NEW ECONOMY MINISTER ON PARIS CLUB, DOHA TALKS,

C O N F I D E N T I A L BUENOS AIRES 001745 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: 08/30/2017 TAGS: EFIN ECON EINV AR SUBJECT: NEW ECONOMY MINISTER ON PARIS CLUB, DOHA TALKS, POST-ELECTION REFORMS REF: A. BUENOS AIRES 1648 ¶B. BUENOS AIRES 1496 ¶C. BUENOS AIRES 1558 ¶D. BUENOS AIRES 1301 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) Subject -------------- ¶1. (C) New Economy Minister Miguel Peirano emphasized to the Ambassador his interest in resolving the Paris Club impasse, supported Canada's IMF reform proposals, agreed to deal with disputes involving U.S. interests, and affirmed Argentina's commitment to broad trade liberalization in an August 24 meeting. However, Peirano complained that current Doha texts would limit the GoA's ability to protect key domestic constituencies. He also justified recent protective trade measures (Ref A) as essential to countering the wave of cheap Asian imports. Ambassador highlighted increasing pressure on the USG from bondholder groups ("holdouts") that did not participate in the 2005 debt exchange, and stressed that resolving this issue was in Argentina's best interests. Peirano is reportedly developing a post-election economic road-map, prioritizing Paris Club, tighter fiscal policies, ending price controls, reorganizing the statistical agency, and even dealing with holdouts. Although a positive signal to markets, it is an ambitious agenda for a first-year President to implement. End Summary. Paris Club: Time to Renew Efforts to Resolve -------------- ¶2. (C) In his first meeting with the Ambassador since being promoted from Secretary of Industry on July 17 (Ref B),new Economic Minister Miguel Peirano emphasized the importance he placed on reaching a payment deal with the Paris Club over Argentina's roughly $6.3 billion official debt (over half of which is in arrears). Without offering details, he stated his intention to renew discussions soon with Paris Club members. He announced he had appointed his new Chief of Advisors, Javier Alvaredo, to take the lead on the issue. The Ambassador agreed that resolving the Paris Club arrears would be a positive step forward, and offered assistance with arranging meetings with U.S. officials in Washington or during international meetings, as well as providing background on how the Club works. IMF Reform -------------- ¶3. (C) Peirano noted the upcoming visit (September 2) to Argentina of France's candidate to head the IMF, Dominique Strauss-Kahn, and commented that he looked forward to discussing voting share reforms with him (a favorite issue of Peirano's predecessor, Felisa Miceli). He called Canada's proposal for voting share reform a good basis to begin discussions. Peirano Promises to Address Outstanding Disputes -------------- --- ¶4. (C) Ambassador noted that the Embassy had working closely with former Economy Minister Felisa Miceli and her staff on a number of disputes involving U.S. companies, and he hoped to continue the close cooperation with Peirano's new team. In particular, the Ambassador urged action on TIG Insurance company, which has an approximately $15 million re-insurance contract claim against the GoA, and Bowne of New York LLC, which the GoA owes $1.4 million for work it did during the 2005 debt exchange. See Ref D for background. ¶5. (C) The Ambassador also inquired about the status of the GoA's settlement with Argentine citizen Eduardo Saiegh, who claims anti-semitism played a role in his seizure and mistreatment by the GoA military dictatorship in 1980, and the GoA's subsequent expropriation of his stake in Banco Latinoamericano. The Ambassador said he understood that Argentine courts had ruled in Saiegh's favor, and had issued a judicial order for the GoA to compensate him for loss of property. However, according to Saiegh the payment was pending (or held up) in the Economy Ministry. Peirano agreed to investigate all three cases, and appointed his advisor Javier Alvaredo as the lead contact for the Embassy. Trade Issues: China a Common Threat -------------- ¶6. (C) Ambassador noted his discussions with Foreign Ministry officials on upcoming September meetings in Geneva that will try to come to closure on Doha Round Agriculture, NAMA, and Services modalities draft texts (Ref C). The U.S., he said, remains committed to a successful Doha outcome, and he urged Argentina to keep to the same commitment. Peirano affirmed Argentina's commitment to broad trade liberalization, but called current Doha draft texts "too rigid," limiting Argentina's room to maneuver in satisfying domestic constituencies, including powerful labor unions. He called burgeoning Asian imports a threat that justified temporarily strengthening Argentina's non-tariff barriers (Ref A). In this environment, NAMA Swiss coefficients proposed by developed countries would require excessive cuts in Argentine industrial tariffs, a move that, he said, would benefit China and not the U.S. In fact, he noted, many large U.S. multinationals have optimized their Argentine production to benefit from existing regional managed trade regimes and have a strong interest in maintaining the tariff status quo. The Ambassador appreciated Peirano's frank response and shared NAMA-specific talking points targeted to Argentina for the Minister's consideration. Bondholders Increasing Pressure -------------- ¶7. (C) The Ambassador commented that he had spoken frequently (Ref D) with former Economy Minister Miceli about the issue of bondholders who did not participate in the 2005 debt exchange (so-called "holdouts"). The Ambassador acknowledged that the GoA is not prepared to deal with this issue in the short term (i.e., prior to elections). However, he informed the Minister that it is of great interest in Washington. he explained that U.S. citizen holdout bondholders were increasing pressure on the executive branch and Congress to take action. The Ambassador noted the USG position that resolving the issue was in Argentina's best interests, and passed the Minister a copy of the recent letter from the American Task Force Argentina (ATFA) to Secretaries Paulson and Rice. The letter urges the Administration to intensify efforts to convince the GoA to honor its commitments to U.S. citizen bondholders, including blocking multilateral development bank loans. Comment -------------- ¶8. (C) Recent news reports, which Peirano's staffers have confirmed to Econoffs, say Peirano is drawing up a post-election economic road-map. The goal is for this plan to serve as the GoA's action plan for the transition period between the late October elections and early December, when the newly elected President takes over, and also for the first 100 days of what the GoA assumes will be the "Cristina" (Kirchner) administration. Economic Ministry staff confirm that they are considering ways to resolve both the Paris Club and Holdouts, and the plan will also prioritize tighter fiscal policies, ending price controls, and reorganizing the statistical agency INDEC. News of this program is a welcome and positive, albeit highly ambitious, signal to markets. However, it remains to be seen whether Peirano will retain his job in a follow-on administration and whether a first-year President would be able to support such an ambitious reform program. It is also far from clear that Peirano and his team have a realistic view of what is needed to resolve the Paris Club or bondholdouts issues. End Comment. WAYNE