Identifier
Created
Classification
Origin
07BUENOSAIRES66
2007-01-16 19:45:00
UNCLASSIFIED
Embassy Buenos Aires
Cable title:
Argentina Economic and Financial Weekly for the week ending
how-toVZCZCXYZ0009 RR RUEHWEB DE RUEHBU #0066/01 0161945 ZNR UUUUU ZZH R 161945Z JAN 07 FM AMEMBASSY BUENOS AIRES TO RUEHC/SECSTATE WASHDC 6971 INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC RUCPDOC/USDOC WASHINGTON DC RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC RUEHC/DEPT OF LABOR WASHINGTON DC RHMFIUU/HQ USSOUTHCOM MIAMI FL
UNCLAS BUENOS AIRES 000066
SIPDIS
SIPDIS
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR ALEXANDER PREACHER AND JOHN ANDERSEN
US SOUTHCOM FOR POLAD
E.O. 12958: N/A
TAGS: EFIN ECON ELAB ENRG AR
SUBJECT: Argentina Economic and Financial Weekly for the week ending
January 12, 2007
UNCLAS BUENOS AIRES 000066
SIPDIS
SIPDIS
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR ALEXANDER PREACHER AND JOHN ANDERSEN
US SOUTHCOM FOR POLAD
E.O. 12958: N/A
TAGS: EFIN ECON ELAB ENRG AR
SUBJECT: Argentina Economic and Financial Weekly for the week ending
January 12, 2007
1. Provided below is Embassy Buenos Aires' Economic and Financial
Review, covering the period January 8 - 12, 2007. The unclassified
email version of this report includes tables and charts tracking
Argentine economic developments. Contact Econoff Chris Landberg at
landbergca@state.gov to be included on the email distribution list.
--------------
Weekly Highlights
--------------
- Central Bank earns $1.4 billion on investments of official
reserves.
-- Central Bank successfully issues ARP 332 million of new
three-year Nobacs.
-- GoA increases export taxes on soy and soy-products to subsidize
local consumption, avoid price increases.
-- Planning Minister De Vido receives ARP 1.2 billion additional
funds to subsidize energy and transportation.
-- GoA allows 15% electricity tariff increase for commercial and
industrial users.
--------------
Banking and Finance
--------------
Central Bank earns $1.4 billion on investments of official
reserves.
-------------- --------------
2. The Argentine Central Bank (BCRA) announced that it had earned
$1.4 billion in 2006 on its investment of reserves, representing a
5.7% annual yield. According to the BCRA, the positive result was
due to three factors: the extension of maturities of its
investments, currency diversification (especially EUR and JPY) and
gold investments. A top BCRA official privately stated to Econoffs
on January 11 that the BCRA could have earned a higher yield -- in
the 6.00 to 6.10% range -- if it were free to invest the reserves
without fear of attachment by holdout bondholders. As of January 5,
BCRA reserves stood at $32.3 billion.
Central Bank successfully issues ARP 332 million of new three-year
Nobacs.
-------------- --------------
3. The BCRA received ARP 3.0 billion in bids at its January 9 Nobacs
auction, during which the BCRA introduced its new 3-year, fixed and
variable rate Nobacs. Prior to this, Nobacs' longest maturity had
been two years. (Note: Nobacs are medium-term paper, denominated
in pesos or dollars, which the BCRA issues to manage liquidity).
The BCRA accepted only 11% of bids, issuing ARP 324 million of
variable rate Nobacs and ARP 8 million of fixed rate Nobacs (with a
coupon of 8%). The yield on the fixed rate Nobacs reached 11.95%,
and on the variable rate Nobacs stood at 12.20%. Banks' strong
participation guaranteed the success of the auction. They find the
variable rate Nobacs especially attractive as a hedging tool against
increasing interest rates. The introduction of the three-year
Nobacs will also allow the BCRA to extend further the average life
of its portfolio, which currently stands at 350 days. (Note: The
BCRA extended this by 40% in 2006, from 250 days).
--------------
Economic Policy
--------------
GoA increases export taxes on soy and soy-products to subsidize
local consumption, avoid price increases.
