Identifier
Created
Classification
Origin
06BUENOSAIRES1088
2006-05-12 19:37:00
UNCLASSIFIED
Embassy Buenos Aires
Cable title:  

Argentina Economic and Financial Weekly for

Tags:  EFIN ECON ELAB ALOW AR 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1088/01 1321937
ZNR UUUUU ZZH
R 121937Z MAY 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4515
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 2171
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL
UNCLAS BUENOS AIRES 001088 

SIPDIS

SIPDIS

PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR DAS LEE, RAMIN TOLOUI AND CHRIS KUSHLIS
NSC FOR SUE CRONIN
AND OCC FOR CARLOS HERNANDEZ
USDOC FOR ALEXANDER PEACHER
USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY
USSOUTHCOM FOR POLAD
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI

E.O. 12958: N/A
TAGS: EFIN ECON ELAB ALOW AR
SUBJECT: Argentina Economic and Financial Weekly for
the week ending May 12, 2006

--------------------------------------------- --------
Weekly Highlights
--------------------------------------------- --------

- GOA raises the minimum pension by 21 percent and all
other pensions by 11 percent.
- GOA to meet next week with Bolivia to agree on price
of gas exports to Argentina.
- GOA reportedly will repurchase the GDP-linked
warrants from the debt restructuring.
- GOA unblocks beef shipments exempt from the export
ban and presents a ARP 860 million cattle sector
development program.
- Commentary of the Week: "Sanitary Conditions and
Poverty in the Beef Sector"

--------------------------------------------- --------
GOA raises the minimum pension by 21 percent and all
other pensions by 11 percent.
--------------------------------------------- --------

UNCLAS BUENOS AIRES 001088

SIPDIS

SIPDIS

PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR DAS LEE, RAMIN TOLOUI AND CHRIS KUSHLIS
NSC FOR SUE CRONIN
AND OCC FOR CARLOS HERNANDEZ
USDOC FOR ALEXANDER PEACHER
USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY
USSOUTHCOM FOR POLAD
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI

E.O. 12958: N/A
TAGS: EFIN ECON ELAB ALOW AR
SUBJECT: Argentina Economic and Financial Weekly for
the week ending May 12, 2006

-------------- --------------
Weekly Highlights
-------------- --------------

- GOA raises the minimum pension by 21 percent and all
other pensions by 11 percent.
- GOA to meet next week with Bolivia to agree on price
of gas exports to Argentina.
- GOA reportedly will repurchase the GDP-linked
warrants from the debt restructuring.
- GOA unblocks beef shipments exempt from the export
ban and presents a ARP 860 million cattle sector
development program.
- Commentary of the Week: "Sanitary Conditions and
Poverty in the Beef Sector"

-------------- --------------
GOA raises the minimum pension by 21 percent and all
other pensions by 11 percent.
-------------- --------------


1. In a press conference on May 9, Minister of Labor
Carlos Tomada and Minister of Economy Felisa Miceli
announced that the GOA will increase the minimum
pension from ARP 390 per month to ARP 470, a 21
percent increase. This will be the Kirchner
Administration's eighth increase in the minimum
pension, an accumulated increase of 213 percent. The
GOA also announced an 11 percent increase for all
other pensions, the first in fourteen years. These
two measures will benefit 3.3 million pensioners and
will have a fiscal cost of ARP 2.1 billion in 2006
(the increases will be effective in June) and of ARP
3.5 billion in 2007. The increase in pension will be
financed by Anses -- National Administration of Social
Security --using its revenues resulting from the
increase in formal employment.

-------------- --------------
GOA to meet with Bolivia next week to agree on the
price of gas exports to Argentina.
-------------- --------------


2. GOA Ministry of Planning Julio De Vido is
scheduled to meet on May 16 with Jorge Alvarado, the
President of YPFB, the Bolivian state oil company, to

negotiate the price at which Bolivia will export gas
to Argentina. Argentina currently imports 5 percent
of its gas consumption from Bolivia at a "solidarity"
price of USD 3.20 per million cubic meters, while the
international price ranges from USD 2.00 to USD 8.00
per million cubic meters. According to reports, the
Bolivian government wants a 65 percent increase to
more than USD 5 per million cubic meters the price of
gas.

-------------- --------------
GOA reportedly will repurchase GDP-linked warrants
from the debt restructuring.
-------------- --------------


3. On May 8, local media reported that the GOA is
considering repurchasing the GDP-linked warrants that
were attached to GOA restructured debt as an incentive
to participate in the 2004 restructuring. The GOA
repurchases are expected to take place in the second
half of the year and aim to reduce the cost the GOA
must pay as a result of the continued strong GDP
growth. According to the report, the GOA will have to
pay USD 390 million in December 2006 to the holders of
the warrants because Argentine GDP growth is above the
GDP baseline set in the warrants. The GOA issued
62,000 warrants as a result of the exchange and the
total stock of warrants (including ARP, EUR and USD
instruments) is currently valued at USD 5.5 billion at
current market prices. According to financial
analysts, the expected value of the warrants ranges
from as low as USD 10 per warrant (the current market
price) to as high as USD 20 per warrant, depending on

the assumptions for future GDP growth rates.

