NEW ARGENTINE ECONOMY MINISTER PEIRANO:

C O N F I D E N T I A L BUENOS AIRES 001496

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E.O. 12958: DECL: 7/31/2017
TAGS: ECON ETRD EFIN PREL AR
SUBJECT: NEW ARGENTINE ECONOMY MINISTER PEIRANO:
PROTECTIONIST CARETAKER

REF: A. BUENOS AIRES 1445


B. BUENOS AIRES 1415

C. BUENOS AIRES 1360

D. BUENOS AIRES 1351

E. BUENOS AIRES 1212

F. BUENOS AIRES 978

G. BUENOS AIRES 844

H. BUENOS AIRES 247

I. BUENOS AIRES 173

J. BRASILLIA 124

K. 06 BUENOS AIRES 2202

Classified By: Ambassador E.A. Wayne. Reasons 1.5 (B,D)

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Summary
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1. (C) New Economy and Production Minister Miguel Peirano was
elevated from his Secretary of Industry and Trade and Small
Business post in the same Ministry to replace Felisa Miceli
on July 17. Miceli had resigned abruptly after a scandal
involving the discovery of $100,000 in cash in her office
bathroom made her a liability for the Kirchner
administration. Peirano was selected as a loyal,
non-controversial place holder to see the Kirchner
administration through to October elections. His appointment
signals continuity of the GoA's signature economic policy
formula that promotes consumption-led growth (via price
controls and subsidies) and protects job-creating industrial
development (via "administered" trade and a "competitive"
undervalued currency). In a cabinet increasingly riven by
factional strife between Planning Minister De Vido and Chief
of Cabinet Fernandez, Peirano is reportedly on good terms
with all key inner-circle players, including De Vido,
Fernandez, Presidential Legal Secretary Zannini and Central
Bank Governor Redrado.


2. (C) Before entering the Ministry in 2003 under ex-Economy
Minister (and current opposition Presidential candidate)
Roberto Lavagna, Peirano served as an economic advisor to the
powerful Argentine Industrial Union, whose
protectionist-oriented membership celebrated his ascension.
In his first two weeks on the job, Peirano has, as expected,
retained the vast majority of the Economy Ministry's
appointed lieutenants and publicly affirmed key GoA economic
policy tenets, calling widely questioned lowball official
inflation statistics "credible" and insisting that protecting
Argentina 's growing industrial base is "fundamental" to the
nation's welfare. Peirano will not rock the policy boat, but
has taken steps to regain Economy Ministry control of the
national statistics agency, whose inflation reporting had
been widely discredited. He is well known to the Embassy and
attended Commerce Secretary Gutierrez' June Competitiveness
Forum in Atlanta with Ambassador. End Summary

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Weak Economy Minister Replaced by One Weaker Still
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3. (C) Peirano,s predecessor, Felisa Miceli, had been named
by Kirchner as Economy Minister in November 2005 as a low
profile replacement for Roberto Lavagna, widely celebrated as
the father of Argentina,s successful post-crisis economic
recovery policy mix. Key elements of Lavagna's mix include
maintaining a substantial primary fiscal surplus (aided by
distortionary export and financial transaction taxes that
concentrate government revenues and political power at the
federal level),sustaining a trade surplus (aided by a
managed trade regime with Mercosur partners and by central
bank currency market interventions to sustain a substantially
undervalued peso and so promote export competitiveness),and
by massive unilateral debt write-downs. Lavagna resigned
after criticizing the Kirchner administration,s less than
transparent handling of public procurement. Now running as
an independent candidate for President, he is calling for the
adjustment and "evolution" of his original economic policy
model -- including the elimination of price controls imposed
after he left office -- to position Argentina to end its
rollercoaster history of boom and bust economic cycles.


4. (C) Miceli, who was previously head of the state-owned
Nation Bank, kept the basic tenets of Lavagna's economy
recovery program in place. During her 19-month tenure, she
offered few new policy initiatives, and publicly counseled an
"if it ain't broke, don,t fix it8 economic policy stance.
Miceli's less than sterling academic credentials and
Panglossian disposition helped ensure that President
Kirchner, already famous for his daily monitoring of fiscal
surplus levels, got most of the credit for the nation's
sustained 8 % GDP growth. She was disparaged publicly by the
media (and privately by economists, business leaders, and her
GoA peers) for having surrendered key parts of her Ministry's
portfolio -- including control of economic statistics (Ref H)
and the negotiation of "voluntary" price accords with
consumer goods producers to Secretary of Internal Commerce
Moreno. While Moreno nominally reported to Miceli through
the Economy Ministry, he made no secret of his ties and
loyalty to Planning Minister De Vido (Ref K).


