Identifier
Created
Classification
Origin
07BUENOSAIRES642
2007-04-05 15:17:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

ARGENTINE FINANCE SECRETARY CHODOS ON MEETINGS

Tags:  EFIN ECON EINV AR 
pdf how-to read a cable
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DE RUEHBU #0642/01 0951517
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P 051517Z APR 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 7745
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 6081
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RUEHBR/AMEMBASSY BRASILIA PRIORITY 5940
RUEHCV/AMEMBASSY CARACAS PRIORITY 1167
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RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
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C O N F I D E N T I A L BUENOS AIRES 000642 

SIPDIS

SIPDIS

TREASURY FOR 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: 03/29/2017
TAGS: EFIN ECON EINV AR
SUBJECT: ARGENTINE FINANCE SECRETARY CHODOS ON MEETINGS
WITH TREASURY, PARIS CLUB, BANCO DEL SUR, AND ECUADOR

REF: A. BUENOS AIRES 383


B. BUENOS AIRES 619

C. BUENOS AIRES 550

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

Summary
-------
C O N F I D E N T I A L BUENOS AIRES 000642

SIPDIS

SIPDIS

TREASURY FOR 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: 03/29/2017
TAGS: EFIN ECON EINV AR
SUBJECT: ARGENTINE FINANCE SECRETARY CHODOS ON MEETINGS
WITH TREASURY, PARIS CLUB, BANCO DEL SUR, AND ECUADOR

REF: A. BUENOS AIRES 383


B. BUENOS AIRES 619

C. BUENOS AIRES 550

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

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

1. (C) GoA Finance Secretary Sergio Chodos and Finance
Undersecretary Alejandra Scharf discussed with Econoffs on
March 27 their impressions of Chodos' March 18 bilat in
Guatemala with U.S. Treasury officials. Chodos expressed
Economic Minister Felisa Miceli's interest in meeting with
Treasury Secretary Paulson during the mid-April IMF/World
Bank meetings. He discussed the GoA's position on payment of
Paris Club arrears and summarized the report he gave to
Treasury, outlining the GoA's financing constraints and
arguing against the use of reserves to pay Paris Club
arrears. Chodos also briefed Econoffs on Minister Miceli's
March 21-22 trip to Ecuador, during which GoA officials
provided informal guidance on debt and tax issues, and
outlined the GoA's arguments for supporting the Banco del
Sur. End Summary.

GOA interest in Bilat with Treasury Secretary Paulson
-------------- --------------

2. (C) Chodos expressed the GoA's strong interest in
arranging a bilat between Economy Minister Felisa Miceli and
Treasury Secretary Paulson during the IMF/World Bank Spring
meetings in Washington in mid-April. He said Treasury DAS
Nancy Lee had agreed only to "look into it," during their
March 18 meeting in Guatemala, and he asked Econoffs how
realistic the chances were of getting this meeting. Chodos
acknowledged the complicating factor of GoA/USG frictions in
the wake of Chavez's anti-U.S. rally in Buenos Aires earlier
this month, and his expression made it clear that he was not
optimistic about securing the meeting. EconCouns responded
that it was important to continue the dialogue and asked

whether this request would be raised through formal channels,
such as via Argentina's Embassy in Washington. EconCouns
encouraged the Econ Ministry to state clearly their
objectives for the meeting. Chodos commented that the focus
would be on continuing the dialogue on Paris Club, but the
Minister would also be open to discussing recent GoA
interaction with the Government of Ecuador, and status of the
Banco del Sur discussions.

Chodos/Treasury Bilat in Guatemala -- Focus on Paris Club
-------------- --------------

3. (C) Chodos was typically frank in his discussions of both
GoA Paris Club priorities and internal deliberations. He
said the meeting with DAS Lee was useful in terms of
reviewing both sides' positions. He said the Econ Ministry
"liked the concept" of starting unilateral payments on
Argentina's Paris Club debts. However, as he said he had
explained to DAS Lee, the GoA is concerned that an informal
workout would be complicated and difficult for the GoA to
manage. He said he also reviewed with DAS Lee the GoA's
pre-requisites for entering into such an arrangement: 1)

access to Export Credit Agency financing; and 2) some kind of
written and public acknowledgment of a deal. The latter
requirement relates to Chodos' frequent claim that any deal
with the Paris Club must allow the GoA -- and, particularly,
President Kirchner -- to claim publicly that Argentina has
normalized its relationship with official creditors.


