Identifier
Created
Classification
Origin
07BUENOSAIRES550
2007-03-22 10:40:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:
CENTRAL BANK PRESIDENT REDRADO PRIVATELY WARNS GOA
how-toVZCZCXYZ0006 PP RUEHWEB DE RUEHBU #0550/01 0811040 ZNY CCCCC ZZH P 221040Z MAR 07 FM AMEMBASSY BUENOS AIRES TO RUEHC/SECSTATE WASHDC PRIORITY 7628 INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 6061 RUEHBO/AMEMBASSY BOGOTA PRIORITY 1532 RUEHBR/AMEMBASSY BRASILIA PRIORITY 5916 RUEHCV/AMEMBASSY CARACAS PRIORITY 1147 RUEHLP/AMEMBASSY LA PAZ MAR 4552 RUEHPE/AMEMBASSY LIMA PRIORITY 2010 RUEHMU/AMEMBASSY MANAGUA PRIORITY 0088 RUEHME/AMEMBASSY MEXICO PRIORITY 1336 RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 6303 RUEHOT/AMEMBASSY OTTAWA PRIORITY 0496 RUEHZP/AMEMBASSY PANAMA PRIORITY 0275 RUEHFR/AMEMBASSY PARIS PRIORITY 1231 RUEHQT/AMEMBASSY QUITO PRIORITY 0885 RUEHSG/AMEMBASSY SANTIAGO PRIORITY 0300 RUEHSO/AMCONSUL SAO PAULO PRIORITY 3216 RUEAIIA/CIA WASHINGTON DC PRIORITY RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY RUCPDOC/USDOC WASHINGTON DC PRIORITY
C O N F I D E N T I A L BUENOS AIRES 000550
SIPDIS
SIPDIS
WHA FOR WHA/BSC, WHA/AND, WHA/EPSC
EB/IFD/OIA FOR WSCHOLZ, MTRACTON
EB/IFD/OMA FOR AHAVILAND AND ASIROTIC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR NLEE, MMALLOY, LTRAN
E.O. 12958: DECL: 03/20/2027
TAGS: EFIN EAID ENRG EAGR ETRD AR VZ
SUBJECT: CENTRAL BANK PRESIDENT REDRADO PRIVATELY WARNS GOA
AGAINST USING RESERVES TO CAPITALIZE BANCO DEL SUR
Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d)
C O N F I D E N T I A L BUENOS AIRES 000550
SIPDIS
SIPDIS
WHA FOR WHA/BSC, WHA/AND, WHA/EPSC
EB/IFD/OIA FOR WSCHOLZ, MTRACTON
EB/IFD/OMA FOR AHAVILAND AND ASIROTIC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR NLEE, MMALLOY, LTRAN
E.O. 12958: DECL: 03/20/2027
TAGS: EFIN EAID ENRG EAGR ETRD AR VZ
SUBJECT: CENTRAL BANK PRESIDENT REDRADO PRIVATELY WARNS GOA
AGAINST USING RESERVES TO CAPITALIZE BANCO DEL SUR
Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d)
1. (C) During a March 16 meeting, Argentine Central Bank
(BCRA) President Martin Redrado (STRICTLY PROTECT) told the
Ambassador that GoA officials had not/not formally approached
him to discuss the prospect of using BCRA reserves to
capitalize the Banco del Sur, the Venezuelan proposed
regional development bank that has received commitments from
Argentina, Brazil, and Bolivia to join an exploratory
committee. (Note: Redrado contrasted this with the GoA's
plan to pre-pay its entire $10 billion debt to the IMF in
January 2006, which he said he was aware of and began
planning for almost a year in advance. End Note).
Therefore, despite frequent statements to the contrary in the
press, Redrado said it was far from clear that the BCRA would
have any role.
2. (C) Redrado also speculated that the Banco del Sur itself
was far from a sure thing. He understood that Venezuelan
President Chavez wanted it badly, and was pushing to host the
headquarters in Caracas. However, Redrado said he also
understood that the Brazilians were particularly wary of it,
stemming from their concern that the Banco del Sur could end
up using the regions money to support large and unviable
infrastructure projects.
3. (C) The Ambassador pointed out that using BCRA reserves
for the Banco del Sur could complicate Argentina's
discussions with Paris Club creditors, since the GoA had
rejected using reserves to pay bilateral debt, arguing that
this would go against the BCRA's Charter and would also
undermine Argentina's effort to accumulate adequate reserves
to protect against external shocks. Redrado retorted that,
"no, Tony, it could be much worse than that." Asking EconOff
to stop taking notes, Redrado (STRICTLY PROTECT) said he had
taken steps to warn President Kirchner that the appearance of
the GoA using the Central Bank's reserves to fund special
projects, including the Banco del Sur, could undermine the
GoA's New York court cases against holdouts from the 2005
debt exchange.
4. (C) Redrado noted that Judge Thomas Griesa, from the U.S.