5. (C) The June discovery of a bag containing $64,000 in cash
in Minister Miceli's bathroom and the ensuing "toilet-gate"
investigation (Ref F) unfolded against the backdrop of other
high-profile scandals that have received widespread media
coverage, tarnishing President Kirchner's pledge of a
"crystaline" administration. Prominent among these are
investigations into gas pipeline infrastructure procurement
kickbacks that threaten to reach the highest levels of
Minister De Vido's Planning Ministry (the "Skanska" scandal,
Ref G),and charges of financial mismanagement and nepotism
against Environment Minister Picolotti, protg of Chief of
Cabinet Fernandez (Ref F). These two high profile
investigations brought longstanding internal frictions
between rival camps surrounding Planning Minister De Vido on
one hand and Chief of Cabinet Fernandez on the other into
increasingly sharp relief. In the pre-election jockeying for
influence and position in a likely future Cristina Kirchner
government, each camp accuses the other of feeding damaging
scandal information to the media. In this context, and
despite initial strong support from Chief of Cabinet
Fernandez and from the President himself, Miceli was
eventually weakened to the point where she submitted her
resignation July 17 (Ref D). Eager to put this latest in a
growing series of scandals behind him, the President swore in
Peirano as Minister the following day (Ref C).


6. (C) Peirano was selected, most pundits and Embassy
contacts agree, as a non-controversial place-holder to see
the Kirchner administration through to a December 10 change
of administration after first lady Cristina Kirchner
presumably wins October 28 elections by a comfortable
majority. Young (41),and a reputed workaholic, he shares a
strong industrial protection bias with Planning Minister De
Vido but his strongest credential for the job appears to be
his history as a Ministry insider who has made few enemies
and who has successfuly steered a middle course between
feuding De Vido and Fernandez camps. He is said to have
developed close ties with the President's confidant and Legal
Secretary Carlos Zannini through their work establishing the

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Argentina First Foundation, an organization dedicated to
mobilizing younger Kirchner supporters. Peirano is also
reported to have a good working relationship with current
central bank governor Martin Redrado, from Redrado's earlier
position as Foreign Ministry Trade Secretary under President
de la Rua. (Note: Redrado is widely seen as a short list
candidate himself for the Economy Ministry post in a
Christina Kirchner cabinet. End Note)

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A Protectionist Any Industrialist Would Love
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7. (C) Peirano is well known to the Embassy Economic section
dating from his March 2005 appointment as the Economy
Ministry's Industry and Commerce Secretary. In that
position, Peirano's mandate was to promote the rapid growth
and consolidation of Argentina's industrial base by shielding
it from international competition via a hard line on WTO Doha
NAMA trade negotiations (Ref A) and by policing a series of
"voluntary" private sector and otherwise managed trade
agreements with Mercosur neighbors (Ref E). In periodic
discussions with EconCouns, Peirano outlined his industrial
policy worldview: (1) Argentina requires a diverse and deep
industrial base to boost domestic value-added and decrease
Argentina,s dependence on its traditional primary commodity
export base; (2) current high global commodity prices are
transient phenomena to be enjoyed and exploited via high
export tariffs on primary commodity exports; (3) these
windfall revenues offer the GoA the wherewithal to provide
domestic industry targeted subsidies, including by
maintaining domestic industrial natural gas and electricity
prices well below world market levels (Ref B); and (4) beyond
subsidies, Argentina will continue to promote and protect
domestic industry via active currency management to maintain
a "competitive" (i.e. undervalued) exchange rate and by
active trade policy management.


8. (C) To Peirano, active trade policy management includes
policing "voluntary" trade constraints within Mercosur (e.g.
on textiles and footwear) as well as negotiating fully
managed trade regimes (e.g. auto sector) that are wholly WTO
inconsistent. Regional and multilateral anti-dumping and
countervailing duty tools will be used as needed to protect
Argentina,s developing industrial base from unfair and
"predatory" competition from its Mercosur neighbors. Such
active GoA support is fully justified, Peirano believes, to
counter terms of trade advantages retained by developed
economy trade partners and to offset sophisticated industrial
promotion programs by Argentina's largest trading partner,
Brazil, including tax incentives at the Brazilian state level
and subsidized credits provided by Brazil's BNDES development
bank.

