INCOMING ARGENTINE ECONOMY MINISTER PRIORITIZES

C O N F I D E N T I A L BUENOS AIRES 002292 SIPDIS SIPDIS E.O. 12958: DECL: 12/04/2017 TAGS: AR ECON EFIN ETRD SUBJECT: INCOMING ARGENTINE ECONOMY MINISTER PRIORITIZES PARIS CLUB RESOLUTION, INVESTMENT CLIMATE REF: BUENOS AIRES 2271 Classified By: Ambassador E.A. Wayne. Reasons 1.5 (B,D) -------------- Summary -------------- ¶1. (C) Incoming GOA Economy Minister Martin Lousteau, in a December 3 meeting with Ambassador, said his initial priorities will be to resolve the longstanding Paris Club impasse and to take concrete steps to improve Argentina's investment climate to attract needed FDI. Lousteau introduced Hugo Secondini as his incoming Finance Secretary and probed for Paris Club alternatives to IMF monitoring. Ambassador explained why the Paris Club relies on the IMF and noted that the only alternative paths of which he was aware might be a voluntary proposal to the Paris Club members and Secretariat that includes up-front, good-faith payments on SIPDIS arrears. On growing foreign investor concerns about GoA macroeconomic management, energy supplies, and contractual sanctity, Lousteau said the administration of president-elect Cristina Fernandez de Kirchner (CFK) should have a better investment climate story to tell within six months. Ambassador noted that one issue with strong investment climate implications is that of the final judgment against Argentina on an ICSID arbitration claim by U.S. energy company CMS. Ambassador also briefed Lousteau on ongoing discussions of additional outstanding claims on the GoA, including those by U.S. insurance company TIG, U.S. printer Bowne, and the case of Eduardo Saiegh, which has an anti-Semitism angle (Septel). End Summary. -------------- First Call on Incoming Economy Minister -------------- ¶2. (SBU) Ambassador paid a courtesy call on current state-owned Banco de la Provincia de Buenos Aires President and incoming federal Economy Minister Lousteau December 3. Reftel offers bio background and context on Lousteau's appointment by president-elect Cristina Fernandez de Kirchner. Lousteau introduced Hugo Secondini as his incoming Secretary of Finance, to replace Sergio Chodos. Secondini, SIPDIS currently working for Lousteau as a Banco de la Provincia Board Director, had previously worked at the Ministry of Economy as Deputy to the Director of Public Credit, at Merrill Lynch and at the Central Bank. ¶3. (C) Lousteau confirmed that his initial priorities will be to deal with the GOA,s longstanding Paris Club impasse and to take concrete steps to improve Argentina's investment climate to attract needed FDI. He acknowledged as important both progress on Doha Development Round negotiations and on resolving $25-plus billion in bond holdout claims, but called them "further down" on his to-do list. -------------- Paris Club: Alternatives to IMF Monitoring? -------------- ¶4. (C) Lousteau said there is "space for a Paris Club resolution that uses alternative monitoring mechanisms and reflects Argentina's political and economic reality." He asked whether the Paris Club would consider allowing the U.S. Treasury - perhaps in combination with the European Central Bank -- to substitute for the IMF in certifying Argentina's ongoing macro-economic performance and linked debt payment capacity. "I would think," Lousteau said, "that, a priori, the U.S. Treasury would be better placed to convince the U.S. Congress of Argentina's ability to repay than would the IMF, an organization whose history (of forecasting Argentina's economic recovery) has been so wrong." Secondini noted the GoA's strong interest in regaining access to creditor nation export credit agency financing, and asked whether the U.S. Treasury could agree to a Paris Club structure with no IMF monitoring without U.S. Congressional approval. Ambassador explained that the Paris Club has relied on the IMF to assure it that repayment plans are sustainable and that, for the U.S., an IMF arrangement or accord has been essential for gaining Congressional approval for any proposed rescheduling of U.S. debt. Failing that, the administration would have to seek other means to convince Congress to approve a rescheduling, which would be a daunting task. ¶5. (C) Resolving Paris Club arrears, Ambassador said, would clearly be a positive step forward for both countries, and the Embassy has worked extensively on this issue with Lousteau's two most recent predecessors -- Ministers Miceli and Peirano -- and their staffs. In response to Lousteau,s prompting, Ambassador suggested that the only other potential path of which he is aware would be an ad hoc voluntary approach which would not be a formal Paris Club accord. Argentina could perhaps submit a voluntary proposal to the Paris Club members and Secretariat. Any such plan should include provisions to begin making up-front payments on arrears as a sign of good faith, and it would doubtless be hard to negotiate. Ambassador stressed that Paris Club members will be very concerned about the precedent set by any such agreement and will very much prefer a formal agreement with an IMF role. -------------- Investment Climate: Better Story to Tell Soon -------------- ¶6. (SBU) Ambassador noted that U.S. investors in Argentina are looking for signs that the incoming CFK administration will address growing concerns about macro-economic management, energy supplies, and contractual sanctity. He added that foreign and domestic private sector investment in fixed plant and equipment needed to sustain Argentina's growth is increasingly constrained by concerns over the economic policy environment. However, despite these concerns, U.S. companies are growing their presence in those sectors (IT, media) that invest in Argentina's capable human capital. Lousteau responded that the CFK administration should have a better investment climate story to tell within six months. At that point, he suggested, it would be worthwhile to gather U.S. sector companies like IBM who have led the field in service exports in order to tell their story and counter doubts and questions foreign investors have. ¶7. (SBU) Ambassador noted that one issue with strong investment climate implications that the incoming administration will have to address early on is that of a final judgment against the GoA on an ICSID arbitration claim by CMS Energy. The GoA's Treasury Attorney (Procurador del Tesoro) Guglielmino had earlier given formal assurances that the GoA would pay the award, in accordance with the ICSID Convention, if the ruling went against Argentina. Ambassador noted that we fully expect Argentina to respect its ICSID commitments and that a failure to pay would send the wrong signal to potential foreign investors. ¶8. (SBU) Ambassador also detailed ongoing Embassy discussions with Economy Ministry, Central Bank, and other GoA officials on a number of outstanding claims, including those by U.S. insurance company TIG, U.S. printer Bowne, and the Eduardo Saiegh case which involves anti-Semitism and human rights violations during the 1976-82 military regime when Mr. Saiegh had his bank taken by the government (Saiegh discussion reported septel). Econ Counselor agreed to brief Finance Secretary Secondini on these cases in detail following the SIPDIS president-elect's inauguration. -------------- Comment -------------- ¶9. (C) Lousteau's eagerness to engage on Paris Club issues and to address foreign investor concerns is welcome, particularly since the dynamics of his appointment (Reftel) suggest he may not have great room to maneuver on key issues of economic cooling and inflation management, including INDEC normalization. As soon as Lousteau and his lieutenants take office following the December 10 CFK inauguration, Post will brief them on ongoing Paris Club, Holdout, Doha negotiation, ICSID and advocacy/claim case discussions and work to jump-start productive relations with this new Economy Ministry team. WAYNE