Identifier
Created
Classification
Origin
07BUENOSAIRES1809
2007-09-11 17:07:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

IMF CANDIDATE STRAUSS-KAHN LOBBIES FOR ARGENTINE

Tags:  EFIN ECON EINV AR 
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C O N F I D E N T I A L BUENOS AIRES 001809 

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: 09/10/2017
TAGS: EFIN ECON EINV AR
SUBJECT: IMF CANDIDATE STRAUSS-KAHN LOBBIES FOR ARGENTINE
SUPPORT, CAUTIONS ON PARIS CLUB

REF: A. BUENOS AIRES 1785


B. BUENOS AIRES 1745

Classified By: Economic Officer Chris Landberg for Reasons 1.4 (b,d)

Summary
-------
C O N F I D E N T I A L BUENOS AIRES 001809

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: 09/10/2017
TAGS: EFIN ECON EINV AR
SUBJECT: IMF CANDIDATE STRAUSS-KAHN LOBBIES FOR ARGENTINE
SUPPORT, CAUTIONS ON PARIS CLUB

REF: A. BUENOS AIRES 1785


B. BUENOS AIRES 1745

Classified By: Economic Officer Chris Landberg for Reasons 1.4 (b,d)

Summary
--------------

1. (C) Dominique Strauss-Kahn, France's candidate for
Managing Director of the IMF, capped a four-country tour
through Latin America with two days of meetings in Buenos
Aires. French Embassy officials called the meetings with GoA
officials "surprisingly cordial," particularly with President
Kirchner and First Lady (and Presidential Candidate) Cristina
Kirchner. The Kirchners apparently also gave the impression
they would support Strauss-Kahn's IMF candidacy. GoA
officials stressed their opposition to Canada's IMF reform
plan, and expressed strong interest in negotiating a deal
with the Paris Club. Strauss-Kahn took a firm line during
meetings and in a television interview on the need for the
GoA to pay down roughly $4 billion in Paris Club arrears or
sign an IMF program to resolve the Paris Club impasse. End
Summary.

Strauss-Kahn Lobbies for Argentine Support
--------------

2. (C) Former French Finance Minister Dominique Strauss-Kahn
visited Argentina September 2-4 as the final stop on a
four-country lobbying tour through Latin America. Following
visits to Mexico, Chile, and Bolivia (in that order),
Strauss-Kahn spent two days meeting with the GoA officials
who will decide whether the GoA supports his candidacy for
IMF Managing Director. In addition to President Nestor
Kirchner and First Lady, Senator, and leading Presidential
Candidate Cristina Fernandez de Kirchner, Strauss-Kahn also
met with Economic Minister Miguel Peirano, Foreign Minister
Jorge Enrique Taiana, and Central Bank President Martin
Redrado. Redrado reportedly included the Central Bank
Governors of Paraguay, Uruguay, and Ecuador in the meeting.

The French Embassy hosted his visit, and also organized
meetings with the private sector and an interview on the
influential television show, "A Dos Voces" (Two Voices).

Hints of a Possible Reconciliation with IMF
--------------

3. (C) Given Argentina's troubled and conflictive history
with the IMF, French Ambassador Frederic Baleine du Laurens
told Ambassador that he was surprised by how cordial the
meetings were with GoA officials, particularly with the
Kirchners. This was reflected in subsequent local press
stories, with GoA sources commenting on the positive
interaction between the Kirchners and Strauss-Kahn and
suggesting that this might be the beginning of the GoA's
reconciliation with the IMF. French Economic Counselor
Michel Planque told Econoff that the Kirchners gave the
impression that they would support Strauss-Kahn's nomination,
but did not offer official support either in the meeting or
subsequently to the press.



4. (C) EconCouns Planque noted that Strauss-Kahn bowed to
local political realities and acknowledged in both private
and public that the IMF had made grave errors in the 1990s,
leading up to Argentina's 2001-02 financial crisis. He also
accepted that the 60-year old institution needed to adapt to
the changed status of emerging market economies. (Comment:
However, Planque said local press reports exaggerated
Strauss-Kahn's support for less rigorous IMF conditionality.
End Comment). Central Bank President Redrado told the
Ambassador that both the President and Senator were
exceedingly gracious in outlining their criticisms of the IMF
to Strauss-Kahn.


