Cablegate: Argentina Economic and Financial Review, November 13-19,

DE RUEHBU #1268/01 3241314
R 201312Z NOV 09



E.O. 12958: N/A
SUBJECT: Argentina Economic and Financial Review, November 13-19,


1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period November 13-19, 2009. The
unclassified email version of this report includes tables and
charts tracking Argentine economic developments. Contact Econ OMS
Megan Walton at 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.

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Congress approves the suspension of the "Bolt Law" (Ley Cerrojo), a
first and necessary step towards presenting a formal offer to

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2. (SBU) On November 18, the Senate approved the bill to suspend
the so-called "Bolt Law" -- Ley Cerrojo -- (45 positive vs. 10
negative votes), a key legal domestic prerequisite before
presenting a formal offer to holdouts. The Chamber of Deputies had
already approved the bill November 4. The Bolt law, originally
approved in 2005, prevented the GoA from making additional offers
to holdouts who did not participate in the 2005 debt restructuring
without prior authorization from the Congress. For additional
background, see October 29 Argentina Economic and Financial Report.
Reportedly, the GoA is working as quickly as possible to get the
necessary regulatory approval for the offer that will enable it to
launch the new offer before December 15. Most analysts believe
that an offer after that date will have to wait until January 2010.

Meanwhile, local newspapers report and speculate on details of the
GoA planned offer. According to some accounts, the GoA will offer
retail investors a three-year bond for past due interest (PDI) from
2004 to 2009, while institutional investors will receive a
seven-year bond. Also, unlike institutional investors, retail
investors will not have to pay 10 cents for each dollar of
defaulted debt they present for the bond exchange. Reportedly, the
GoA has already received participation commitments for about $10
billion from institutional investors (about 50% of the remaining
holdout debt).

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Brazilian and Argentine Trade Summit: Lots of Smiles, Little

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

3. (SBU) Argentine President Cristina Fern????ndez de Kirchner (CFK)
and Brazilian President Luiz Ignacio Lula da Silva (Lula) held a
Summit meeting in the Brazilian capital on November 18 amid
simmering trade tensions where the two agreed only to live up to
existing obligations. Brazilian industrialists and trade officials
have been fuming for some months over the delayed issuance of
non-automatic import licenses for certain economic sectors. As
Argentina's largest trading partner, Brazil has taken an especially
hard hit from what many observers see as an officially sanctioned
back-door restriction on imports. Tensions mounted toward the end
of October when the Brazilian government retaliated, after enduring
a full year of non-automatic licenses on products such as textiles,
and adopted non-automatic licenses on the importation of several
important Argentine products, including olive oil, wine, and flour.
This created tensions on the border where Brazil-bound trucks from
Argentina with perishable cargoes were halted by Brazilian customs
officials awaiting issuance of the non-automatic licenses.
Argentine Minister of Economy Amado Boudou and Minister of Industry
Debora Giorgi responded that Argentina would "not tolerate" the
restrictive measures taken by Brazil against perishable Argentine
merchandise in transit. Giorgi also denied official Brazilian

BUENOS AIR 00001268 002 OF 003

statements that it took Argentina 150 days to issue non-automatic
licenses. On November 11 Brazil escalated the conflict when it
retaliated in the crucial automobile sector. According to news
reports, the Brazilian government required non-automatic licenses
for some automobile parts from Argentina. The automobile sector
is especially sensitive because it is the largest area of trade
between the two countries.

In the November 18 Summit meeting, the Argentine press reported
that Lula exhorted CFK to lift the protectionist measures. He said
that "protectionism is not a solution. It creates distortions that
are difficult to reverse." CFK responded that Lula must keep in
mind that in the trade relationship between their countries there
is a "major partner and a minor partner" and that it is necessary
to "look at the big picture." At the last moment, the two leaders
agreed to a statement where Argentina promised to comply with
existing WTO requirements to issue non-automatic licenses within 60
days. Brazil promised to provide warnings before denying entry to
Argentine products, but Lula reportedly refused to agree to a
21-day advance notice. The two leaders also agreed to more
frequent ministerial-level meetings (every 45 days) to review
bilateral trade issues.

