PARIS CLUB STILL IN THE NEWS IN ARGENTINA, AND GOA

C O N F I D E N T I A L BUENOS AIRES 000505 SIPDIS SIPDIS TREASURY FOR NANCY LEE, AJEWEL, WBLOCK, LTRAN PASS NSC FOR JOSE CARDENAS, ROD HUNTER PASS FED BOARD OF GOVERNORS FOR RANDALL KROSZNER, PATRICE ROBITAILLE EXIM BANK FOR MICHELE WILKINS OPIC FOR JOHN SIMON, GEORGE SCHULTZ, RUTH ANN NICASTRI USDOC FOR 4322/ITA/MAC/OLAC/PEACHER E.O. 12958: DECL: 03/14/2017 TAGS: EFIN ECON EINV AR SUBJECT: PARIS CLUB STILL IN THE NEWS IN ARGENTINA, AND GOA CONTINUES TO PURSUE RESTRUCTURING OPTIONS REF: A. BUENOS AIRES 383 ¶B. BUENOS AIRES 242 ¶C. BUENOS AIRES 247 ¶D. BUENOS AIRES 140 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) Summary -------------- ¶1. (C) The Ambassador spoke March 14 with Cabinet Chief Alberto Fernandez to clarify Fernandez' statement to the press that Argentina was "very close" to concluding a Paris Club deal. The Ambassador noted that negotiations were stalled and big differences remained over the role of the IMF. Fernandez acknowledged that the best way forward might be for the GoA to develop its own payment plan, and agreed to discuss it with Economy Minister Miceli. Separately, Finance Secretary Chodos told Econoff that he planned to present new SIPDIS arguments to Treasury during the upcoming IDB meeting in Guatemala for why Paris Club creditors should consider rescheduling Argentina's debt without requiring an IMF agreement. He also expressed interest in a bilateral meeting between Treasury Secretary Paulson and Economic Minister Miceli during the April IMF/World Bank meetings. End Summary. Conversation with Cabinet Chief Fernandez -------------- ¶2. (C) Ambassador spoke with Cabinet Chief Alberto Fernandez regarding a March 13 Reuters story that quotes Fernandez as saying Argentina was "very close" to concluding a deal with the Paris Club. The Ambassador noted that the story was incorrect and registered his "low-key" concern about sending an incorrect message in public, which could complicate efforts to work with the Paris Club. Fernandez explained that he had only meant to signal that the Economic Ministry was still working hard for an accord and that Argentina did want to find a way to pay its debt. He noted that "very close" might have a different connotation in English than in Argentine Spanish. ¶3. (C) The Ambassador noted that there had been no negotiations underway for some time and that big differences remained, especially surrounding the role of the IMF, which was an important Paris Club norm (see septel for report of G-8 Ambassadors' discussion of Paris Club). Fernandez acknowledged that Paris Club norms and regulations were a problem, especially given Argentina's position on the IMF (reftels). ¶4. (C) The Ambassador asked if Argentina had considered presenting its own payment plan, and noted that this idea had been informally discussed with Economy Minister Felisa Miceli and her team. Fernandez agreed that in the end this might be the way for Argentina to proceed and that he had discussed it with Miceli and would again. He said the good news was that Argentina wanted to pay. He also said he had been careful not to criticize anyone in his public remarks. The Ambassador said the U.S. also wanted to get the Paris Club debt problem solved and would continue to work toward that end with our Paris Club partners and Argentina. Finance Secretary Seeks Options -------------- ¶5. (C) In a separate telcon on March 13, Finance Secretary Chodos told Econoff that, despite clear messages from the USG and other Paris Club creditors, the Economic Ministry was still developing arguments for why creditors should consider a rescheduling agreement with Argentina, without requiring an IMF agreement. He said he would pursue some of his ideas during his March 18 bilateral meeting with Treasury DAS Nancy Lee, on the margins of the IDB annual meetings in Guatemala. ¶6. (C) Chodos commented that Argentina could potentially be seen as a positive Paris Club precedent, given the potential for similar situations to arise in the future. He said he had been reviewing other countries' experiences, and noted several other large emerging market countries with sizable debts to Paris Club members that did not have current IMF agreements. He claimed that this was part of a worldwide trend away from IMF financing programs. In particular, he listed Indonesia, with 38% of its total external debt to Paris Club creditors, Algeria, with 57%, and Egypt, with 56%. ¶7. (C) Given the potential that these countries could experience debt sustainability crises in the future, Chodos argued that creating an orderly debt rescheduling deal with Argentina now could serve as a useful precedent for similar negotiations in the future. (Note: Chodos acknowledged Econoff's comment that the issue of precedent was one of many reasons the U.S. required an IMF agreement. He said Treasury had explained to him in past meetings that the IMF agreement ensures maximum payment to the U.S., and thus obviates the need to score the deal against the budget or seek specific Congressional authorization. End Note) ¶8. (C) In addition to discussing these options, Chodos said he hopes to present theQA's analysis of its financing constraints to DAS Lee during their meeting in Guatemala. Minister Miceli is currently reviewing the paper, which Chodos asserted would bolster the government's arguments for a rescheduling agreement. ¶9. (C) Chodos commented that he was not necessarily opposed to an arrangement where Argentina would begin payment of Paris Club arrears according to its own schedule. However, he said it would be politically difficult to sell, particularly during an election year. He predicted that the GoA would not be able to get public support for unilateral payment of arrears -- using funds that could be used for education and infrastructure -- unless the GoA could show some benefit. He listed examples as: 1) access to export credit agency financing (Note: we know he is referring to Germany's Hermes and France's COFACE, which would facilitate their financing of capital goods exports to support priority energy and high-speed rail projects); and 2) a public agreement that allows the President to announce to the public, "I solved it." ¶10. (C) Chodos expressed regret that Treasury Secretary Paulson was unable to accept Minister Miceli's request for a bilateral meeting in Guatemala. (Note: Econoff attributed it to scheduling issues. End Note) He said the Minister would be very interested to meet with Paulson during the IMF/World Bank meetings in April, and noted that this would help avoid press speculation about the state of U.S./Argentine relations and Paris Club talks. WAYNE