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Cablegate: Argentina Economic and Financial Review, February

DE RUEHBU #0206/01 0501818
R 191816Z FEB 10



E.O. 12958: N/A
SUBJECT: Argentina Economic and Financial Review, February
12-February 19, 2010

1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period February 12-February 19, 2010.
The unclassified email version of this report includes tables and
charts tracking Argentine economic developments. Contact Econ
Deputy Jason Witow at WitowJN@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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2010 inflation forecasts run between 20-33%

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2. (SBU) According to an article in La Nacion, Banco Ciudad
analyst Luciano Laspina estimated that inflation will increase by
at least 20% during 2010. He explained that the actual numbers
will depend on government monetary and fiscal policies and
potential price controls. According to Laspina, the rise in prices
-- which began to accelerate during the last quarter -- is due to
the proposed creation of the Bicentennial Fund. There is general
uncertainty regarding the transfer of Central Bank reserves to the
Treasury and the suspicion that reserves will be used to pay
current expenditures. In contrast, a study by Universidad Torcuato
Di Tella (UTDT) indicated that inflation might rise to almost 33%
in Buenos Aires province and about 30% in the country as a whole.
The study explained that these figures are a result of steep price
increases for meat and dairy products.

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3. (SBU) The GoA is operating on two tracks in its attempt to
control inflation. The first, led by Secretary of Internal
Commerce Guillermo Moreno, is working with producers to agree on
price limits. According to the press, Moreno spoke with healthcare
firms and producers of school supplies, cleaning equipment,
cosmetics, and food. He also visited supermarkets and met with
fruit and vegetable vendors at the Central Market, in addition to
talking to meat suppliers about the big increase in meat prices.
According to press reports, Moreno forced Buenos Aires Central
Market vendors to lower prices by threatening to fine them for
regulatory infractions. When he and his entourage left the market,
the vendors apparently restored the prices to their earlier levels.
There are also reports that Moreno succeeded in convincing some
supermarkets to agree on maximum prices for about 20-30 basic
products. Regarding the meat market, the high prices are
benefiting exporters, who sell high-end meat cuts internationally,
and supply the local market with inferior cuts. The National
Office of Commercial Farming Control (ONCCA) has suggested that
more export permits will be issued if needed.

4. (SBU) The second track in the fight against inflation is being
led by Minister of Economy, Amado Boudou, who is working to develop
policies that will result in increased investment and the
accelerated production of goods in order to supply the growing
demand, which the GoA says is the real cause of inflation.

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Central Bank President discusses financing options with industry

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5. (SBU) New President of the Central Bank (BCRA) Mercedes Marc????
del Pont is beginning a series of meetings with various industry
groups. The idea behind these meetings is to set up a direct link
between producers and the financial sector to explore new long-term
financing options. This will, in turn, help increase production

BUENOS AIR 00000206 002 OF 003

and supply, which will help solve Argentina's inflation problem.
The first meeting with the Food Products Industry Coordinator
(COPAL) is expected to be important since the food sector has had
the greatest price increases.

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Farmers demonstrate against agriculture policies

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6. (SBU) There was a demonstration by farmers in Chab????s, Santa Fe
on February 17 against the government's agriculture policies. The
demonstration was led by the Argentine Agrarian Federation (FAA)
with the participation of more than 600 producers, truck drivers
and other locals. Farm sector producers from other parts of the
country participated as well. Eduardo Buzzi, head of the FAA, said
that he wants to continue to negotiate with the GoA, but threatened
strikes if no positive results are achieved. The demonstrators
were protesting against the possibility that the government would
cut exports to encourage lower domestic prices. Buzzi said that if
the GoA pursued such a policy, there could be dire consequences,
such as a food sales boycott. He highlighted the need to increase
the number of corn export permits, to improve wheat prices for
producers, and to establish lines of communication to discuss
livestock policies.

7. (SBU) Minister of Agriculture Juli????n Dom????nguez criticized
demonstration, declaring that negotiations are being conducted to
solve the current crisis. On February 18, he invited Buzzi and
other leaders to a meeting during which the government plans to
announce new subsidies for the cattle and meat sectors. According
to livestock experts, stockbreeding has been severely impaired by
the worst drought in 70 years and counterproductive government
policies, leading to uncertainty among producers about the
sustainability of export profits. The wheat market faces similar
uncertainty, as supply vastly exceeds demand, and according to
producers, the GoA has not fulfilled its promise to buy wheat to
support prices. Further demonstrations and possible strikes are
scheduled for February and March.

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Steel production increased in January

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8. (SBU) According to the Center for the Iron and Steel Industries
(CIS), steel production increased 18.6% (336,900 tons) in January
2010 compared to January 2009, when production was very low due to
the international financial crisis. However, compared to December
2009, production was down 14%, largely due to annual summer factory
closures for maintenance. According to the CIS, iron production
increased 8.2% in January 2010 (363,200 tons) compared to December
2009, and 69.8% compared to January 2009. The production of hot
laminates decreased 2.9% in January 2010 (354,200 tons) compared to
December 2009, but increased 45.5% compared to a year ago. The
production of cold laminates was up 8.7% in January 2010 (132,900
tons) compared to December 2009 and up 96.9% compared to January
2009. The CIS claims that the cost of iron and coal and other raw
materials has increased significantly "due to an increase in global
demand and the prices that the Chinese iron and steel industries
are willing to pay."

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BUENOS AIR 00000206 003 OF 003

Oil company to invest USD 1.1 billion in Chubut oilfield

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9. (SBU) Pan American Energy (PAE), a 60/40 joint venture of
British Petroleum and the Bulgheroni family's Bridas Corporation,
announced on February 18 that it is planning to invest USD 1.1
billion in the Cerro Dragon oilfield in the Gulf of San Jorge in
Chubut. PAE's partial local ownership by Argentine nationals and
more importantly, its expanding domestic oil and gas exploration
and production in an era where overall Argentine hydrocarbon
production has trended steadily downward, has made this company a
favorite of the Kirchner administration. PAE is second only to
Spanish-owned Repsol YPF as Argentina's largest hydrocarbon
producer. In January 2010, the Ministry of Economy and Public
Finance announced that tax collection reached $29 billion
(Argentine pesos), 20.4% above January 2009 collection. The major
drivers of the overall tax collection were: social security
contributions, up 26.5% to $9.3 billion; value-added tax (IVA)
receipts, up 23.1% to $8.3 billion; and taxes on profits, which
rose 25.8% to $5.0 billion. The Ministry, in a press release,
attributed this record tax collection to an increase in
consumption, an overall increase in salaries during the year 2009,
and to the various government measures undertaken to minimize the
effects of the international financial crisis.

10. (SBU) In a presentation to the governor of Chubut, Mario Das
Neves, PAE claimed that reserves could reach 1.6 billion barrels.
USD 700 million will be invested for production and exploration and
USD 400 million for operating costs. Cerro Dragon is situated in
one of the best sites for oil production in the country. Overall
energy investment in the region was USD 456 million in 2006, USD
559 million in 2007, USD 826 million in 2008, and 686 million in
2009. Investment for 2010 is projected at USD 826 million.
Calafell Losa, PAE Vice President for Public Affairs, said that
these investments have brought about a substantial increase in
economic activity in the region and the development of new offshore
exploration projects as well. Governor Das Neves emphasized the
importance of investment as an engine of job growth, saying that up
to 1,000 new jobs will be created in 2010.

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