ECONOMY MINISTER DECLINES INVITE TO URUGUAY

C O N F I D E N T I A L BUENOS AIRES 001301 SIPDIS SIPDIS TREASURY FOR CLAY LOWERY, NANCY LEE, AJEWEL, WBLOCK, LTRAN NSC FOR JOSE CARDENAS, ROD HUNTER PASS FED BOARD OF GOVERNORS FOR RANDALL KROSZNER, PATRICE ROBITAILLE PASS EXIM BANK FOR MICHELE WILKINS PASS OPIC FOR JOHN SIMON, GEORGE SCHULTZ, RUTH ANN NICASTRI USDOC FOR 4322/ITA/MAC/OLAC/PEACHER E.O. 12958: DECL: 07/04/2017 TAGS: EFIN ECON EINV AR SUBJECT: ECONOMY MINISTER DECLINES INVITE TO URUGUAY MEETINGS; A LOST OPPORTUNITY REF: PARIS 2374 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) Summary -------------- ¶1. (C) Economy Minister Felisa Miceli and Ambassador discussed on July 3 the Minister's invitation to participate in upcoming meetings in Uruguay with Treasury Secretary Paulson and other Ministers from the region. Although Miceli expressed interest, her staff confirmed on July 5 that the Minister would not be able to attend. The Ambassador also urged the Minister to intervene in resolving two disputes with U.S. companies (TIG Insurance and BOWNE),which she agreed to do. The Ambassador reiterated USG interest in a resolution of the bond holdouts situation, but Miceli made it clear that no movement was possible prior to the October elections. She noted that the GoA was considering Paris Club payment options, but had not completed a definitive proposal. She was pleased that Uruguay had agreed to join the Banco del Sur (BdS),but acknowledged that it would be a year or more before the BdS became operational. End Summary. Treasury Secretary Paulson Meetings in Uruguay -------------- - ¶2. (C) The Economy Minister told the Ambassador during a July 3 meeting that she had received Uruguayan Finance Minister Danilo Astori's June 15 invitation to participate in the July 12 meeting in Montevideo with Ministers from the region and Treasury Secretary Paulson. The Ambassador explained the agenda items of the Uruguay meeting, with the focus on infrastructure projects and financing, and also noted that Paulson wanted to meet separately with Miceli to discuss the opportunity for Argentina to take more of a leadership role in WTO Doha Round negotiations. Ambassador drew on Doha guidance to argue that the USG has been flexible and wants to keep working to forge agreement. Miceli said she would make every effort to attend, and indicated an interest in discussing IDB funding during a bilat with Secretary Paulson. However, her staff subsequently informed Emboffs on July 5 that the Minister would not be able to travel to Uruguay to participate in the meetings. Her staffers declined to give a reason for her inability to attend the meetings. Advocacy Cases -------------- ¶3. (SBU) The Ambassador raised two separate advocacy cases and asked the Minister to intervene to resolve them: 1) TIG insurance, which has a roughly $14.4 million claim with a government owned insurance company, dating to about 2000; and 2) BOWNE, which has an undisputed claim with the Economic Ministry for $1.4 million, related to printing services provided during the GoA's 2005 debt exchange. ¶4. (SBU) The Ambassador noted that the House of Representatives' Appropriations Committee had included non-binding language on the TIG dispute in its committee report for the FY 2008 Foreign Operations bill. The language instructed State and DoD to consider ending IMET assistance if the GoA did not resolve the dispute within a timely period. While non-binding for now, the Ambassador raised the strong possibility that Congress would include the instruction in the actual bill for FY-2009 if the two sides had not concluded a deal by then. He commented that Economic Ministry officials were finally speaking regularly to TIG's local lawyers (after repeated Embassy interventions),so there had been some -- albeit slow -- progress. Nevertheless, the Ambassador recommended that the Minister intervene in the negotiations in order to expedite a mutually acceptable resolution of the dispute. (Note: TIG has proposed a settlement of $9.6 million, which excludes penalties and fees). ¶5. (SBU) Regarding the Bowne dispute, the Ambassador said it was the Embassy's understanding that the GoA fully agreed that it owed $1.4 million to the U.S. company, but required a special decree in order to make payment. (Note: Econoff explained that Bowne originally had a $400,000 contract to print the pamphlets for the 2005 debt exchange, but costs escalated to $1.8 million when the Italian government required a separate printout, in Italian, for every one of the many thousands of Italian bondholders). Miceli acknowledged that this was a strange case, because all costs associated with the debt exchange were authorized by a special Presidential decree. Therefore, the GoA had paid the original $400,000 sum, but would need to amend the original Presidential decree or issue a new one to clear the outstanding amount. ¶6. (SBU) Miceli agreed to look into both claims. However, she noted that recent GoA scandals made these types of disputes more controversial, particularly as they neared the October elections. She said the GoA's lawyers were all fearful of taking risks or making decisions that could expose them to criticism or potential judicial or Congressional action. Bond Holdouts still on hold -------------- ¶7. (C) The Ambassador emphasized that U.S. citizen holdout bondholders were increasing pressure on the USG and U.S. Congress to take punitive action against the GoA. He acknowledged the GoA's current constraints, but urged Miceli to consider that this was an increasingly pressing issue for the United States. Miceli responded that the GoA was in the middle of an election, with the clear implication that any movement on this issue was impossible for now. ¶8. (C) Note: Local press recently reported a leaked description of the Minister's June 26 lunch with EU Ambassadors, where she reportedly said that the GoA would some time in the future have to deal with the owners of $25 billion (including interest) of GoA debt that did not participate in the 2005 debt exchange. The German Embassy, which hosted the lunch, has confirmed her comments. Miceli has made similar statements to Emboffs in the past. However, this is the first time we are aware of that a GoA official has been so quoted in the press. End Note Paris Club -------------- ¶9. (C) The Ambassador noted that we had seen the readout from the May Paris Club Tour d'Horizon, which reported informal technical discussions with Finance Secretary Sergio Chodos (reftel). Miceli responded that the GoA was coordinating with the Paris Club Secretariat to quantify debts and interest owed, and was internally contemplating payment options. She said the GoA could not afford to pay the entire arrears at once, but Economy Ministry officials were coming around to the understanding that they would have to pay more and faster than they had anticipated. She gave as a sample scenario payments in annual tranches of $1 billion, but emphasized that her Ministry had not yet developed a definitive proposal. ¶10. (C) The Ambassador noted that it was unlikely that any Paris Club member countries would talk details of any kind until the GoA presented a serious plan for normalizing the relationship. Miceli said she agreed. (Comment: Post considers it unlikely that the GoA will act on this issue prior to the October 28 elections. However, a rumor currently circulating in Buenos Aires is that President Kirchner may act on a number of politically sensitive issues after the elections, but prior to the beginning of the next term -- assuming his wife, Cristina Fernandez de Kirchner, wins the election. Paris Club, along with electricity and gas price increases, are mentioned as such possible policy moves. End Comment) Banco del Sur -------------- ¶11. (SBU) The Minister said she was pleased that Uruguay had agreed recently to join the Banco del Sur (bringing the total members to seven),which meant that all Mercosur members supported the initiative. She said the countries had made some progress on drafting the BdS statute, which closely resembled the CAF and IDB statutes. However, the organization phase was taking a long time, and she acknowledged that it would be a year or more before the BdS became operational. Miceli said that recent press reports that the BdS was soliciting outside funding were true; similar to the CAF, IDB, and other international organizations, the BdS planned to bring in "extra-regional" members -- and was particularly interested in attracting European and Asian participants. COMMENT: A Lost Opportunity for Argentina -------------- ¶12. (C) Miceli's decision not to attend the meetings in Uruguay may not have been her own, as the President almost certainly makes final decisions on participation in high-profile ministerial meetings with senior USG officials. It is possible that Kirchner -- who regularly uses local anti-American sentiments to his political advantage -- may have decided that the middle of the Presidential race was not the right time for such a public demonstration of improving bilateral ties. On Doha, it could well be that the GoA does not believe it has any flexibility on NAMA, given its need to court unions for the October elections. Kirchner and other key GoA officials are also notoriously sensitive to perceived slights, so this might be the GoA's reaction to the absence of an Argentina stop in the upcoming Paulson trip to the southern cone. Biateral tensions between Uruguay and Argentina -- mainly over the pulp mills on the Uruguayan side of the river -- may have also played some part in this decision, particularly as GoA officials might not wish to be seen as being convoked to a meeting in Uruguay. ¶13. (C) Finally, Miceli is under intense criticism and facing judicial branch investigations related to recent scandals. Local media's most recent revelation was that ministry security officials discovered between $60,000 and $250,000 in cash in Miceli's office bathroom. Despite her claim that the cash was for a real estate transaction, this and other scandals have undermined her position in the government, which was never strong to begin with, and have left her defensive and in circle-the-wagons mode. Regardless of the reasons, this was a lost opportunity for the GoA and Miceli to enhance their standing in the region and be seen in the same company with the other major countries in Latin America. It was also a missed chance for Miceli to advance the bilateral agenda with Secretary Paulson, with whom she has long sought a meeting. End Comment. WAYNE