LATEST ON ARGENTINA'S PLANS TO NEGOTIATE PARIS

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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
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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