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Cablegate: Argentina Economic and Financial Review, October

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DE RUEHBU #1157/01 2961434
ZNR UUUUU ZZH
O 231434Z OCT 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4512
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BUENOS AIRES 001157

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: ARGENTINA ECONOMIC AND FINANCIAL REVIEW, OCTOBER
16-22, 2009

REF: BUENOS AIRES 1137

1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period October 16-22, 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.

Debt
----

--------------------------------------------- ---------------
U.S. Court rules in Argentina's favor on frozen ANSES assets
--------------------------------------------- ---------------

2. (SBU) The U.S. Court of Appeals for the Second Circuit in
New York ruled October 15 that a lower court judge erred in
attaching assets for about $200 million held in the U.S. by
GoA's state retirement agency (Administracion Nacional de la
Seguridad Social or ANSES). These funds were originally in
private pension funds (AFJPs) portfolio, and were transferred
to ANSES after GoA's decision to nationalize them. The order
of attachment had been issued by U.S. District Court Judge
Thomas Griesa of the Southern District of New York on
December 11, 2008, who considered that the funds were subject
to attachment to satisfy the claims of holdout creditors
(that did not participate in the 2005 debt reconstructing).
However, the Court of Appeals considered that the funds were
not subject to attachment given that the Republic of
Argentina or ANSESs did not have the opportunity "to use the
funds for any commercial activity whatsoever" a requirement
for the attachment under the Foreign Sovereign Immunities
Act. After this ruling, ANSES will be able to repatriate
these funds to Argentina.

Trade
-----
--------------------------------------------- -------------
September trade surplus: worst monthly balance of the year
--------------------------------------------- -------------

3. (SBU) On October 20, INDEC announced that the September
trade surplus reached $996 million, lower than the $1.4
billion expected by private analysts and still lower than the
$1.6 billion achieved last year. During the month, exports
declined 34% y-o-y to $4.6 billion and imports dropped 31%
y-o-y to $3.6 billion. The decline in imports is due to very
weak domestic activity as well as a number of import trade
restrictions and the impact of a weaker peso. The
year-over-year decline of exports reflects in part a high
basis of comparison as export volumes jumped in August and
September 2008 following the end of the GoA-Ag conflict. In
September, export quantities declined by 17% y-o-y, while
export prices dropped 20% y-o-y. One the other hand, the 31%
decline in imports was driven by a 15% decline in volumes and
a 19% drop in prices. In spite of the 25% and 38 %
accumulated fall in exports and imports, respectively, the
trade surplus in the first nine months of the year increased
$13.3 billion, and is expected to close the year at $16
billion, according to private estimates.

Economic Outlook
----------------

--------------------------------------------- -------
August monthly economic activity index up 1.0% y-o-y
--------------------------------------------- -------

4. (SBU) The National Statistics Agency (INDEC) announced
October 16 that EMAE (the Monthly Economic activity index - a
proxy for real GDP growth) increased 1.0% y-o-y in August,
following a -1.5% y-o-y fall both in June and July. This
increase was also stronger than the 0.4% y-o-y drop private
forecasters expected INDEC to announce. In the first eight
months of the year, EMAE increased a cumulative 0.2% y-o-y,
which contradicts leading micro indicators and sector-level
data that suggest a severe y-o-y contraction of activity to
date. For example, imports declined a major 37% y-o-y and
fiscal tax collection declined significantly in y-o-y real
terms during January-August 2009. Most independent private
sector estimates and surveys show that the economy has
clearly been contracting since the fourth quarter 2008 and

BUENOS AIR 00001157 002 OF 002


estimate that GDP will contact by 2-3% in 2009.

--------------------------------------------- --------------
Inflation expectations remained unchanged at 20% in October
--------------------------------------------- --------------

5. (SBU) On October 19, the Finance Research Center of Di
Tella University reported that inflation expectations for the
next twelve months remained at 20% in October, similar to
September's survey. The gap between Di Tella's inflation
expectations survey and the BCRA consensus survey, which
estimates the next twelve months "official" inflation
(INDEC-reported) at 6.8%, reached 13.2 percentage points.
The wide gap shows that INDEC's estimates are strongly
distrusted by analysts. Inflation expectations have kept
steady during the whole year, hovering around 20%, except in
the months of February and August when they jumped to 25%.
MARTINEZ

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