MINISTRY OF ECONOMY'S SECRETARY OF TECHNICAL

C O N F I D E N T I A L SECTION 01 OF 03 BUENOS AIRES 000498

SIPDIS

SIPDIS

WHA PATRICK DUFFY
NSC FOR DAN FISK
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER

E.O. 12958: DECL: 03/01/2016
TAGS: ECON EINV ENRG AR
SUBJECT: MINISTRY OF ECONOMY'S SECRETARY OF TECHNICAL
COORDINATION DISCUSSES INVESTMENT DISPUTES


Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D)

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Summary
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1. (C) The DCM paid a courtesy call on new Ministry of
Economy Secretary for Technical Coordination Carlos Salas on
February 24, to ask about the GOA's economic policy plans for
the coming year. Salas responded that he was not an
economist, but expressed optimism that the economy would
continue on an expansionary track with good prospects for
investment. Salas acknowledged that inflation was a major
GOA concern, but claimed that it was more a problem of
expectations than underlying macroeconomic pressure. The DCM
recognized the political sensitivities of the inflation
problem, but noted that sound monetary and public spending
policies were important factors to consider. The DCM raised
the case of CMS Energy, which received a USD 133.2 million
award from an ICSID tribunal but is willing to explore the
possibility of a negotiated settlement with the GOA. Salas
responded that he had never talked to anyone from CMS during
the two-and-a-half years he served with UNIREN, the GOA
agency responsible for renegotiating public sector contracts.
Nevertheless, Salas offered to meet with the new CMS
President and to put him in touch with the relevant UNIREN
representatives. Salas' transfer from the Ministry of
Planning, where he was a close confidant of Minister Julio De
Vido, reflects De Vido's increasing influence in GOA economic
policymaking following the departure of Minister of Economy
Roberto Lavagna last December. It is worth noting with
concern that the senior GOA official responsible for consumer
protection has little understanding of the macroeconomic
factors causing inflation. End Summary.

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U.S. Support for Argentina
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2. (C) The DCM paid a courtesy call on new Ministry of
Economy Secretary for Technical Coordination Carlos Salas on
February 24. The DCM was accompanied by Econcouns
(notetaker). The DCM sought Salas' views on the economy and
then raised a business advocacy case. Salas explained that
as Secretary of Technical Coordination, he was only
responsible for the Secretariat of Consumer Affairs and the
GOA's Anti-Trust Agency (CNDC). This differs from the
responsibilities of his predecessor, Secretary Leonardo
Madcur, who had a much broader and loosely defined set of
responsibilities. (Comment: Local Embassy contacts report
that former Undersecretary of Consumer Affairs Patricia Vaca
Narvaja, who left to assume her newly-elected position as a
deputy in the Lower House of Congress, will not be replaced
and that all of her former responsibilities will be assumed
by Salas. End Comment.) Salas added that he had been the
Ministry of Planning's representative at the GOA's
Renegotiation and Analysis Unit (UNIREN),the organization
responsible for re-negotiating the GOA's 62 public service
contracts, from 2003 to November 2005. He said he had not
looked for short-term solutions at UNIREN, but had sought a
sustainable process for the future where all stakeholders
would benefit.


3. (C) The DCM noted that U.S. companies also have a
long-term interest in Argentina and that he was not aware of
any major U.S. company that had left Argentina during the
recent crisis. Most U.S. companies wanted to stay in
Argentina, including those who have international arbitration
(ICSID) cases against Argentina. They came in good faith and
made tangible investments. The DCM added that U.S. firms do
not want difficulties with the GOA but want to achieve
settlements that give them clear and fair rules of the game

BUENOS AIR 00000498 002 OF 003


to work and compete in Argentina.

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Optimism About GOA Economic Policies
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4. (C) The DCM asked Salas about the GOA's economic policies
for the coming year. Salas appeared somewhat reluctant to
discuss the economy's performance, pointing out that he was
an architect, not an economist. However, he said he was
optimistic about growth and investment prospects. Salas said
President Kirchner is not one to change things from one day
to the next, preferring a prudent approach to policymaking.
Salas said President Kirchner believes that long-term
policies require the involvement of both the public and
private sectors. Salas stressed that the strong
macroeconomic recovery boded well for the future.