-------------- --------------
GOA counter-cyclical fund may have accumulated ARP 2.6
billion in the first four months of 2006.
-------------- --------------


4. On May 8, Cronista Comercial reported that
Minister of Economy Miceli will soon announce that the
GOA's counter-cyclical fiscal fund reached ARP 2.6
billion in the first four months of the year -- 45
percent above the budgeted amount. Former Economy
Minister Lavagna announced the creation of the counter-
cyclical fund in late 2005, to be funded by the excess
of actual tax collections over the budgeted amount,
but the GOA has never provided any details on its
implementation. Some government officials oppose any
public announcement on the counter-cyclical fund due
to concerns that it may generate claims from different
sectors of the economy. Others advocate transparency
about the fund as a way to help the GOA in its crusade
against inflation. According to analysts, the counter-
cyclical fund may reach ARP 5.9-6.7 billion (or 1
percent of GDP) in 2006.

-------------- --------------
GOA unblocks beef shipments exempt from the export ban
and presents a ARP 860 million cattle sector
development plan to promote the sector through 2010.
-------------- --------------


5. On May 9, the GOA unblocked beef shipments that
had been delayed in port for fifteen days even though
they were exempt from the GOA's temporary ban on beef
exports. Some were containers of beef sold to the
European Union under the Hilton quota, while others
held products sold before the ban went into effect.
Also, Minister of Economy Miceli presented a cattle
sector development program for ARP 860 million over
the next four years. The program aims to increase the
supply of bovine cattle by 1.4 million animals per
year to help stabilize beef prices



6. Meanwhile on May 8, Swift -- the largest beef
processing plant-- suspended 600 employees at its
Rosario plant due to the beef export ban. This
suspension comes on top of Swift's dismissal of 736
employees two weeks ago. According to beef sector
unions, 8,400 employees already have been suspended
since the beginning of the GOA export ban.

-------------- --------------
Private utilities companies post losses in the first
quarter of 2006.
-------------- --------------


7. On May 10, many private utility companies
announced losses for the first quarter, mainly due to
their difficulties in paying their dollar-denominated
debt while their tariff income is in pesos.
Electrical generator Central Puerto posted losses of
ARP 107 million, compared to an ARP 11 million profit
during the same period last year. Gas distributor
Metrogas reported losses of ARP 25 million, compared
to a ARP 29 million profit in the first quarter of
last year. Electrical distributor Edesur reported a
ARP 9 million profit in the first quarter that assumes
it will receive a retroactive tariff increase that is
awaiting President Kirchner's approval. Without
taking into account this expected tariff increase,
Edesur would have posted a ARP 19 million loss.

-------------- --------------
Repsol-YPF announces plan to sell 15-20 percent of the
stock of its Argentine subsidiary.
-------------- --------------


8. On May 11, the President of YPF-Repsol, Antonio

Brufau, announced that the company plans to sell off
15-20 percent of the stock of YPF (its Argentine
subsidiary) on the stock exchange. YPF currently is
valued at USD 20 billion, so 20 percent of the stock
would provide USD 5 billion to the company without
giving up its control over YPF. Local media also
reported rumors that President Kirchner wants a
domestic group to own 15 percent of YPF. However, a
Ministry of Planning spokesman denied that that the
GOA is promoting the purchase by local businessmen.

-------------- --------------
GOA requires retailers to clearly post prices of food
in attempt to help prices under control.
-------------- --------------


9. On May 8, the GOA published on the Official
Gazette a resolution requiring retailers to clearly
post the prices of beef, bread, fish and seafood with
signs specifying the price of the products by variety
or by cut (in the case of meat). The resolution also
sets penalties for retailers who do not comply with
the labeling requirement. According to the Secretary
for Consumer Protection, Guillermo Moreno, the measure
is intended to prevent deception of consumers and help
keep prices under control.

-------------- --------------
BCRA earns USD 500 million on its gold reserves.
-------------- --------------


10. The recent increase in the price of gold has
translated into a USD 500 million gain for the
Argentine Central Bank (BCRA). The BCRA invested USD
700 million (5.3 percent of its reserves) in gold two
years ago. Gold prices have increased 44 percent so
far in 2006, hitting a 25-year high of USD 722 per
ounce on May 11.


11. Prices of other metals such as copper, iron,
nickel and zinc have also jumped this year. According
to the Economia & Regiones think tank, the increase in
metal prices may negatively impact the Argentine
construction sector due to the increase in
construction costs.