5. (C) The Kirchners and Economy Minister Peirano emphasized
their opposition to Canada's IMF reform plan, which proposes
a realignment of voting shares and participation on the
Executive Board. Peirano, in particular, highlighted that
Argentina would likely lose its Executive Board seat under
the Canadian plan (since Argentina currently has only 1%
voting shares). Instead, GoA officials pushed for a
two-tiered voting protocol that, on key issues involving
emerging countries, would add to the normal vote (based on
quota weight) a second majority vote where each country has
one vote (Strauss-Kahn announced his support for such a
system after departing Buenos Aires).

Tough Line on Paris Club
--------------

6. (C) Argentina's relationship with the Paris Club figured
heavily in Strauss-Kahn's meetings with the Kirchners and
with Minister Peirano and Central Bank President Redrado.
The GoA officials stayed on message in claiming to want to
sign a deal and pay GoA arrears (currently approximately $4
billion out of a total debt of roughly $6.3 billion).
However, they continued to reject any possibility of agreeing
to an IMF oversight program (a Paris Club prerequisite for a
debt restructuring deal). Both Kirchners called it "absurd"
that the GoA had been unable to strike a deal until now,
according to the French Ambassador. They also made clear
their intention to make it a priority during the transition
between the October 28 Presidential election and the December
10 inauguration of the next President (with the clear
presumption that Cristina will be the next President).


7. (C) Strauss-Kahn, who was accompanied by Ambroise Fayolle,
Co-Chair of the Paris Club Secretariat, reportedly maintained
a fairly hard line on the requirements for a Paris Club deal
during his GoA meetings. EconCouns Planque reported that
Strauss-Kahn asked the Kirchners why the GoA could not just
use its official reserves to clear arrears, or just pay them
out of the Budget. The Kirchners (and separately other GoA
officials) rejected these options, pointing at their
weakening fiscal situation and impact of recent global market
volatility. The other option discussed, according to the
French Ambassador, was that Argentina could devise its own
plan and present it to the creditors for discussion and

negotiation. The French Ambassador added that the Kirchners
did not rule out any role for the IMF in an eventual
agreement, but it could not appear as IMF conditionality.
Reportedly, President Kirchner urged Strauss-Kahn to
resurrect the idea of setting up a special credit line,
allowing countries to borrow many times their IMF quotas
(with limited conditions attached). Planque also reported
that Strauss-Kahn took an even harder line during discussions
of Export Credit Agencies' (ECA) support for infrastructure
projects in Argentina, clarifying that no ECA would break
with Paris Club solidarity.


8. (C) In the subsequent television interview, Strauss-Kahn
stated that the GoA needed to negotiate with Paris Club
members, not with the IMF, regarding its Paris Club debts.
He said that "Paris Club's rules required an accord with the
IMF" (for debt restructuring),but emphasized that it the
Paris Club's -- and not the IMF's -- precondition. Finally,
he commented that Argentina's official reserves level and
high real growth rate made this a solvable problem. While
avoiding the appearance that he was offering solutions, he
nevertheless offered that the two clear solutions were to use
reserves to pay or, "resolve it according to Paris Club
rules," meaning negotiate with the IMF.

Comment
--------------

9. (C) Central Bank President Redrado told Ambassador he was
extremely pleased that the visit had gone so well, especially
as he had promoted and organized it. The Kirchners appear to
see the upcoming change in the Argentine Presidency as an
opportunity to thaw relations with the IMF and resolve the
Paris Club impasse. GoA officials have noted this increased
interest in recent meetings with Emboffs (reftels). Local
newspapers have also recently expanded their reporting on the
administration's intent to clear Paris Club arrears. The
GoA's motivation is to gain access to export credit agency
financing and improve Argentina's reputation as a safe place
to invest. The press is also reporting that Cristina
Kirchner is discussing Paris Club options during her trip to
Europe this week, which may include a meeting with Germany's
Prime Minister.


10. (C) Renewed GoA attention to the subject is welcome.
Unfortunately, the GoA may have missed its window to handle
the issue painlessly. The GoA's vaunted primary fiscal
surplus has dwindled significantly (septel) as a result of a
roughly 50% increase in election-year spending. Reserves are
trending downwards, falling $1 billion in the last month, as
the Central Bank struggles to deal with higher volatility and
lower liquidity in both global and local markets. Also,
interest rates in Argentina have increased significantly
since mid-July, resulting in much higher borrowing costs.
Issuing international dollar-denominated or local-currency
debt to cover the cost of clearing Paris Club arrears is now
a much more expensive option. End Comment.

WAYNE