-------------- --------------
4. During a January 11 press conference, Minister of Economy Felisa
Miceli announced that the GoA would increase export taxes on soy and
soy products by four percentage points to 27.5% and 24%,
respectively. Miceli said the GoA expected to collect an additional
$400 million from the export tax increase, which it will use to
subsidize domestic consumption of wheat, corn and soy. The Minister
explained that the subsidies will be channeled to a GoA agency
(called AG Commercial Control agency),which will distribute funds
to millers, dairy farmers and beef and poultry producers, as a means
to avoid increases in the price of flour, bread, pasta, and dairy
products. She argued that increases in international commodity
prices had increased the cost of products included in the basic food
basket. The announcement was not a surprise, since rumors of an
export tax increase on soy or wheat have been circulating for the
last month. This is one more attempt by the GoA to use heterodox
methods to keep inflation under control -- methods that have had at
least temporary success, with inflation falling to single digits
(9.8%) in 2006. Nevertheless, non-government Argentine economists
are already forecasting a rougher time in 2007 -- beginning with at
least a 1% m-o-m increase in the January 2007 CPI due to price
increases for food, cigarettes, health care fees, taxis, tourism,
and electricity (see below).
Planning Minister De Vido receives ARP 1.2 billion additional funds
to subsidize energy and transportation.
-------------- --------------
5. On January 11, the GoA published two resolutions (1082 and 1083)
in the Official Gazette amending the 2006 Budget. GoA Chief of
Cabinet Alberto Angel Fernandez -- empowered by the "Superpowers"
amendment to the Financial Administrative Law, which gives him
discretionary authority to reconfigure the budget without
Congressional approval -- is using these resolutions to redistribute
ARP 1.2 billion to the Ministry of Planning -- led by powerful
Minister (and President Kirchner's top advisor) Julio De Vido -- to
fund additional subsidies for electricity (ARP 423 million) and
transportation (ARP 554 million),as well as to finance housing
projects (ARP 309 million). This is the GoA's first action in 2007
to use its control over the budget to finance expenditures that will
win votes in the October election.
--------------
Energy
--------------
GoA allows 15% electricity tariff increase for commercial and
industrial users.
-------------- --------------
6. On January 8, the GoA published in the Official Gazette two
decrees (1957 and 1959) allowing two distribution companies (Edenor
and Edesur) to implement a 15% electricity tariff increase on
commercial and industrial users that had been agreed on over a year
ago. The tariff increase, which will affect 600,000 users, will be
retroactive to November 2005. The GoA had earlier authorized GasBan
(the gas distribution company controlled by Spain's Gas Natural) to
increase gas tariffs by an average 17% for commercial and industrial
users in April 2006. Increases to residential users will not be
introduced until 2008, which was expected given the presidential
election in October; however, consumers may be indirectly be
affected by the increases since companies will likely attempt to
pass-through the increased costs to consumers. (Note: Edenor and
Edesur jointly provide energy to 3.7 million residential users.)
7. To see more Buenos Aires reporting, visit our classified website
at: http://www.state.sgov.gov/p/wha/buenosaires
WAYNE
2
SIPDIS
SIPDIS
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR ALEXANDER PREACHER AND JOHN ANDERSEN
US SOUTHCOM FOR POLAD
E.O. 12958: N/A
TAGS: EFIN ECON ELAB ENRG AR
SUBJECT: Argentina Economic and Financial Weekly for the week ending
January 12, 2007
1. Provided below is Embassy Buenos Aires' Economic and Financial
Review, covering the period January 8 - 12, 2007. The unclassified
email version of this report includes tables and charts tracking
Argentine economic developments. Contact Econoff Chris Landberg at
landbergca@state.gov to be included on the email distribution list.
--------------
Weekly Highlights
--------------
- Central Bank earns $1.4 billion on investments of official
reserves.
-- Central Bank successfully issues ARP 332 million of new
three-year Nobacs.
-- GoA increases export taxes on soy and soy-products to subsidize
local consumption, avoid price increases.
-- Planning Minister De Vido receives ARP 1.2 billion additional
funds to subsidize energy and transportation.
-- GoA allows 15% electricity tariff increase for commercial and
industrial users.
--------------
Banking and Finance
--------------
Central Bank earns $1.4 billion on investments of official
reserves.
-------------- --------------
2. The Argentine Central Bank (BCRA) announced that it had earned
$1.4 billion in 2006 on its investment of reserves, representing a
5.7% annual yield. According to the BCRA, the positive result was
due to three factors: the extension of maturities of its
investments, currency diversification (especially EUR and JPY) and
gold investments. A top BCRA official privately stated to Econoffs
on January 11 that the BCRA could have earned a higher yield -- in
the 6.00 to 6.10% range -- if it were free to invest the reserves
without fear of attachment by holdout bondholders. As of January 5,
BCRA reserves stood at $32.3 billion.