-------------- --------------
BCRA rolls over its maturities and issues one-year
Lebacs.
-------------- --------------


12. The BCRA received ARP 1.5 billion in bids at its
May 9 Lebac and Nobac auction, compared to the ARP 1.0
billion in Lebacs that came due during the week.
Lebac accepted bids totaled ARP 857 million
representing 82 percent of the total, while Nobacs
represented the remaining 18 percent. The yield on
the 28-day Lebac decreased 7 basis points from 6.57
percent to 6.50 percent, while the yield on the 56-day
Lebac decreased slightly from 6.85 percent to 6.80
percent and the yield on the 84-day Lebac decreased
from 7.08 percent to 7 percent. For the first time
this year, the BCRA was able to issue ARP 113 million
in 1-year Lebac in this auction, at a rate of 11.45
percent. Lebacs for maturities of more than one-year
were withdrawn due to lack of interest. The spread on
the one-year Nobac decreased from 2.20 percent to 2.16
percent, while the spread on the two-year Nobac also
from 3.45 percent to 3.39 percent. The Badlar rate
(the base rate for Nobacs) is currently at 9.1
percent.

-------------- --------------
The peso was unchanged against the USD this week,
closing at 3.06 ARP/USD.
-------------- --------------


13. The peso remained flat versus the USD this week,
closing at 3.06 ARP/USD. The BCRA's strong

intervention in the foreign exchange market this week
prevented the peso from appreciating despite large
dollar sales by agricultural exporters as a result of
the harvest. The BCRA purchased USD 423 million in
the FX market in the first four days of the week, a
daily average of USD 103 million so far this month,
compared to a daily average of USD 62 million during
the same period last year. The peso exchange rate has
depreciated 0.3 percent since the beginning of the
calendar year. The BCRA's reserves now stand at USD
23.5 billion, and have increased USD 4.5 billion, or
27%, since the GOA prepaid all of its IMF debt on
January 2.


-------------- --------------
Commentary of the Week: "Sanitary Conditions and
Poverty in the Beef Sector", by Julio Nogues. (Note:
Translated and edited from an article published in
Cronista Comercial on May 8. End Note.)
-------------- --------------


14. It is possible, but not certain, that a reduction
in the price of beef will reduce poverty. ... For
example, ... in the case of a 10 percent price cut,
the number of people that effectively will rise out of
poverty due to the reduction in the cost of the Basic
Basket of Goods is only a fraction (approximately 15
percent) of the number of people who are employed in
the beef production chain and who potentially will see
their incomes reduced as a consequence of this policy.


15. The beef production chain employs people with
relatively low levels of qualifications, both in the
production side and in the processing. Thus, a
reduction of their incomes, whether it is in the form
of layoffs, as we are already seeing, or a reduction
in real salaries due to the drop in the sector's
profitability, could create as much or more poverty
than the number of people who effectively escape that
condition as a consequence of the price reduction.


16. There is significant uncertainty about the impact
of the GOA's beef policy, so it is also possible that
poverty would be reduced by letting prices adjust to
supply and demand. This could occur as a result of
greater investment and production in the beef
production chain that, as I noted already, is labor
intensive and employs mainly people with low
qualifications. On whose side has GOA economic policy
been, historically? Without any doubt, on average
over the last 50 years, Argentine economic policies
have been intensely anti-beef producers. From the
1960's to the end of the 1980's, Argentine trade
policies imposed prices on beef producers that were
between 30 percent and 50 percent below international
prices. This was the period with the greatest state
intervention.


17. Trade policies have not been the only source of
discrimination. It also is relevant to recall that as
a result of the historic failure to eradicate hoof-and-
mouth disease, Argentina cannot export to markets such
as Japan and South Korea, which in value terms
represent more than 60 percent of world imports of
beef. These countries only import from countries that
are free of hoof-and-mouth disease without
vaccination. As a consequence, according to FAO data,
in 2004, our unit export price was USD 1,738 per ton
while that of Australia, which is a country free of
hoof-and-mouth without vaccination, was USD 2,733 per
ton, or 57 percent higher.


18. Things have been getting worse for the beef
sector since 2000. As is well known, that was the
year in which Argentina suffered an outbreak of hoof-
and-mouth and tried to hide it from the international
community. Markets were closed as a result of this
outbreak, and Argentina lost international credibility

as a consequence of the attempt to conceal it. How
relevant is the concept of credibility? Let us see.


19. In addition to Argentina, the 2000 outbreak
affected Brazil and Uruguay. However, the subsequent
treatment of the affected countries by the
international community was not equal For example,
while in 2003 the United States and Canada, who are
important importers of beef, re-opened their markets
to Uruguayan beef, they have not yet reopened with
Argentina. .... Until the hoof-and-mouth outbreak, in
most years since 1998, importing countries paid more
per kilo for Argentine beef than for Uruguayan due to
the international reputation of our beef. If that is
so, our reputation was damaged in 2000 and has not yet
recovered, and the price difference has moved in favor
of Uruguay. On average since they reopened their
markets, importing countries have paid 32 percent more
for Uruguayan beef.


20. To recap, as a consequence of trade policies and
its sanitary status, Argentina has the lowest beef
prices among the efficient producer countries. It is
possible that this also has reduced poverty, but it
also is possible that it has increased it. The second
conclusion is that as opposed to trade policies of a
single company -- which could be changed from one day
to another -- the loss of a country's credibility has
long-term, negative economic consequences. (Note: We
reproduce selected articles by local experts for the
benefit of our readers. The opinions expressed are
those of the authors, not of the Embassy. End Note.)


GUTIERREZ