4.2% Y-O-Y
-------------------------------------------

6. (SBU) The GoA announced September 2 that August tax collection
increased 4.2% y-o-y to ARP 25.3 billion (approx. USD 6.6 billion),
below market expectations of ARP 26 billion and showing the lowest
annual y-o-y increase since May 2005 (when it grew 2.6% y-o-y). The
general economic downturn and the impact of the A/H1N1 flu virus
outbreak in Argentina were the main factors behind the disappointing
tax haul. The weak performance of tax collection raises questions
about the GoA's ability to maintain a primary fiscal surplus in
2009.

--------------------------------------------- ------
PRIVATE THINK TANK: INDUSTRIAL PRODUCTION DOWN 2.5%
--------------------------------------------- ------

7. (SBU) The private think tank FIEL reported on August 26 that its
industrial production index was down 2.5% month-on-month, seasonally
adjusted in July. On a year-on-year basis, FIEL's industrial

BUENOS AIR 00001011 002 OF 002


production index was down 9%, in clear contrast with the recent GoA
statistical agency (INDEC) report that industrial production was
down 1.5% y-o-y in July. Industrial activity fell 10.2% y-o-y, and
all industrial sectors, except food production which grew 2.2%, also
fell on a y-o-y basis. The sectors that contracted the most were
automobile production (down 35.5% y-o-y) and base metals production
(down 31.8% y-o-y). Despite last month's contraction, FIEL's data
suggests that activity in the industrial sector has stabilized and
that it might have started to rebound.

KELLY

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