Identifier
Created
Classification
Origin
07BUENOSAIRES680
2007-04-10 21:59:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

ARGENTINE ECONOMY MINISTER SEEKS BILAT WITH

Tags:  EFIN ECON EINV AR 
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C O N F I D E N T I A L BUENOS AIRES 000680 

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TREASURY FOR CLAY LOWERY, 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 ECONOMY MINISTER SEEKS BILAT WITH
SECRETARY PAULSON; WILLING TO EXPLORE PARIS CLUB OPTIONS

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REF: A. BUENOS AIRES 621

B. BUENOS AIRES 637

C. BUENOS AIRES 642

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 000680

SIPDIS

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TREASURY FOR CLAY LOWERY, 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 ECONOMY MINISTER SEEKS BILAT WITH
SECRETARY PAULSON; WILLING TO EXPLORE PARIS CLUB OPTIONS

SIPDIS

REF: A. BUENOS AIRES 621

B. BUENOS AIRES 637

C. BUENOS AIRES 642

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

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

1. (C) On April 9, Economy Minister Felisa Miceli requested
Ambassador's support in arranging a bilat with Treasury
Secretary Paulson during upcoming IMF/World Bank meetings to

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discuss Paris Club and other bilateral economic issues.
While still rejecting any IMF role, Miceli and Finance
Secretary Sergio Chodos showed willingness to consider an

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informal payment plan to resolve Argentina's Paris Club
arrears. Ambassador encouraged GoA flexibility, explained
Washington anger over Chavez's anti-Bush rally in Buenos
Aires on March 9, and described recent pressure from U.S.
bondholders, supported by letters from the U.S. Congress,
calling for a solution to the holdout situation. Miceli
noted that the GoA would not be in a position to deal with
holdouts "for several years." On Banco del Sur, Miceli noted
the plan is less ambitious than reported in the press.
Ambassador supports a Paulson/Miceli bilat to discuss both
Paris Club and U.S. bondholder issues. Post also recommends
Treasury officials visit Argentina following the World
Economic Forum meeting in Chile, in order to further
discussions on Paris Club options, to maintain pressure on
resolving holdouts, and to discuss regional financial issues,
including Argentina's relations with the IDB and other
financial institutions. End Summary.

Ambassador Explains U.S. Irritation with Argentina
-------------- --------------

2. (C) The Ambassador and Econoffs met April 9 with Minister
Miceli and Finance Secretary Chodos to review bilateral
economic issues prior to their departure for the April 14-15

IMF/World Bank spring meetings in Washington. As he had
previously done with Foreign Minister Taiana and Legal and
Technical Secretary Carlos Zannini (Refs A and B),the
Ambassador emphasized that high-level officials in Washington
were angered, disturbed, and puzzled by the GoA's decision to
allow Venezuelan President Chavez a platform to criticize
President Bush. He noted that our concern had nothing to do
with the growing economic relationship between Argentina and
Venezuela, rather it was the timing of Chavez' anti-Bush
rally, coinciding with the President's March 9 visit to
nearby Uruguay, that was so disturbing.


3. (C) The Ambassador stated that the U.S. was interested in
maintaining a mature relationship, noting that our two
countries have important mutual interests, and enjoy close
cooperation on critical foreign policy issues such as
counter-terrorism and counter-narcotics and intelligence
sharing. He expressed U.S. willingness to continue a
positive dialogue in areas of interest to Argentina, such as
the Paris Club and attracting U.S. investment, while
continuing to try to find solutions for U.S. interests, i.e.,
bond holdouts from the 2005 debt exchange and commercial

disputes. The Ambassador noted as evidence of our common
interests that the U.S. Department of Commerce had invited
Miceli to participate in the inaugural Americas
Competitiveness Forum in Atlanta in June. Miceli expressed
interest in the Forum, and agreed to arrange a call with
Commerce Secretary Gutierrez to discuss her role.

Miceli Speech in Washington on Argentine Recovery
-------------- --------------

4. (C) Minister Miceli departs Wednesday, April 11, for
Washington. Prior to the IMF/World Bank spring meetings, she
plans to speak at a conference organized by the Center for
Economic and Policy Research on the subject: "A Latin
American Success story: Five Years of Extraordinary Economic
Growth and Poverty Reduction in Argentina." She told the
Ambassador that she had been surprised by reports in the
press that USG officials were upset over her participation in
this conference, since her speech would focus on Argentina's
recovery since the crisis. (Comment: Miceli will likely
repeat typical GoA criticisms of the IMF during her speech,
and possibly renew her previous calls for reform of the IMF
structure, but she did not indicate any intention to discuss
relations with the U.S. or Venezuela. End Comment).

