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)?
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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.
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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


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2004ROME00403 - Classification: UNCLASSIFIED