District Court for the Southern District of New York
(supported by a January 5 ruling by the U.S. Court of Appeals
for the Second Circuit in New York),had so far accepted the
GoA's argument that the BCRA was a separate entity from the
GoA, and that BCRA payments to the IMF did not constitute
"commercial activity," and were therefore protected by the
Foreign Sovereign Immunities Act of 1976. Griesa had,
therefore, denied holdouts attempts to attach $105 million of
BCRA funds held at the Federal Reserve Bank of New York (or
any other BCRA reserves destined to pay IFI debt). Redrado
was warning the Casa Rosada that the GoA would undermine its
own position if it came across as directing official reserves
where and when it wanted. (Note: indeed, recent local press
reports -- in connection with discussions of the Banco del
Sur -- have stated that the so-called "vulture funds" had
become more active in recent weeks, and were renewing their
focus on possibilities for attaching Central Bank assets.
End Note).
5. (C) Comment: While GoA officials would likely brush off
arguments that using reserves to capitalize the Banco del Sur
would cause a rift with Paris Club creditors, arguing that it
is legitimate for the BCRA to diversify its investments to
seek a higher overall return. However, Redrado's argument
will be harder to refute, as it might be tough to convince
New York courts that using reserves to fund commercial
investments in the hemisphere is not "commercial activity."
Therefore, Redrado's warning may well result in the GoA
finding other means to capitalize the bank -- possibly using
the Treasury's own reserves, which local press have reported
are in the $2 billion range. End Comment.
WAYNE
SIPDIS
SIPDIS
WHA FOR WHA/BSC, WHA/AND, WHA/EPSC
EB/IFD/OIA FOR WSCHOLZ, MTRACTON
EB/IFD/OMA FOR AHAVILAND AND ASIROTIC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR NLEE, MMALLOY, LTRAN
E.O. 12958: DECL: 03/20/2027
TAGS: EFIN EAID ENRG EAGR ETRD AR VZ
SUBJECT: CENTRAL BANK PRESIDENT REDRADO PRIVATELY WARNS GOA
AGAINST USING RESERVES TO CAPITALIZE BANCO DEL SUR
Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d)
1. (C) During a March 16 meeting, Argentine Central Bank
(BCRA) President Martin Redrado (STRICTLY PROTECT) told the
Ambassador that GoA officials had not/not formally approached
him to discuss the prospect of using BCRA reserves to
capitalize the Banco del Sur, the Venezuelan proposed
regional development bank that has received commitments from
Argentina, Brazil, and Bolivia to join an exploratory
committee. (Note: Redrado contrasted this with the GoA's
plan to pre-pay its entire $10 billion debt to the IMF in
January 2006, which he said he was aware of and began
planning for almost a year in advance. End Note).
Therefore, despite frequent statements to the contrary in the
press, Redrado said it was far from clear that the BCRA would
have any role.
2. (C) Redrado also speculated that the Banco del Sur itself
was far from a sure thing. He understood that Venezuelan
President Chavez wanted it badly, and was pushing to host the
headquarters in Caracas. However, Redrado said he also
understood that the Brazilians were particularly wary of it,
stemming from their concern that the Banco del Sur could end
up using the regions money to support large and unviable
infrastructure projects.
3. (C) The Ambassador pointed out that using BCRA reserves
for the Banco del Sur could complicate Argentina's
discussions with Paris Club creditors, since the GoA had
rejected using reserves to pay bilateral debt, arguing that
this would go against the BCRA's Charter and would also
undermine Argentina's effort to accumulate adequate reserves
to protect against external shocks. Redrado retorted that,
"no, Tony, it could be much worse than that." Asking EconOff
to stop taking notes, Redrado (STRICTLY PROTECT) said he had
taken steps to warn President Kirchner that the appearance of
the GoA using the Central Bank's reserves to fund special
projects, including the Banco del Sur, could undermine the
GoA's New York court cases against holdouts from the 2005
debt exchange.
4. (C) Redrado noted that Judge Thomas Griesa, from the U.S.
District Court for the Southern District of New York
(supported by a January 5 ruling by the U.S. Court of Appeals
for the Second Circuit in New York),had so far accepted the
GoA's argument that the BCRA was a separate entity from the
GoA, and that BCRA payments to the IMF did not constitute
"commercial activity," and were therefore protected by the
Foreign Sovereign Immunities Act of 1976. Griesa had,
therefore, denied holdouts attempts to attach $105 million of
BCRA funds held at the Federal Reserve Bank of New York (or
any other BCRA reserves destined to pay IFI debt). Redrado
was warning the Casa Rosada that the GoA would undermine its
own position if it came across as directing official reserves
where and when it wanted. (Note: indeed, recent local press
reports -- in connection with discussions of the Banco del
Sur -- have stated that the so-called "vulture funds" had
become more active in recent weeks, and were renewing their
focus on possibilities for attaching Central Bank assets.
End Note).
5. (C) Comment: While GoA officials would likely brush off
arguments that using reserves to capitalize the Banco del Sur
would cause a rift with Paris Club creditors, arguing that it
is legitimate for the BCRA to diversify its investments to
seek a higher overall return. However, Redrado's argument
will be harder to refute, as it might be tough to convince
New York courts that using reserves to fund commercial
investments in the hemisphere is not "commercial activity."
Therefore, Redrado's warning may well result in the GoA
finding other means to capitalize the bank -- possibly using
the Treasury's own reserves, which local press have reported
are in the $2 billion range. End Comment.
WAYNE