ARGENTINE BONDS - ITALIAN BANKERS TAKE A TOUGH

UNCLAS ROME 000403 SIPDIS STATE FOR EB/IFD - DAS GREENWOOD AND FRISBIE STATE FOR WHA/BSC E.O. 12958: N/A TAGS: EFIN ECON IT SUBJECT: ARGENTINE BONDS - ITALIAN BANKERS TAKE A TOUGH STANCE REF: A. ROME 184 ¶B. 03 PARIS 09233 ¶1. (SBU) Summary and Comment: All we want is for Argentina to agree to fair and equitable negotiations with foreign bondholders, Nicola Stock (please protect),president of the Global Committee of Argentina Bondholders (GCAB),told econoffs February 3. However, the GCAB seriously doubts Argentina's willingness to proceed in good faith on negotiations and is disappointed by Argentine Finance Minister Lavagna's reported vitriolic (though implicit) attacks on the GCAB's integrity. Stock stated that Italian Banking Association (ABI) and its German, U.K., Japanese, and Austrian counterparts, individually and as members of the GCAB, will continue to press their respective governments to oppose - as Italy has done -- approval of the IMF's first-stage review of Argentina. Comment: The GOI is facing some tough decisions about the treatment of private individual Italian investors in light of Argentina and the Parmalat case. End Comment. Stock and his American GCAB co-chair are seeking appointments with U.S. Treasury officials to explain the GCAB's position. End Summary and Comment. WHAT IS THE GLOBAL COMMITTEE OF ARGENTINA BONDHOLDERS (GCAB)? -------------- -------------- ¶2. (U) Established on January 12, 2004, the GCAB is open to all financial institutions that represent a significant number of bondholders of paper issued by either the GOA or Argentine municipalities, and that have neither a conflict of interest nor pending litigation involving GOA or Argentine municipal bonds. The GCAB is comprised of the Italian Banking Association's Task Force Argentina, which represents 450,000 Italian retail (i.e., individual) investors holding USD 14.5 billion in Argentine bonds; the Argentina Bondholders Committee (ABC),which represents institutional investors, including some in the U.S., who hold USD 7.5 billion in bonds; the Argentine Bond Restructuring Agency (ABRA),which represent German, Austrian, and Luxembourg retail holdings of USD 1.2 billion; and the Bank of Tokyo-Mitsubshi and Shinsei Bank, which represents Japanese investors holding USD 1.8 billion in Argentine bonds. The Swiss Bankers' Association, Deutsche Bank and DZ Bank support GCAB as observers, Stock said. In sum, GBAC claims to represent investors holding USD 37.5 billion in Argentine bonds, equal to about 65 percent of Argentina's overall foreign debt. Stock and an ABC representative head the GCAB's steering committee. ¶3. (U) According to Argentine press accounts, Argentine Finance Minister Lavagna has raised questions about this "new entity" that claims to represent private creditors, and reportedly in harsh language, also questions about the integrity and motivation of its members. While Stock took umbrage at these remarks, he said the GCAB is taking the moral high ground and not responding to these attacks. ARGENTINA OFFERS A QUARTER. -------------- ¶4. (U) Argentina has offered 25 cents to the dollar of debt held by private creditors - a 75 percent discount from the bonds' face value, but more than 90 percent discount in terms of net present net, according to Stock. In recent public statements, Argentina's Finance Minister reportedly has stated that Argentina will not budge from this line. ¶5. (SBU) The GCAB argues that by drawing a line in the sand, Argentina is not demonstrating its good faith in negotiating with private creditors. Stock stated that 25 cents on the dollar is an "insult" to the tens of thousands of individual investors who trusted in the economic policy of the Argentine government. The GCAB has no fixed offer for creditors in mind: the 25 cents figure could be a starting point, but absolutely not the end point, Stock remarked. He underscored that the GCAB is willing to negotiate in good faith; and for this reason, the GCAB has not started court proceedings against Argentina. ITALY SUPPORTS BONDHOLDERS AT THE PARIS CLUB AND THE IMF. -------------- -------------- ¶6. (SBU) As reported ref b, the GOI did not join the Paris Club consensus in the December meeting to invite Argentina for official debt negotiations in March. The GOI insisted that individual investors receive better repayment treatment before it would join consensus. ¶7. (SBU) Stock also met with Italian Foreign Minister Frattini on January 23 to explain the GCAB's position. The Ministry of Foreign Affairs issued a press statement following this meeting to say that "Frattini confirmed the Italian Government's commitment to encourage an equitable solution to the question both on the bilateral level as well as in the context of international financial institutions. The Government intends to safeguard Italian investors, and to that end, will promote all the necessary diplomatic initiatives in the spirit of the tradition of friendship between Argentina and Italy." On January 28, Italy was one of eight IMF board members to vote against the IMF's first review of Argentina's performance under its Stand-by Agreement, Stock noted. Some governments, such as the U.K, reversed its previous decision to support. ¶8. (SBU) Stock expressed puzzlement at the IMF's treatment of Argentina. He said that the draft IMF conditions for Argentina are far more lenient than those imposed on Brazil and Turkey in their recent IMF agreements. Argentina was given a "primary surplus" target of three percent of GDP in 2004, while targets of 4.5 percent and 6 percent were imposed, respectively, on Brazil and Turkey. (Note: Italy defines primary surplus as current account deficit minus interest payments as a percentage of GDP. End Note.) SEEKING SUPPORT FROM THE U.S. -------------- ¶9. (SBU) Stock and his counterpart from the Argentine Bondholders Committee, Managing Director of Van Eck Capital Hans Humes, sent a letter two weeks ago to Treasury Secretary Snow requesting an appointment this month to seek U.S. agreement to: -- recognize the GCAB as a legitimate representation of creditors; -- press the GOA to negotiate with the GCAB in good faith; and -- lobby the GOA against any unilateral Argentine agreement in favor of Argentine domestic bondholders over its foreign bondholders. ¶10. (SBU) Comment: The issue of repayment of privately-held debt is a sticky one for the Italian Government. More than 100,000 Italian investors had their investments wiped out by Parmalat's fraud, and are watching carefully how the Government will address their rights (ref a). Another investor test for the government, and perhaps even more important, is how it addresses shareholder grievances regarding Argentina. End Comment. SEMBLER NNNN 2004ROME00403 - Classification: UNCLASSIFIED