ARGENTINE CENTRAL BANK AND ECONOMY MINISTRY

C O N F I D E N T I A L SECTION 01 OF 03 BUENOS AIRES 001493 SIPDIS E.O. 12958: DECL: 10/28/2028 TAGS: EFIN ECON PREL PGOV AR SUBJECT: ARGENTINE CENTRAL BANK AND ECONOMY MINISTRY PREPARATIONS FOR G-20 MEETING REF: A. BUENOS AIRES 1491 ¶B. BUENOS AIRES 1469 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) -------------- Summary -------------- ¶1. (C) The Argentine Central Bank (BCRA) is taking the lead on preparing briefing material for President Cristina Fernandez de Kirchner's (CFK) participation in the November 15 G-20 meeting, BCRA President Redrado told Ambassador October 24. While not in a position to guarantee how CFK will use the BCRA input, Redrado stressed that the BCRA was recommending constructive positions. Separately, Finance Secretary Hernan Lorenzino confirmed that he is coordinating with the BCRA on position papers, but must focus on dealing with the worsening internal financial crisis in Argentina, so Political Economy Secretary Martin Abeles will likely be Sous-Sherpa for the Economy Ministry. The GoA is also seeking to coordinate positions with Brazil, to be discussed further during the November 8-9 Mercosur summit. Cabinet Chief Sergio Massa told a U.S. citizen visitor that he had urged CFK to treat the G-20 meeting as a very special opportunity to demonstrate constructive leadership and to do so in the context of still seeking to pursue solutions with the Paris Club and private bondholders over Argentine debt. ¶2. (C) Regarding the IMF's proposal at the recent G-20 meeting to offer currency swaps for countries in distress, Redrado noted that he had pushed for no or limited conditions for the first tranche of currency swaps to emerging market economies, after which the IMF can ratchet up required preconditions. However, IMF Managing Director Strauss-Kahn announced October 29 that Argentina does not qualify for the program. End Summary. -------------- BCRA Preparations for G-20 -------------- ¶3. (C) Ambassador Wayne met October 24 with BCRA President Redrado to discuss the upcoming G-20 meeting, the GoA's recent announcement that it would nationalize the private pension system, and the resulting implosion of Argentina's financial market (the latter two reported Ref A). Because the Economy Ministry has been decimated by frequent personnel changes over the last year, Redrado said, the BCRA has been tasked with the lead on preparing paper for CFK's participation in the November 15 G-20 meeting. To this end, 
BCRA Vice President Miguel Angel Pesce has worked closely with the Economy Ministry's Finance Secretary, Hernan Lorenzino, to coordinate the work. ¶4. (C) While he could not guarantee that the President would rely on the BCRA's input during the November 15 meeting, Redrado reassured Ambassador that the BCRA and Economy Ministry papers will take reasonable positions. Redrado said the Embassy should consider him as a conduit to the President on G-20 related issues, and emphasized the importance of the G-20 to Argentina, since it is the only important forum that accepts Argentina as a member. -------------- Economy Ministry G-20 Coordination -------------- ¶5. (SBU) EconCouns called Finance Secretary Lorenzino October 29 to brief him on G-20 logistics and alert him that the Summit communiqu/statement will be negotiated in advance using both a capital-to-capital Sherpa channel and a Finance Ministry deputy channel. ¶6. (SBU) Lorenzino confirmed that his Finance Secretariat has been coordinating position papers with the BCRA. However, while he would normally be the appropriate Finance Ministry Deputy channel, he said he is ""being pulled in 20 different directions"" by the impact of the global financial crisis, and specifically by domestic financial and currency market responses to the GoA's bid to nationalize the private pension funds. As a result, Political Economy Secretary Martin Abeles will likely assume the role of Sous-Sherpa during the run-up to the G-20. ¶7. (SBU) The seventh Extraordinary Meeting of the Mercosur BUENOS AIR 00001493 002 OF 003 Council was October 27, and Lorenzino said that the GoA presented a working paper to urge the Brazilians to explore a coordinated approach to the G-20. Lorenzino anticipates that further coordination and discussion will not take place during the October 30 Ibero)American summit in Sao Paulo, but rather during the November 8-9 Mercosur head of state summit in Sao Paulo. Lorenzino emphasized the obligation of Brazil and Argentina to ""represent"" the greater interests of other Latin American countries not sitting at the G-20 table. -------------- -------------- Redrado Take On IMF's New Short-Term Liquidity Facility -------------- -------------- ¶8. (C) Redrado mentioned that he had spoken on October 24 to IMF Managing Director Dominique Strauss-Kahn to urge him to consider limiting preconditions necessary to gain access to the IMF's planned liquidity facility (which the Strauss-Kahn announced formally October 29). Redrado said he had been one of the first to propose IMF currency swaps (during an earlier G-20 meeting),and at the time he had argued that many countries with solid macroeconomic policies, but also with current account deficits, were facing speculative attacks on their currencies. However, he was concerned that the IMF was going to set the criteria for access to such a facility so tight (e.g., no recent borrowing, a current Article IV) that only a few countries from Latin America would qualify. (Redrado mentioned Chile as an example.) He said that during his conversation with Strauss-Kahn he had pushed for not attaching conditions to the first three-month tranche of currency swaps to emerging market economies, after which the IMF could begin to apply stricter preconditions for access to the lending facility. ¶9. (SBU) Strauss-Kahn announced the IMF's new Short-Term Liquidity Facility October 29, stating that it will offer quick-disbursing financing for ""countries with strong economic policies that are facing temporary liquidity problems in the global capital markets."" According to the IMF's release, the IMF does not seem to have accepted all of Redrado's recommendations, because the facility will use employ conditionality as part of the prequalification for access to the facility, listing as eligible recipients ""countries with track records of sound policies, access to capital markets and sustainable debt burdens. Policies should have been assessed very positively by the IMF in its most recent Article IV discussions."" During Strauss-Kahn's press conference, he said the facility would be limited to a discrete and small group. Moreover, in response to a reporter's follow-up question on Argentina, he clarified that Argentina would not qualify for the program. (Comment: This disqualification is due at least in part to Argentina's delay of Article IV discussions for well over a year. Argentina was the only unqualified country that Strauss-Kahn mentioned by name.) -------------- CFK and Cabinet Minister on G-20 -------------- ¶10. (C) On October 29, a prominent U.S. citizen recounted to the Ambassador her conversations with President CFK and Cabinet Chief Sergio Massa on October 28 and 29, respectively. The U.S. citizen, who has a long relationship with CFK, said the President was honored and enthused with the invitation to the November 15 gathering. CFK said she had communicated with Brazilian President Lula da Silva and the two intended to coordinate closely on positions for the meeting. The U.S. citizen commented that this was good news as it would presumably keep CFK to more responsible positions. CFK also said she still intended to proceed with efforts to solve Argentina's debts to Paris Club creditors and to private (""Holdout"") bondholders, when the international situation permits. Separately, Massa told the U.S. citizen that he had spent a good deal of time arguing to CFK that the November 15 summit was a very special opportunity to build confidence among other leaders and to prepare the ground for future resolution of Argentina's debt issues and develop new economic ties in the future. Massa also confirmed to the U.S. citizen CFK's commitment to resolve Paris Club and Holdout issues. -------------- Comment -------------- BUENOS AIR 00001493 003 OF 003 ¶11. (C) Post will touch base with Secretary Martin Abeles and BCRA VP Pesce regularly in coming days to get a better sense of how the GoA plans to approach the next few weeks of regional and international financial crisis response coordination discussions, with a view to reducing the likelihood of Argentine bomb-throwing during the G-20. WAYNE