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First Careful Steps: Fixing INDEC
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9. (C) Peirano has retained almost all senior appointed staff
in the Ministry, relieving only former Minister Miceli's
Secretary of Legal and Administrative Affairs. One of his

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first public statements was to affirm the &integrity8 of
widely questioned inflation statistics produced by national
statistics agency INDEC. INDEC had been in the spotlight
since January 2007 when the GoA -- likely at the behest of
Internal Commerce Secretary Guillermo Moreno -- ousted the
director of INDEC's consumer price department and replaced
her with someone widely seen as close to the government (Ref
H). Since then, Argentina's CPI data have come in lower than
expected, supporting allegations made by both INDEC's own
statisticians and independent economists that the closely
watched inflation data are being manipulated. Official data
currently point to an annual inflation rate of 8.8%, while
analysts say the real rate ranges between 12 and 15%. (Note:
Local analysts are also increasingly suspicious of other
INDEC data, including GDP growth, poverty levels, and
measurements of industrial production. End Note) The GoA
has denied this and allegations of GoA interference are
currently being investigated by the courts. Peirano, in an
initial effort to rebuild domestic and international
confidence in the statistics agency, on July 24 replaced the
political appointee head of INDEC with the agency's Deputy
Director (since April 2007),a respected career INDEC
technocrat.

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Bio Background
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10. (SBU) Miguel Gustavo Peirano studied at Buenos Aires
premier public high school, the Colegio Nacional, and earned
an honors degree in Economics in the early 1990s at the
then-reputable Universidad Nacional de Buenos Aires (UBA).
Prior to his appointment as a GoA official in March 2003,
Peirano's private sector work was concentrated in the
industrial sector, starting out as a financial analyst at
Techint International, a large Argentine-owned industrial and
construction conglomerate. He was later appointed as head of
the research unit at the largest business association in
Argentina, Union Industrial Argentina (UIA). With Peirano's
support, UIA created an internal research unit, aimed at
analyzing industrial issues with a
protectionist/interventionist bias and actively promoting
government policy-making to favor the industrial sector.
While at UIA, he also worked as an advisor to the local
chamber of footwear (1996-1999),to the local chamber of wood
(1999-2001),to the Banco de la Provincia de Buenos Aires
board (1999-2001),to the City of Buenos Aires Government,s
Direction of Industry (1997-1998) and to the Buenos Aires
City Business Association (1998-2000). In 2003, he joined
the Ministry of Economy as an advisor to the Undersecretary
of Small Business, under the Secretary of Industry, a
poisition he left in 2004 to become Vice-president of the
GoA-owned Banco de Inversion y Comercio Exterior (BICE).
Peirano worked there until March 2005, when he was appointed
Secretary of Industry and Commerce by then Minister Lavagna.

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As Industry Secretary, Peirano attended Commerce Secretary
Gutierriez' June 2007 Competitiveness Forum in Atlanta with
Ambassador.

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Comment: More of the Same
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11. (C) Peirano is a good foot soldier who can be relied upon
to see the Kirchner administration,s economic stewardship
through October 28 elections with little controversy. He
comes to his position with a solid background in trade and
industrial policy fundamentals but with little financial
sector or macroeconomic expertise. While there was little
likelihood that the Kirchner administration was going to deal
with Paris Club and bond holdout issues before October
elections, there was some hope that the Economy Ministry
would work now to help set the stage for some resolution
early in a follow-on Cristina Kirchner administration.
However, given Peirano's weak financial and macroeconomic
background, as well as his apparent lack of interest in these
issue areas (after two weeks, he has yet to meet with the
Ministry's Finance Secretary),his appointment appears to
diminish any hope of action on priority USG economic issues
such as Paris Club and bond holdouts over the next 4-6
months.


12. (C) Central Bank President Martin Redrado gave the
Ambassdor an opposing perspective during a July 31 meeting
(septel),where he praised Peirano as a reasonable player and
urged the U.S. to give him a chance. Redrado noted that a
good indication of Peirano's more orthodox leanings was his
decision to appoint a highly-respected private sector
economist, Javier Alvaredo (a close Embassy contact),as his
chief of staff and new Ministry representative to the Central
Bank's Board of Directors. Redrado also voiced some optimism
that there could be movement on Paris Club under Peirano.


13. (C) Some are reporting that Peirano is ambitious enough
to want to stay on as Economy Minister in a follow-on
administration. Nevertheless, the hope of many in
Argentina's economic establishment is that, if Christina
Kirchner is elected President, she chooses a more senior and
better credentialed Economy Minister to unwind some of the
Argentine economy's more egregious economic distortions and
smooth the nation's re-insertion into international capital
markets. End Comment
WAYNE