Miceli/Paulson Bilat; GoA flexibility on Paris Club
-------------- --------------

5. (C) Miceli noted her strong interest in meeting with
Secretary Paulson on the margins of the IMF/World Bank

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meetings, and asked for Ambassador's support with Treasury.
She hopes to discuss bilateral economic issues, especially
Argentina's interest in negotiating a deal with its Paris
Club creditors. The Ambassador agreed that a bilateral
meeting with Paulson could be useful to further the dialogue
on Paris Club, but noted that in Embassy discussions with
Treasury it seemed clear that a restructuring was not
possible without a current IMF program. Rather, the
Ambassador noted that the most viable option may well be an
"informal" payment arrangement, as Chodos has discussed
previously with Treasury officials (Ref C). In this context,
Chodos might want to consider beginning discussions with the
Paris Club Secretariat to explore technical questions related
to moving forward with unilateral payments.


6. (C) While still rejecting any formal IMF role in a Paris
Club agreement (other than a comfort letter or using the
Article IV),Miceli and Finance Secretary Chodos cautiously
indicated willingness to consider creative options --
including beginning unilateral payments -- to resolve
Argentina's Paris Club arrears. Chodos said the GoA was
evaluating how a unilateral payoff plan would work, and it
was clear the priority was how quickly it would give
Argentina access to financing from export credit agencies
(ECAs). He said he saw no legal impediment that would
prevent the French, German, and Spanish ECAs from renewing
operations, but asked whether ExImBank would be able to begin
operations as soon as Argentina began payments. The
Ambassador responded that it was unlikely that ExIm would be
able to lend into arrears under its legal mandate.

Ambassador: GoA Flexibility Needed to Gain USG Support
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7. (C) Miceli continued to press for an answer on whether the
U.S. and other G-7 countries would make a political decision
to help Argentina. She accepted that Argentina, as the
debtor, bore primary responsibility for developing a workable
solution, but argued that creditors must also show good faith
and help devise a viable deal. The Ambassador responded that
it depended on whether the two sides could find common space
between all our limitations. He noted that the Embassy was
willing to explain Argentina's political parameters to
Washington, but the GoA had to understand that the USG also
faces limitations, as do other Paris Club creditors.


8. (C) Aside from our concern that a deal with Argentina not
set a negative precedent for other countries, nor complicate
our approval process with Congress, the Ambassador noted that
the Chavez rally in Buenos Aires had reduced interest in
Washington to "go the extra mile" for Argentina.
Furthermore, U.S. holdouts from Argentina's 2005 debt
exchange, represented largely by the American Task Force
Argentina (ATFA),had recently written both Congress and
Secretary Paulson, calling for the USG to pressure Argentina

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to reopen the debt exchange. Two members of Congress had
subsequently written Secretary Paulson on the issue.
Argentina's unwillingness to date to address this issue
further limited willingness in Washington to help Argentina
find a special deal. The Ambassador also commented that on
the Paris Club spectrum, the U.S. was probably somewhere in
the middle, with some countries more accommodating and others
less interested in pursuing alternative solutions. That the
Paris Club works on a consensus basis complicated any chance
Argentina might have of reaching a formal deal.


9. (C) While acknowledging U.S. interest in the holdouts
issue, Miceli stated that from the GoA perspective Paris Club
and Holdouts were unrelated. She commented that resolving
the holdouts situation "would not be on the agenda for
several years," adding that the GoA would need two to three
years to pay Paris Club creditors before it could consider
negotiating with holdouts. Dealing with both holdouts and
Paris Club at the same time would jeopardize the GoA's
ability to manage its debt load.

Down-sized Expectations for Banco del Sur
--------------

10. (C) Miceli admitted that the Banco del Sur project was
moving slowly, although the countries had agreed on the basic
statutes. She said it would finance both public works and
private sector projects, but would start small and only
gradually grow to a size where it could compete with the IDB
and CAF. The initial capital would come from only three
countries -- Venezuela, Brazil, Argentina -- with each
country committing about $50 million per year over ten years.
When the Ambassador asked whether the countries were still
considering using official reserves to capitalize the Bank,
and noted that this might complicate relations with both
Paris Club creditors and holdouts, Miceli irritably responded
that the GoA would obviously have to explain how a bank



works. She repeated Chodos earlier comments to Econoffs (Ref
C) that Argentina's Central Bank would just be diversifying
its reserve holdings.

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

11. (C) While it remains to be seen whether an informal
payment plan has any chance at success, the fact that Miceli
and Chodos are openly evaluating possibilities is
encouraging. Chodos appears farther along than Miceli in
terms of accepting that unilateral payment of arrears is the
only viable option. Nevertheless, this was the first meeting
where Miceli seemed to be considering this option. Given
that a Paris Club deal is a likely precursor to a deal with
holdouts, continuing the dialogue seems appropriate.
Ambassador, therefore, supports a Paulson/Miceli bilat as a
very useful way to explore any possibility for solutions and
to send a clear senior-level message to the Minister. Post
also recommends Treasury officials visit Argentina following
the World Economic Forum meeting in Chile. End Comment.


WAYNE