Identifier
Created
Classification
Origin
08BUENOSAIRES1395
2008-10-09 19:54:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

GLOBAL ECONOMIC CRISIS COMPLICATES ARGENTINE PARIS

Tags:  EFIN ECON ETRD PREL AR 
pdf how-to read a cable
VZCZCXRO2617
OO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHQU RUEHTM
RUEHVC
DE RUEHBU #1395/01 2831954
ZNY CCCCC ZZH
O 091954Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2212
INFO RUCNMRC/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS IMMEDIATE
RUEHSO/AMCONSUL SAO PAULO IMMEDIATE 3802
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RUCPDOC/USDOC WASHINGTON DC IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 02 BUENOS AIRES 001395 

SIPDIS

E.O. 12958: DECL: 10/08/2028
TAGS: EFIN ECON ETRD PREL AR
SUBJECT: GLOBAL ECONOMIC CRISIS COMPLICATES ARGENTINE PARIS
CLUB PAYMENT

REF: BUENOS AIRES 1312

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 SECTION 01 OF 02 BUENOS AIRES 001395

SIPDIS

E.O. 12958: DECL: 10/08/2028
TAGS: EFIN ECON ETRD PREL AR
SUBJECT: GLOBAL ECONOMIC CRISIS COMPLICATES ARGENTINE PARIS
CLUB PAYMENT

REF: BUENOS AIRES 1312

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

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


1. (C) Rumors are circulating in Argentina that the GoA will
delay payment of Paris Club debts (Reftel) due to concerns
about weakening the Central Bank at a time of great economic
and financial uncertainty. The press on October 8 & 9 quoted
Interior Minister Florencio Randazzo confirming the GoA is
"evaluating the possible suspension" of the announced
payment. Finance Secretary Hernan Lorenzino assured Post
late October 8 that this is not the case, but qualified this
by stating that the GoA "will continue negotiating the best
alternative for Argentina given the international context."
Economy Ministry staff confirm they have not received
instructions to stop or slow the process and are finishing
the debt reconciliation process. Post's take: the political
will is still there in both the GoA and Argentine Congress to
complete the Paris Club deal, but the uncertain international
context will prompt the GoA to keep its options open ) and
reserve levels high -- until markets settle. End Summary.


2. (U) This is one of two cables on the impact of the
financial crisis on the GoA's proposed debt deals. A
companion cable discusses GoA negotiations with private
creditors.

--------------
Rumors of Delay in Paris Club Payment
--------------


3. (SBU) Argentine media sources have issued numerous reports
recently alleging that the GoA is planning to delay a payment
deal with the Paris Club (see Reftel and previous for
background). These reports, usually citing unidentified GoA
and Central Bank (BCRA) sources, state that senior GoA and
BCRA officials are concerned that using BCRA reserves to pay
roughly $7 billion in Paris Club debt would weaken the
Central Bank's ability to respond to the fallout of the
global financial crisis on Argentina's economy (i.e.,
limiting the BCRA's ability to maintain a stable peso and
ensure liquidity in the local financial system).


4. (SBU) Argentine financial daily, Ambito Financiero, and

mass circulation daily Clarin, quoted Interior Minister
Florencio Randazzo on October 8 & 9 confirming that due to
the unstable international situation the GoA is "evaluating
the possible suspension" of the announced payment, while also
making assurances that "despite the international crisis, the
Argentine economy is solid." Financial daily Cronista uses a
similar quote from Randazzo, but also has him stating that
the GoA has "committed itself to comply" with this
obligation. Cronista also states that President Cristina
Fernandez de Kirchner (CFK) has decided to suspend the Paris
Club payment for this year, with no plan to pick it up again
before February. The article repeats that the GoA has "based
this decision on the need to fortify the Central Bank's
international reserves in the face of the global financial
crisis."


5. (C) These sentiments are shared by many private sector
analysts and members of Congress, who have also voiced
concerns about the prudence of using reserves at this
uncertain time and also questioning the payment of Paris Club
debt in one shot. Indeed, during an October 2 meeting,
Senator Luis Alberto Viana, Chair of the Senate's Economic
and Investment Committee, told Ambassador Wayne that while
there was political will in Congress to approve the various
decrees the GoA has sent to Congress on the Paris Club
agreement, there is also great concern over its impact on the
Central Bank's balance sheet. He noted that he plans to
approach Economy Minister Carlos Fernandez to propose that at
minimum the GoA pay in installments.


6. (C) Econoffs received a nuanced message late on October 8
from the GoA's lead Paris Club (and holdout) negotiator,
Finance Secretary Hernan Lorenzino. In response to a query
on whether there was any truth to press reports of Interior
Minister Randazzo's comments, Lorenzino assured Econoffs that
"we are not analyzing a suspension of the payment. We will
continue negotiating the best alternative for Argentina given
the international context."

-------------- --------------

BUENOS AIR 00001395 002 OF 002


Econ Ministry Staff Assert Paris Club Payment on Track
-------------- --------------


7. (C) Economy Ministry staff working on Paris Club talks
also assert that the process is on track. Norberto Lopez
Isnardi (PROTECT),Director of Public Credit at the Ministry
of Economy (reporting to Finance Secretary Hernan Lorenzino)
told Econoff October 7 that Economic Ministry staff have not
received instructions to stop the process, and he considered
such an action "politically unviable." He did confirm that,
contrary to CFK's original announcement, the GoA plans to pay
only arrears (which he calculates at 80% of the total),while
coming current on payments on outstanding principal.


8. (C) Lopez said that the GoA still expects to complete the
payments of arrears this year -- by end-November or early
December. His staff is coordinating closely with the Paris
Club Secretariat to reconcile the debt figures, and is nearly
finished. He noted that only minor differences remained, and
added that the discrepancy between GoA and U.S. numbers is
insignificant. (Comment: CFK originally announced,
erroneously, that the GoA owed US$ 6.7 billion to Paris Club
creditors. At the time of the announcement, the Economy
Ministry's own figures were closer to US$ 7 billion. Also,
according to the Paris Club's April data call, the full
amount owed is US$ 7.9 billion, including about US$ 6.5
billion in arrears, including interest.)


9. (C) Lopez says that the GoA is negotiating over whether to
include some old debts that were not properly documented. He
claimed that these debts should have been included in prior
rounds of Paris Club restructuring deals with Argentina, and
the GoA does not agree with those creditors that are trying
to include them in the current payment scheme. He also
acknowledged GoA interest in negotiating the level of
punitive interest and fees to include.

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


10. (C) Based on Post's conversations with GoA officials at
different levels, and also with members of Congress, it is
clear that there is still strong interest in completing the
Paris Club payment. The GoA's current work with individual
Paris Club creditors to reconcile arrears is welcome and will
allow the GoA to move quickly when it feels the time is
right. However, until the dust settles in global financial
markets, the GoA will likely keep its options open and
reserve levels high.
WAYNE