5. (C) Salas acknowledged that inflation was a major
concern, but claimed that it was more a problem of
expectations than real conditions. Existing inflation is
primarily a function of the rapid economic growth that has
taken place during the last three years and the economy's
inability to meet this demand. The greater the demand, the
greater the expectation that prices will rise in the face of
limited supply and the economy's inability to satisfy demand.
This is the reason why the GOA has paid so much attention to
negotiating price control agreements with the private sector
in recent weeks. The GOA's objective is to limit
expectations. Salas thought that the GOA was winning the
expectations battle and that inflation would be controlled.


6. (C) The DCM said he understood the political sensitivity
of the inflationary problem, but noted that there were also
basic macroeconomic reasons why inflation was rising, such as
rapid expansion of the money supply and excessive public
spending. The DCM opined that the fact that Argentina had
faced hyperinflation in the late 1980s, and zero inflation in
the mid-1990s, was a function of tangible monetary and fiscal
effects on consumer prices, rather than an arbitrary decision
by the private sector to raise or not to raise prices. Salas
didn't disagree but admitted he was not an economist,
although he added that all sectors, including business, had
to assume responsibly for bringing inflation under control.

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Making the Case for CMS
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7. (C) The DCM raised the case of CMS Energy, a U.S. energy
sector firm that operates natural gas pipelines in Argentina
under a license granted by the GOA. CMS received a USD 133.2
million award from an ICSID tribunal, wants to remain in
Argentina, and would like to reach a negotiated settlement
with the GOA. CMS also indicated that it would accept
compensation in benefits other than cash, such as additional
licenses or concessions. The Ambassador has in the past
conveyed CMS' interest to Minister of Planning De Vido, and
met with the new CMS president of the local subsidiary.
However, UNIREN officials have insisted that CMS suspend its
ICSID case prior to the initiation of negotiations. While
there seemed to be a willingness to talk, no real progress
has been made toward resolving the dispute.


8. (C) Salas said that he had never talked to anyone from
CMS during his two-and-a-half years at UNIREN. He added that
CMS had failed to understand the GOA's message, i.e., that
public service companies should understand the GOA's severe
political and economic constraints and look for a long-term
settlement that benefits all parties, rather than a
short-term payout for the company in question. CMS is free
to go to ICSID if they choose and seek a favorable ruling.

BUENOS AIR 00000498 003 OF 003


However, Salas offered to meet with the new CMS President and
to put him in touch with the right people in UNIREN. "We
don't want anyone to leave the country," he said, "UNIREN
never closes the door on anyone, there is always a way to
find a solution, and Minister De Vido and Minister of Economy
Miceli will find a way to dialogue." The DCM said we would
pass this message back to CMS.

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Biographical Note
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9. (U) Salas is a close friend and confidant of the
increasingly powerful Minister of Planning Julio De Vido.
Salas met De Vido when he was a member of the Faculty of
Architecture at the University of La Plata. De Vido is also
an architect, so the two had much in common. De Vido later
recruited Salas to work as a technical advisor during the
2003 presidential campaign. De Vido then offered him his
first public office as Ministry of Planning's representative
at UNIREN. Salas had little experience in renegotiating
public service contracts, but he slowly but surely achieved
success as a negotiator. He claims that he was responsible
for renegotiating 10-12 major energy contracts, including
AES/Edelap of the U.S., Endesa, Gas Ban, Edesur, Edenor, and
Transgener. He was not able to conclude negotiations with
Telefonica of Spain, which was concluded shortly after his
departure. De Vido also made him responsible for Ports and
Navigable Waterways, where he reportedly had conflicts with
both the unions and some of the companies in the sector. He
has a low profile and he avoids the press. One of his first
acts as Secretary of Technical Coordination was to
participate in the negotiation of a price control agreement
for the largest supermarket chains. He is a graduate of the
Faculty of Architecture of the University of La Plata. He
spent many years working for private construction companies
or provincial governments as a supervisor, director or
inspector of public works projects in the provinces of Santa
Cruz, Chubut and Buenos Aires.

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Comment
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10. (C) Salas' transfer from the Ministry of Planning to
what was the number three position in the Ministry of Economy
is a reflection of Minister of Planning Julio De Vido's
increasing influence following the departure of Minister of
Economy Roberto Lavagna last December. It is unthinkable
that De Vido ever would have had a close associate working
within his archrival's ministry. It is also worrisome that
the GOA official responsible for consumer protection admits
to not understanding the macroeconomic factors causing
inflation. Salas also is the lead official on anti-trust
issues, which may not be good news for companies that have
been accused of colluding to increase prices.


11. (U) To see more Buenos Aires reporting, visit our
classified website at:
http://www.state.sgov.gov/p/wha/buenosaires.< /a>
GUTIERREZ