4. (C) With regards to an informal payment structure outside
of normal Paris Club norms, Chodos said he explained to DAS
Lee that the GoA's main concern was how to manage payment on
its 200 separate credit lines, since they would not be
consolidated as is the practice with a formal Paris Club
restructuring deal. Chodos said it was his understanding
that the GoA would be required to make separate payments on
the 200 credit lines even if the Paris Club decided
internally on the distribution of the payments. U/S Scharf
also noted that the GoA would want to be assured that the
payments were canceling principal and compensatory interest,
rather than having creditors direct the funds to pay punitive
interest. She pointed out that most if not all of the GoA's
contracts had punitive clauses, which carried penalty
interest rates on arrears.


5. (C) Chodos pointed out that, much like the U.S. has
Congressional interests that it must take into account, the
GoA also must meet certain conditions with regards to
restructuring its debt. He noted that Argentina's Financial
Administration Law allows the GoA to restructure public debt
through "consolidation, conversion, or renegotiation," as
long as the operation entails "an improvement in the amount,
terms, or the interest rate" of the original debt. To avoid
having to get Congressional approval of informal payments to
Paris Club creditors, the GoA would need to reduce its
obligations in two of the preceding three areas (i.e., the
principal, maturity, and/or interest). Chodos emphasized
that the "haircut could be minor," and argued that
eliminating punitive interest payments while the GoA pays
over some fixed period would be sufficient to meet this legal
requirement.

GoA reaction/ response to Paris Club Chairman's letter
-------------- --------------

6. (C) Chodos said the GoA had been surprised at the tone of
Paris Club Chairman Musca's latest letter (Note: This
letter, dated March 6, conveyed Paris Club concerns about
outstanding arrears, urged the GoA to use its significant
official reserves to clear the arrears, and clarified that
Argentina's recent debt deal with Spain was not a precedent
for the repayment of Paris Club arrears). When EconCouns
noted that the GoA's March 13 response was strong, rejecting
the use of reserves and the involvement of the IMF, Chodos
retorted that Musca's letter was stronger -- and also sent
contradictory messages. He said Musca called for dialogue
with Paris Club members, but then also demanded that the GoA
pay its arrears and interest in full, using reserves if
necessary. He asked "what the point of dialogue was if the
only option was to just pay." The GoA response, on the other
hand, emphasized the GoA's willingness to negotiate. Chodos
said he was just looking for a sign that the GoA could begin

discussing numbers with Paris Club members. In his typically
open (and rather trusting) way when talking to Econoffs,
Chodos closed by commenting that senior GoA officials are
looking to resolve the Paris Club situation, but noted that
they "see it as an issue that they want to resolve but do not
need to resolve."

Econ Ministry's Financial Constraints Paper
--------------

7. (C) Chodos spoke briefly about the paper he passed DAS Lee
outlining Argentina's financing constraints and explaining
the GoA's reasoning for why it would be extremely difficult
to use Central Bank reserves to clear arrears. First, Chodos
noted that it would require either or both of: 1) changes to
Argentine law, which limits the Central Bank to using
reserves to pay IFI debts (not bilateral debt); or 2) changes
to the Central Bank's Charter, which limits short-term
lending to the GoA. He noted that the paper also argues that
using reserves in this way would also increase Argentina's
vulnerability to external shocks.


8. (C) Chodos described the paper's two preferred
rescheduling scenarios: 1) rescheduling over nine years, with
three-year grace and annual payments; and 2) nine-years, with
no grace period and semi-annual payments. Chodos also
outlined the paper's four alternative scenarios, two of which
involve GoA issuance of new debt to clear Paris Club arrears,
and two that involve use of reserves. When Econoffs pointed
out that the GoA had clearly couched their descriptions of
these options to highlight their disadvantages (higher debt
burdens, higher interests costs on all GoA debt, and
vulnerability to external shocks),Chodos agreed, commenting
that the GoA did not consider these viable options.