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

Apache receives approval to sell gas at higher than normal rates

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4. (SBU) Apache Corporation, a U.S. energy company, has again
received GoA approval to sell natural gas at higher-than-normal
rates under the Argentine government's "Gas Plus" program. Under
the plan, Apache will start selling 10 million cubic feet per day
of natural gas from new sources of production to Cammessa,
Argentina's government-owned wholesale power-market regulator. The
approval is Apache's second under Argentina's Gas Plus program,
which aims to give companies a financial incentive to explore for
gas by allowing them to charge higher rates for gas from new
discoveries. So far, Apache is the only company with Gas Plus
projects approved for gas marketing, and Apache reports in a
statement that it has three more projects pending approval.

Starting in January, Apache will sell the gas for $4.10 per million
British thermal units for one year, after which the price will rise
to $5. The gas will come from the Guanaco and Ranquil-Co fields in
Neuquen province. Apache previously received approval to sell 50
million cubic feet per day of gas from two fields in the provinces
of Neuquen and Rio Negro. That gas will sell for $5 per million
BTU beginning in 2011. The prices are significantly more than what
Apache and other companies have been getting per million BTU for
other projects; Apache produced 184 million cubic meters of gas per
day 3Q09 in Argentina at an average price of $1.89 per thousand
cubic feet, the company said. The new prices for Apache are still
well below the roughly $6 Argentina pays to import natural gas from
Bolivia or what it pays to import liquefied natural gas from
Trinidad and Tobago.

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INDEC announced a 0.8% m-o-m CPI headline, higher than expected and
building analysts' hopes of a gradual GoA process to normalize

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5. (SBU) National statistics agency INDEC announced November 12
that the October CPI increased 0.8% m-o-m, higher than the 0.6-0.7%
m-o-m most private analysts expected, but still well below private
forecasts of 1.0-1.2% m-o-m inflation. Inflationary pressures in
October were quite widespread, with the highest increases in the
prices of: education (1.4%), other goods and services (1.3%),

BUENOS AIR 00001268 003 OF 003

clothing (1.3%), and equipment and house maintenance (1.1%).
Lowest price increases were in health, transportation, and
communications, both of which increased 0.3%. According to INDEC,
the accumulated CPI increase for the first ten months of the year
was 5.8%, compared to private estimates of more than twice that
level (about 13-15%, well entrenched in double digits). According
to some analysts, INDEC's higher than expected inflation numbers
may indicate that the GoA will continue to gradually improve the
accuracy of its reporting.

The outlook for inflation appears to be negative, accelerating to
15%-20% in the short-term from current level (of 13-15%) based on
the following factors: a) recovery of real activity and domestic
demand (activity already touched bottom sometime during the third
quarter of 2009 and is already showing a mild recovery); b) the
favorable external environment (higher commodity prices) and the
normalization of agriculture production after the 2009 drought; c)
the lagging effect of a peso depreciation; d) the expected
dismantling (at least partially) of the subsidies web; e)
unanchored inflation expectations; f) continued wage pressures from
unions; g) expansive fiscal and monetary policies and h) political
uncertainty ahead of the 2011 elections.

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Consumer Confidence up

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

6. (SBU) The consumer confidence index, measured by Torcuato Di
Tella University, increased 3.7% m-o-m in November. All three
index components increased: 1) consumer willingness to purchase
durable goods and real estate (5.8% m-o-m); 2) improvement in
personal situations (3.5% m-o-m); and 3) consumer sentiment toward
the macroeconomic environment (2.8% m-o-m). The index increased
9.3% in the first eleven months of 2009. However, the index is 34%
below its maximum level, which was reached in January 2007. The
index is based on surveys of individuals and consumers' willingness
to purchase durable goods, houses and cars.

Also, the Gallup-Universidad Cat????lica Argentina (UCA) index
tracking consumers' expectations about the economy rose to 84 in
October from 79 in September. The headline index has remained in
the 76 to 86 range for the past twelve months, well below the highs
seen between 2006 and the early 2008, reaching 120 in late 2007.
In October, all sub-indices increased, with the sub-index on
consumers' perceptions about the current economic situation rising
the most, up to 88 from 82 in September, which may be related to
the improvement in consumers' perceptions about employment. The
Gallup-UCA survey showed a decrease in the share of consumers
perceiving that there are few job openings (down from 68% in
September to 63% in October) while the share of consumers who think
that there will be fewer jobs over the next six months declined
from 42% in September to 38% in October.

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