Identifier
Created
Classification
Origin
06BUENOSAIRES2080
2006-09-13 10:07:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

FINANCE SECRERTARY SEEKS EARLY RESOLUTION WITH

Tags:  EFIN ECON AR 
pdf how-to read a cable
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DE RUEHBU #2080/01 2561007
ZNY CCCCC ZZH
R 131007Z SEP 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 5884
INFO RUEHAC/AMEMBASSY ASUNCION 5659
RUEHBO/AMEMBASSY BOGOTA 1398
RUEHBR/AMEMBASSY BRASILIA 5486
RUEHCV/AMEMBASSY CARACAS 0958
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 1859
RUEHMU/AMEMBASSY MANAGUA 0038
RUEHME/AMEMBASSY MEXICO 1163
RUEHMN/AMEMBASSY MONTEVIDEO 5778
RUEHOT/AMEMBASSY OTTAWA 0400
RUEHZP/AMEMBASSY PANAMA 0205
RUEHFR/AMEMBASSY PARIS 1128
RUEHQT/AMEMBASSY QUITO 0754
RUEHSG/AMEMBASSY SANTIAGO 5270
RUEHSO/AMCONSUL SAO PAULO 2971
RUEAIIA/CIA WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUPCPDOC/USDOC WASHDC
C O N F I D E N T I A L BUENOS AIRES 002080 

SIPDIS

SIPDIS

TREASURY FOR AFAIBISHENKO,AJEWEL,WBLOCK
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
EX-IM BANK FOR MICHELE WILKINS
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

E.O. 12958: DECL: 09/12/2016
TAGS: EFIN ECON AR
SUBJECT: FINANCE SECRERTARY SEEKS EARLY RESOLUTION WITH
PARIS CLUB AND NON-SOVEREIGN BOND HOLDOUTS

Classified By: CdA Michael Matera. Reasons 1.4 (b,d)

-------
Summary
-------

C O N F I D E N T I A L BUENOS AIRES 002080

SIPDIS

SIPDIS

TREASURY FOR AFAIBISHENKO,AJEWEL,WBLOCK
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
EX-IM BANK FOR MICHELE WILKINS
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

E.O. 12958: DECL: 09/12/2016
TAGS: EFIN ECON AR
SUBJECT: FINANCE SECRERTARY SEEKS EARLY RESOLUTION WITH
PARIS CLUB AND NON-SOVEREIGN BOND HOLDOUTS

Classified By: CdA Michael Matera. Reasons 1.4 (b,d)

--------------
Summary
--------------


1. (C) During a September 11 courtesy call, Argentine
Finance Secretary Alfredo Mac Laughlin requested Charge's
help in arranging a bilat with Treasury Secretary Paulson at
the IMF/World Bank meeting in Singapore. The GOA will
propose a small IMF quota increase for Mercosur members
during the Singapore meeting. Mac Laughlin wants to improve
relations with the U.S. and IMF, and as evidence of a new
direction explained his strategy to reach deals with 2005
debt restructuring holdouts and with Paris Club creditors.
He argued there was a window of opportunity through end-2006
to complete politically viable debt deals, after which 2007
election year politics would intervene. Mac Laughlin claimed
the GOA will shortly complete the necessary financing to
cover the higher spending envisioned in the 2007 budget, and
stated he is reviewing the proposed joint Venezuela-Argentina
bond issue. End Summary.

-------------- --------------
Request for Bilat with Treasury Secretary Paulson
-------------- --------------


2. (C) Charge, EconCouns and Deputy EconCouns met September
11 with Argentine Finance Secretary Alfredo Mac Laughlin to
discuss the September 19-20 IMF/World Bank annual meeting in
Singapore and review financial issues related to Argentina's
external debt and budget financing. Mac Laughlin, in office
since December 2005, expressed a desire to break with his
predecessor's inconsistent policies and difficult external
relationships. He outlined his efforts to date to improve
relations with the IMF, U.S., and capital markets writ large,
and emphasized the importance he places on keeping the U.S.
informed of GOA policies and actions. In this vein, he

requested Charge's assistance with arranging a brief meeting
with Secretary Paulson so that Economic Minister Felisa
Miceli and he can explain Argentina's positions and proposals.

--------------
GOA Position on Broad IMF Reforms
--------------


3. (C) Mac Laughlin emphasized his already excellent
personal relationships with IMF officials, including with IMF
Managing Director Rodrigo de Rato, whom he had spoken to
September 10 to outline the GOA's position on IMF reforms.
He said Argentina plans to propose a small quota modification
for Mercosur, although he expressed reservations about the
chances for success.