Central Bank successfully issues ARP 332 million of new three-year
Nobacs.
-------------- --------------
3. The BCRA received ARP 3.0 billion in bids at its January 9 Nobacs
auction, during which the BCRA introduced its new 3-year, fixed and
variable rate Nobacs. Prior to this, Nobacs' longest maturity had
been two years. (Note: Nobacs are medium-term paper, denominated
in pesos or dollars, which the BCRA issues to manage liquidity).
The BCRA accepted only 11% of bids, issuing ARP 324 million of
variable rate Nobacs and ARP 8 million of fixed rate Nobacs (with a
coupon of 8%). The yield on the fixed rate Nobacs reached 11.95%,
and on the variable rate Nobacs stood at 12.20%. Banks' strong
participation guaranteed the success of the auction. They find the
variable rate Nobacs especially attractive as a hedging tool against
increasing interest rates. The introduction of the three-year
Nobacs will also allow the BCRA to extend further the average life
of its portfolio, which currently stands at 350 days. (Note: The
BCRA extended this by 40% in 2006, from 250 days).
--------------
Economic Policy
--------------
GoA increases export taxes on soy and soy-products to subsidize
local consumption, avoid price increases.
-------------- --------------
4. During a January 11 press conference, Minister of Economy Felisa
Miceli announced that the GoA would increase export taxes on soy and
soy products by four percentage points to 27.5% and 24%,
respectively. Miceli said the GoA expected to collect an additional
$400 million from the export tax increase, which it will use to
subsidize domestic consumption of wheat, corn and soy. The Minister
explained that the subsidies will be channeled to a GoA agency
(called AG Commercial Control agency),which will distribute funds
to millers, dairy farmers and beef and poultry producers, as a means
to avoid increases in the price of flour, bread, pasta, and dairy
products. She argued that increases in international commodity
prices had increased the cost of products included in the basic food
basket. The announcement was not a surprise, since rumors of an
export tax increase on soy or wheat have been circulating for the
last month. This is one more attempt by the GoA to use heterodox
methods to keep inflation under control -- methods that have had at
least temporary success, with inflation falling to single digits
(9.8%) in 2006. Nevertheless, non-government Argentine economists
are already forecasting a rougher time in 2007 -- beginning with at
least a 1% m-o-m increase in the January 2007 CPI due to price
increases for food, cigarettes, health care fees, taxis, tourism,
and electricity (see below).
Planning Minister De Vido receives ARP 1.2 billion additional funds
to subsidize energy and transportation.
-------------- --------------
5. On January 11, the GoA published two resolutions (1082 and 1083)
in the Official Gazette amending the 2006 Budget. GoA Chief of
Cabinet Alberto Angel Fernandez -- empowered by the "Superpowers"
amendment to the Financial Administrative Law, which gives him
discretionary authority to reconfigure the budget without
Congressional approval -- is using these resolutions to redistribute
ARP 1.2 billion to the Ministry of Planning -- led by powerful
Minister (and President Kirchner's top advisor) Julio De Vido -- to
fund additional subsidies for electricity (ARP 423 million) and
transportation (ARP 554 million),as well as to finance housing
projects (ARP 309 million). This is the GoA's first action in 2007
to use its control over the budget to finance expenditures that will
win votes in the October election.
--------------
Energy
--------------
GoA allows 15% electricity tariff increase for commercial and
industrial users.
-------------- --------------
6. On January 8, the GoA published in the Official Gazette two
decrees (1957 and 1959) allowing two distribution companies (Edenor
and Edesur) to implement a 15% electricity tariff increase on
commercial and industrial users that had been agreed on over a year
ago. The tariff increase, which will affect 600,000 users, will be
retroactive to November 2005. The GoA had earlier authorized GasBan
(the gas distribution company controlled by Spain's Gas Natural) to
increase gas tariffs by an average 17% for commercial and industrial
users in April 2006. Increases to residential users will not be
introduced until 2008, which was expected given the presidential
election in October; however, consumers may be indirectly be
affected by the increases since companies will likely attempt to
pass-through the increased costs to consumers. (Note: Edenor and
Edesur jointly provide energy to 3.7 million residential users.)
7. To see more Buenos Aires reporting, visit our classified website
at: http://www.state.sgov.gov/p/wha/buenosaires
WAYNE
2