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Cablegate: Argentina Economic and Financial Review, December 11-17,

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R 211527Z DEC 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0226
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSO/AMCONSUL SAO PAULO

UNCLAS SECTION 01 OF 03 BUENOS AIRES 001384

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: Argentina Economic and Financial Review, December 11-17,
2009

REF: 09 BUENOS AIRES 1175

1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period December 11-17, 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.

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The GoA creates a BCRA reserves fund to guarantee 2010 debt
payments

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

2. (SBU) On December 14, President Cristina Fernandez de Kirchner
and Economy Minister Boudou announced the creation of a fund with
37% of the BCRA's "excess reserves" (about $6.6 billion) for the
purpose of covering 2010 GoA debt payments, both interest and
principal. BCRA reserves stand at $ 47.2 billion and "excess
reserves" are defined as the amount of reserves that exceed the
monetary base (cash in circulation plus liquidity requirements).
The new fund is called the "Bicentennial Fund for Stability and
Reduced Indebtedness." It will be used to guarantee external debt
service payments, which, according to the President, should clear
any doubts about whether the country will be able to meet its 2010
external debt service obligations to bondholders and multilateral
institutions. It also demonstrates the GoA's willingness to pay.
On December 15, the GoA published in the Official Gazette the
decree (N 2010) delineating some of the implementation details
surrounding the creation of the Bicentennial Fund. The decree
noted that the GoA will issue a non-tradable 10-year bullet bond to
the BCRA in exchange for the $6.6 billion in reserves, paying an
interest rate similar to the one earned by BCRA reserves with a cap
of Libor minus 1% (below market rates). It is yet unclear whether
this fund will act just as a guarantee or whether the government
intends to use the funds to actually pay external debt service.

3. (SBU) According to most analysts, using BCRA reserves to pay GoA
obligations is not a positive development since this measure
weakens the BCRA balance sheet and compromises its independence.
It also lessens the need for the GoA to control expenditure growth
by providing the resources to enable a loose fiscal policy.
Initially, however, markets reacted positively and tightened the
Argentine sovereign spread, viewing the creation of the fund as a
solid guarantee against a major credit event in 2010. (For further
details and analysis see Buenos Aires 1291.)

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The GoA reportedly to launch debt exchange in mid-January

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4. (SBU) Minister of Economy Amado Boudou reportedly stated that
the GoA will file the necessary paperwork with the US Securities
and Exchange Commission (SEC) to make a formal restructuring offer
to holdouts who did not participate in the 2005 debt restructuring.
According to local press reports, the GoA expects to receive SEC
clearance by January 12 and to unveil the formal offer by
mid-January. An embassy banking sector contact told econ officers
that, according to Secretary of Finance Hernan Lorenzino, former
President Nestor Kirchner supports moving forward with the debt
exchange offer. He added that the deal should be completed by the
end of February.

BUENOS AIR 00001384 002 OF 003


5. (SBU) On December 17, local press reports said that, according
to GoA sources, the GoA intends to toughen the terms of the holdout
deal, lowering the overall value of the offer from a projected
$50-52 per $100 of face value to approximately $46. The reports
indicate that the higher offer was considered to be unnecessarily
generous.

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The GoA to auction early payments on debt

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6. (SBU) Minister of Economy Amado Boudou stated December 15 that
the GoA will conduct an auction for the early payment of some
scheduled debt service in 2010, including the dollar denominated
Boden 2012, which has a heavy amortization schedule of about $2.2
billion over the next three years, and some Guaranteed Loans (PGs)
worth about $530 million. According to the Minister, the GoA would
only accept early payment proposals that offer an attractive
discount. The payment is supposed to come from the $6.6 billion
fund announced December 14 (see first item above). If this auction
does take place, it would indicate that the Bicentennial Fund would
not just serve as a guarantee for 2010 debt service payments but
would also be used to actually fund debt payments.

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

The GoA announces tax moratorium in attempt to increase 2010
revenues

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7. (SBU) On December 16, Minister of Economy Amado Boudou and AFIP
(Tax Revenue Agency) Director Ricardo Echegaray announced that the
GoA will launch a tax moratorium for unpaid taxes for the period
between January 1, 2008 and October 31, 2009. The GoA will offer a
two-year payment plan with an interest rate of 9.6%. With this
measure, the GoA seeks to increase 2010 tax collection by ARP 8.5
billion from about 800,000 individuals and companies. However,
according to private estimates, the plan will raise only ARP 6
billion over the next two years. In a press conference, the
Minister stated that this plan is a countercyclical measure that
will allow companies to start recovering without being burdened by
past debts.

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November CPI up 0.8% m-o-m

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8. (SBU) National statistics agency INDEC announced December 11
that the November CPI increased 0.8% m-o-m, similar to October's
increase and in line with what most private analysts expected. As
during the past several months, some observers have discerned a
gradual trend towards convergence between INDEC's inflation numbers
and actual inflation, as measured by private analysts. Some view
this as a possible indication that the GoA has decided to gradually
improve the accuracy of its reporting.

9. (SBU) Inflationary pressures in November were widespread, with
the highest increases in the prices of: food and beverages (1.1%),
clothing (1.1%), other goods and services (1.0%), and education

BUENOS AIR 00001384 003 OF 003


(0.8%). The lowest price increases were in housing and
transportation, and communications, both of which increased 0.4%.
According to INDEC, the accumulated CPI increase for the first
eleven months of the year was 6.7%, compared to private estimates
of about 15%. Inflationary pressures are accelerating as many
analysts are revising their 2009 CPI estimates upwards to 15% or a
bit higher for the year. For 2010, analysts' estimates of
inflation range from 16-20%.

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Balance of Trade Surplus Increases

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10. (SBU) Through November of this year, the Argentine trade
balance is in surplus by $15.7 billion, a 32% increase over the
$11.2 billion surplus of 2008, according to INDEC figures. In the
first eight months of the year, exports fell 24%, while imports
fell by an even greater 39%. In November, the trade surplus was
$1.2 billion, an increase of 73% over the $745 million surplus
recorded in November 2008. GoA November export figures reverse the
negative year-on-year trend in exports, which for the month are up
1% over November 2008. November imports were down 12% from
November 2008, also indicating an increasingly positive trend.
MARTINEZ

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