GoA Visit to Ecuador
--------------

9. (C) Chodos was less open than he has been in past meetings
in discussing the details of GoA-GoE discussions,
particularly with regards to Minister Miceli's March 21-22
visit to Quito. He said there was a warm relationship
between the two governments, and Argentina was very
sympathetic to Ecuador's current difficulties. He reported
that the GoE is actively seeking GoA technical assistance,
particularly in the area of tax structure and collection.
Chodos remarked that the GoA was not trying to act as
"Ecuador's big brother," so GoA officials had continued on
earlier discussions (Ref A),focusing on Argentina's
experience with the default and revenue enhancement policies.



10. (C) Chodos emphasized that Ecuador's situation differs
significantly from that of Argentina in 2001, acknowledging
that Ecuador's debt/GDP ratio is relatively minor. However,
he noted that their debt service/revenues ratio is high,
given Ecuador's woefully inadequate tax collection.
Argentina's recent performance in increasing revenues (Ref B)
is a source of great interest to GoE officials, but Chodos
said the GoA was not offering specific tax generation
remedies (Note: he rejected the suggestion that the GoA

might suggest some of Argentina's more unorthodox tax
policies, i.e., financial transactions tax or export taxes
End Note). Chodos said the GoA might also provide informal
technical guidance on government reorganization, pointing out
that Ecuador has 17 ministries while Argentina has only
eight.

Status of Banco del Sur Deliberations
--------------

11. (C) Chodos cautiously responded to Econoffs' questions
about the status of working level talks on the Banco del Sur.
(Note: Meetings have been ongoing in Buenos Aires with reps
from Venezuela, Brazil, Bolivia and Ecuador exploring
structure and capitalization options. End Note.) Chodos
ducked questions on capitalization, refusing to confirm
recent Argentine press reports that total capitalization will
total only about $3.5 billion, much reduced from earlier
calls for member countries to contribute each up to 10% of
official reserves. (Note: Local press reported that
Minister Miceli did not attend the March 30 senior-level
meetings in Caracas to review Banco del Sur charter mandates.
Instead, she reportedly sent Legal Secretary Estela
Palomeque -- who is leading talks for the GoA side -- to
represent Argentina. End Note)


12. (C) Although Chodos also refused to confirm that
Argentina would contribute Central Bank reserves, he
acknowledged that if the GoA chose that route it would just
be part of the Central Bank's normal diversification of its
reserve assets, noting that many other countries (e.g.,
China) were doing the same. He also said that Argentina's
commitment would probably not be in the form of paid-in or
"callable capital," but would rather be deposited ("parked")
at Banco del Sur.


13. (C) EconCouns noted the Brazilian Planning Minister's
earlier lukewarm support for the Banco del Sur concept, where
he had implied that Brazil should look first to strengthening
existing (CAF and FONPLATA) regional development
institutions. However, Chodos justified the GoA's support
for the Banco del Sur as an attempt to increase funding for
development in the region and also to foster competition
among the various development banks. (Note: Scharf noted
that Argentina had appropriated, but not yet disbursed, $500
million for the CAF). Chodos also pointed out that Argentina
would love to have a domestic development bank on the lines
of Brazil's BNDS, but that the legacy and messy cleanup of
Argentina's failed National Development Bank -- which ended
in a corruption scandal, amid huge unpaid loans -- makes that
impossible now. He called the Banco del Sur the next best
thing.

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

14. (C) Chodos spent much of his working life in the U.S., is
pro-American, and is generally open and candid during
meetings with Embassy officials. His reticence on this
occasion may have been due to the presence of Finance U/S
Scharf, who is close to Minister Miceli. Scharf is less

trusting of the USG, and several times pushed back on our
questions on Banco del Sur, inquiring about the reasons for
U.S. interest. Even while pursuing a more cautious line,
Chodos' admission that Argentina was still considering the
option of using of reserves to capitalize the Banco del Sur
was striking. He must be aware that this would raise
eyebrows with Paris Club creditors, given the GoA's arguments
against using arrears to clear arrears. Furthermore, he is
likely aware that Central Bank President Martin Redrado
(PROTECT) warned President Kirchner (Ref C) that using
reserves to capitalize the Banco del Sur could undermine the
GoA's court cases in New York's second circuit against bond
holdouts from the 2005 debt exchange. This reticence has
subsequently been reported in the press here. End Comment.
WAYNE