LATEST ON ARGENTINA'S PLANS TO NEGOTIATE PARIS

UNCLAS BUENOS AIRES 002540 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: N/A TAGS: EFIN ECON AR SUBJECT: LATEST ON ARGENTINA'S PLANS TO NEGOTIATE PARIS CLUB DEBT AGREEMENT Summary -------------- ¶1. (SBU) In advance of the Paris Club Tour d'Horizon on November 15, 2006, Post provides the following status report on Argentina's pursuit of a deal on its $7.2 billion debt to Paris Club creditors. GoA Finance Secretary Mac Laughlin wrote the President of the Paris Club November 9 officially conveying the GoA's interest in restarting negotiations. His staff denies press reports that the GoA has already completed a draft proposal that includes substantial rescheduling and separate treatment for a 2001 Spanish loan (totaling almost $1 billion including interest). Post's local contacts among Paris Club creditors -- including the Spanish Embassy -- assert that their governments support Paris Club solidarity and will not negotiate one-off bilateral deals with the GoA. End Summary. Press Reports re GoA Debt Rescheduling Offer -------------- ¶2. (SBU) In a flurry of recent articles, the local press is reporting that the GoA is gearing up to negotiate a repayment agreement of its $7.2 billion debt to Paris Club creditors (see background, para 8). The reports state that Economy Minister Felisa Miceli's objective is to submit a GoA proposal for debt rescheduling to the Paris Club prior to the end of the year. The reports suggest various scenarios, all of which involve rescheduling payment periods as long as 10 years and rates just above LIBOR. The articles cite GoA sources stating that the GoA will not seek a reduction ("haircut") in the nominal level of the debt, but the GoA proposal would result in a lower net present value. (Note: Paris Club creditors have stated that a GoA request for debt restructuring is a non-starter without a current IMF agreement. End Note). ¶3. (SBU) GoA sources are quoted as stating that President Kirchner would prefer to offer preferential treatment to the government of Spanish President Jose Luis Rodriguez Zapatero, referring to the roughly $1 billion principal and interest Argentina owes Spain from the 2001 loan. Notwithstanding press reports from the November 4-8 EU-Mercosur Summit in Uruguay, which implied that Spain and Argentina had reached a bilateral repayment deal outside of the Paris Club process, the GoA sources say it is not a viable option, as it would conflict with Paris Club statutes. The GoA sources add that Economy Ministry consultations with the Paris Club will determine whether or not to include the Spanish loan as part of an overall package. Finance Confirms GoA Intent to Negotiate but Denies Press Speculation of Proposal -------------- -------------- ¶4. (SBU) Finance Secretary Alfredo Mac Laughlin's November 9 letter asks the Paris Club President to "convey to Paris Club member governments the desire of the Government of Argentina to restart, as soon as possible, negotiations that would allow a rapid normalization of our financial relations." Secretary Mac Laughlin's top advisor, Juan Carlos Barboza, SIPDIS confirmed to Econoff November 13 that the GoA will seek to normalize relations with the Paris Club by the end of the year, but disavowed the "speculation" in the media regarding GoA proposal details. ¶5. (SBU) Barboza is a member of the Economic Ministry's Paris Club working group that is preparing the GoA proposal. He said the team has not yet agreed on details, and planned to make the first formal approach to the Paris Club next week. He agreed with recent press reports that the issue of whether or not to include the 2001 Spanish debt will come out of conversations with the Club, and highlighted that the earlier reports out of Uruguay claiming the two sides had reached a deal were erroneous. (Comment: Barboza has admitted to Econoffs in the past that a new deal with the IMF is out of the question. Nevertheless, the GoA plans to seek a creative solution that will include rescheduling payment terms and limiting upfront payment of arrears, not too dissimilar from recent press "speculation." End Comment). ¶6. (SBU) Barboza added that Secretary Mac Laughlin met with Minister Miceli on Friday evening, November 9, and left with the understanding that he is fully authorized to take the lead on talks with Paris Club creditors. Mac Laughlin will begin consultations with Paris Club creditors' Ambassadors to Argentina following his return from the November 18-19 G-20 meeting in Australia. G-7 Plus Reps in Argentina agree on Paris Club Solidarity -------------- -------------- ¶7. (SBU) Econoff's have shared notes on Paris Club issues and promoted Paris Club solidarity with the Economic Counselors of all the G-7 countries, plus Spain. The French and Italian counterparts have been most strident in their support, but all of our local contacts among Paris Club creditors -- including the Spanish Economic Counselor -- assert that their governments support Paris Club solidarity and will not negotiate one-off bilateral deals with the GoA. According to the Spanish Economic Counselor -- who has also clarified that Spain and Argentina did not/not conclude a bilateral deal on the margins of the EU/Mercosur Summit in Uruguay -- Spain is prepared to discuss Argentina during the November 15 meeting in Paris. Background on Argentina's Debts to Paris Club Creditors -------------- -------------- ¶8. (SBU) As of August 2006, Argentina owed approximately $7.2 billion to Paris Club creditors, of which over $3.5 billion consisted of arrears and past due interest. The $7.2 figure includes Spain's 2001 loan to Argentina, which with interest now totals close to $1 billion. Spain and Argentina have argued for treating this loan outside of the Paris Club context, because Spain provided it in conjunction with an IMF bailout package in 2001. Other Paris Club creditors do not agree. An additional $2 billion in principal payments comes due between 2006 and 2008. As of November 2006, Argentina owed $359.2 million to the United States, of which over $300 million was in arrears. Comment -------------- ¶9. (SBU) Argentina's media is notoriously unreliable, especially on issues related to the economy, and has on several occasions over the last month incorrectly reported GoA preparations on dealing with Paris Club debt. Nevertheless, internal thinking in the Finance Secretariat appears to vary little from what the news outlets are reporting, so it seems probably that GoA officials are leaking details of a possible proposal. If so, it appears that the GoA is not being very realistic, as Paris Club creditors have already indicated that given Argentina's high reserves and aversion to a new IMF program, the best way to normalize relations would be to clear its $3.5 billion arrears. End Comment. WAYNE