--------------
Seeking Deal with Holdouts by Year's End
--------------


4.(C) Mac Laughlin said he is very conscious of the need to
resolve the situation with remaining non-sovereign creditors
who refused to accept the 2005 debt restructuring deal
(totaling approximately $20 billion). He noted that this
festering issue is complicating his efforts to raise funds
through international debt issuances, and has forced the GOA
to accept higher issuance rates. He argued there is a window
of opportunity through the end of the year for the GOA to
achieve viable agreements with remaining creditors, but this
window will close as pre-election politics become more
prominent beginning in 2007. Postponing a resolution until
after the election will further complicate relations with
capital markets and investors, so Mac Laughlin said he was
personally involved in designing a proposal to settle with
the remaining holdouts this fall. He was not certain how
President Kirchner will react to the proposal, but he
admitted that he has discussed the issue with Kirchner in
general terms and that Kirchner understands the need to
settle this.

-------------- ---
Plan: Pursue Paris Club Deal Without IMF Program
-------------- ---


5. (C) The same window of opportunity applies to the GOA's
defaulted debt with official creditors, and Mac Laughlin said
President Kirchner had personally instructed him to pursue an
arrangement through the Paris Club to reschedule Argentina's
$6.3 billion official debt. He said the GOA proposal to the
Paris Club would necessarily include a grace period to
provided needed "breathing room," but no writedowns would be
requested and he planned to informally discuss his proposed
terms for a deal during the Singapore meetings. In response
to Charge's comment that an IMF program is considered a
prerequisite for any Paris Club rescheduling, Mac Laughlin
claimed that Paris Club rules are not precise on this point
and argued that the Paris Club could not impose a condition
that Argentina could not fulfill. He noted the moral hazard
of seeking a follow-on IMF program, as markets would see it
as an indication of economic problems in Argentina. Mac
Laughlin also cited the precedent of an IMF "waiver" granted
to the IDB to continue its active lending program in
Argentina and said that he would seek an appropriate
"tailor-made" rescheduling with the Paris Club. Mac Laughlin
reiterated his friendship with Rodrigo de Rato and said he
would work to maintain and improve relations with the Fund.
Shortly after his return from Singapore, he plans to tour
principal Paris Club creditor nations to win their
preliminary support for a restructuring plan prior to
Argentina's direct approach to the Paris Club Secretariat.

--------------
GOA Financing of 2007 Budget
--------------


7. (C) Mac Laughlin claimed the GOA is well on the way to
completing the $5 billion financing package necessary to
cover the higher spending envisioned in the 2007 budget, and



reassured Emboffs that the GOA would maintain sound fiscal
policy. He said that maintaining a strong primary budget
surplus was "tied to the President's personality," arguing
that Kirchner could not live with a deficit.

--------------
GOA-Venezuela Joint Bond
--------------


8. (C) Mac Laughlin has not finished reviewing Venezuela's
latest proposal to issue a joint GOA-GOV bond, but said he
knows the President views it favorably. He raised the
possibility that a "joint and several" obligation bond would
spread risk and therefore be cheaper for both Argentina and
Venezuela, and noted that he is only willing to pursue it if
he can work it through one of the larger underwriting banks
like J.P. Morgan that would be fully committed to its
issuance.

--------------
Comment
--------------


9. (C) Mac Laughlin's thoughtful and measured approach
stands in stark contrast to that of his predecessor and his
personal commitment to resolving both Paris Club and
non-sovereign holdout claims by 2007 -- before the austral
summer vacation season -- is ambitious and certainly welcome.
His proposal to sovereign creditors certainly deserves a
hearing, whether or not the Paris Club will consider a
rescheduling absent a Fund program. But, given the GoA's
forceful "take it or leave it" approach to its 2005
non-sovereign debt exchange exercise, and given that the
Kirchner administration is already very much in election
mode, the political viability of a near term settlement with
holdouts remains questionable. Secretary Mac Laughlin's
private sector credentials heading Morgan Grenfell's
operations in Argentina have won him considerable credibility
within the Buenos Aires banking community. Post strongly
recommends Washington act favorably on the GoA's request for
a brief meeting between Secretary Mac Laughlin, Economy
Minister Miceli and Treasury Secretary Paulson.
MATERA