ARGENTINE ECONOMY MINISTRY OFFICIALS SEE

C O N F I D E N T I A L SECTION 01 OF 02 BUENOS AIRES 002138

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E.O. 12958: DECL: 10/28/2017
TAGS: EFIN ECON EINV AR
SUBJECT: ARGENTINE ECONOMY MINISTRY OFFICIALS SEE
POST-ELECTION OPPORTUNITY TO MOVE ON IFI RELATIONS, PARIS
CLUB

Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d)

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

1. (C) Economy Minister Peirano told Ambassador he will hold
off discussing bilateral or multilateral issues until the
dust settles from the October 28 elections. He called his
participation in the IMF/World Bank meetings a success, and
he expects improved cooperation and coordination with those
institutions' new leadership. He greatly appreciated
Treasury's acknowledgment of the GoA's support for IMF debt
relief for Liberia. Peirano's Chief of Advisors Javier
Alvaredo told Econoff that the Econ Ministry was not
responsible for local press reports of a "secret U.S.
Treasury visit." He predicted that Peirano would stay as
Econ Minister in the next administration, expected the GoA to
implement gradual policy changes, including slowing spending,
raising utility tariffs, and an effort to restore credibility
to statistics agency INDEC. He thought a Paris Club accord
was possible if the GoA could pay over several years, and
thought such a deal would pave the way to negotiations with
holdout bondholders. End Summary

Econ Minister Takes Wait and See Attitude Following
Elections; Highlights Positive Results of IMF/World Bank
Meetings
-------------- --

2. (C) Economy Minister Peirano told Ambassador October 26 he
expects it to take weeks after the October 28 presidential
election before the new administration will make key
discussions on staffing and policy shifts. Therefore, he
wants to hold off substantive discussions on high-profile
bilateral or multilateral issues (such as Paris Club) until
the dust settles.


3. (C) Peirano said his trip to Washington to attend the
October 20-22 IMF/World Bank meetings had been a success. He
thought there was a good basis for collaborating on key
issues with the new leadership of both institutions. He also
appreciated the opportunity to participate in the
Treasury-organized Finance Ministers' meeting, and
appreciated that Treasury Secretary Paulson's singled out
Argentina for contributing to clear Liberia's arrears to the
IMF.

Paulson Scores Big Points Highlighting GoA Contribution to
Liberia Debt Relief
--------------

4. (C) Minister Peirano's Chief of Advisors, Javier Alvaredo,
separately told EconOff October 26 that local press coverage
of Peirano's trip could not have been better, given the
timing. He thought the press provided good coverage of the
GoA delegation's leading role in calling for reform of the
IMF, which is the kind of news that resonates with the
notoriously anti-IMF Argentine public. Also, he thought the
positive reporting on the Minister's participation in the
Treasury-organized Finance Ministers' meeting was good PR for
Argentina and strengthened the Minister's position within the
GoA.


5. (C) Alvaredo added that the GoA delegation perceived it as
extremely significant that Secretary Paulson acknowledged
only Argentina during the Finance Ministers' meeting for its
support for Liberia debt relief. He noted that it had been
politically difficult for the GoA to make the roughly $8
million contribution, given the timing only weeks before the
election (and with Argentine poverty levels still in the
range of 25-30%). Nevertheless, he said the Minister
considered it worth it, given that it seemed to be a step
towards improving the bilateral relationship. Alvaredo said
no quid pro quo was expected, but he thought that it had won
the GoA points with the Treasury, which he hoped would work
in Argentina's favor down the road as it negotiated complex
agreements with Paris Club countries and holdout bondholders.

Article Reports Planned Treasury Visit and Alleges New IMF
Chief Plans to Support GoA in Paris Club Talks
-------------- -

6. (C) Alvaredo said he suspected that Argentine Central Bank

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(BCRA) President Martin Redrado had been the source for the
October 26 article by journalist Marcelo Bonelli in the
largest circulation daily Clarin, alleging that Treasury was
planning a secret mission to Argentina following the
elections to learn about the new administration's plans and
improve the bilateral relationship. The article also repeats
the source's quotations of new IMF Managing Director
Dominique Strauss Kahn. Strauss-Kahn is alleged to have
said, "After I take over the Fund...I will personally speak
to Paris Club authorities to sound out a solution to the
problem."


7. (C) Alvaredo noted that Bonelli is influential and has
access to the highest levels (Bonelli writes a column every
Friday, possibly the most widely read of any economy-oriented
news item in Argentina). He knew that Redrado, like many
others, passed information to Bonelli as a form of
self-preservation. Otherwise, Bonelli would make up
information in order to take him (Redrado) down. Alvaredo
was unaware of any discussions of a Treasury visit during the
GoA's visit to Washington, but confirmed Strauss-Kahn's
comments. He said he was present at the meeting in
Washington between Strauss-Kahn, Redrado, and Peirano when
Strauss-Kahn committed to assisting the GoA in its
negotiations with the Paris Club.

Post-Election Staff and Policy Shifts
--------------

8. (C) Alvaredo thought it likely that President Cristina
Kirchner would keep Peirano as Minister of Economy, and he
thought the rumored split of the Economy Ministry into
separate treasury and production ministries would not take
place. He predicted that current President Nestor Kirchner
would continue to play a significant role on economic issues,
given Cristina's relative lack of experience in the subject.
Alvaredo thought that the Kirchners wanted someone they could
trust and control as Economy Minister, and that would not
necessarily be the case with other rumored candidates (such
as ex-BCRA President Mario Blejer or even current BCRA
President Redrado). Meanwhile, Peirano had proven himself
careful, trustworthy and reasonably competent since he took
over on July 17. Alvaredo said he would likely take over as
Finance Secretary if Peirano kept his current job, and would
also continue lead on Paris Club negotiations.


9. (C) Alvaredo thought it certain that President Nestor
Kirchner would begin gradual economic reforms in the six week
transition period following the elections, and that a
Cristina administration would continue the process. While he
did not expect radical reforms, he thought they would be
enough to gain control of inflation without sacrificing
relatively high growth. He expected the GoA to cut the
growth rate of spending to below the rate of revenue growth.
This, he said, implied cuts to energy and transport
subsidies, and also implied allowing utility tariffs to
increase.


10. (C) Alvaredo also expected the GoA to take steps to
restore the credibility of the statistical agency, INDEC.
However, he thought it politically unrealistic to expect the
GoA to overhaul INDEC completely with inflation running at
about 20%. Making INDEC a fully independent agency would
result in official inflation numbers doubling overnight, and
Alvaredo thought there was no way the administration would
tolerate that.


11. (C) Alvaredo said the GoA was also interested in resuming
serious negotiations with Paris Club members over its roughly
$6.5 billion debt (with approx. $4 billion arrears). He
confirmed Peirano's recent statements to the press that the
GoA would never pay with official reserves. He also said
there was no way the GoA could justify to the Argentine
public a decision to pay arrears in one shot. However, he
thought there was flexibility in the GoA if Paris Club
members were willing to discuss payment over three years.
Also, he predicted that an agreement with the Paris Club
would open the doors to negotiating with holdout bondholders.

KELLY