CODEL ENGEL PRESSES ARGENTINE ECONOMY MINISTER ON

C O N F I D E N T I A L SECTION 01 OF 03 BUENOS AIRES 000229 SIPDIS SIPDIS E.O. 12958: DECL: 02/24/2018 TAGS: ECON EFIN PREL PGOV PHUM AR SUBJECT: CODEL ENGEL PRESSES ARGENTINE ECONOMY MINISTER ON BOND HOLDOUTS, PARIS CLUB, AND SAIEGH HUMAN RIGHTS/ANTI-SEMITISM CASE REF: A. BUENOS AIRES 225 ¶B. BUENOS AIRES 226 ¶C. BUENOS AIRES 126 ¶D. 2007 BUENOS AIRES 2142 ¶E. BUENOS AIRES 188 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) Summary -------------- ¶1. (C) During a February 21 meeting with new Argentine Economy Minister Martin Lousteau, Representatives Engel (D-NY),Green (D-TX),Hinchey (D-NY),Weller (R-IL),and Foxx (R-NC)) pressed Lousteau to provide GoA positions on three issues of increasing importance to Congress: 1) prospects of negotiating a settlement with the "holdout" bondholders that refused to participate in the 2005 debt exchange (pending from Argentina's 2001 default); 2) repayment of overdue debts to official creditors (Paris Club countries); and 3) prospects of negotiating a settlement agreement related to the human rights/anti-Semitism case of Argentine citizen Eduardo Saiegh. Lousteau called the 2005 debt exchange successful, claiming that 87% of U.S. bondholders participated. While not promising to negotiate with holdouts, Lousteau differentiated between pensioners holding Argentine bonds, who suffered greatly from the 2001 default, and speculators who bought distressed Argentine debt in late 2001 and after the default. He stated that the GoA wants to pay Paris Club arrears, but will not accept an IMF oversight role. Regarding the Saiegh dispute, Lousteau and his Finance Secretary, Hugo Secondini, indicated that the Argentine SIPDIS judicial system has never made a ruling in favor of Saiegh and, therefore, the GoA is not in a position to negotiate a settlement. However, he agreed to review the information available on the case. Lousteau also briefed the Codel on the state of the Argentine economy, highlighting the incredible recovery since 2003 and the opportunities and challenges Argentina faces due to the strong international demand for Argentina's exports. End Summary. Congressional Interest in Holdouts, Saiegh, Paris Club -------------- -------------- ¶2. (SBU) During CODEL Engel's February 20 - 22 visit to Buenos Aires, and following meetings with President Cristina Fernandez de Kirchner and Foreign Minister Taina (Refs A and B),the CODEL members met February 21 with new Argentine Economy Minister Martin Lousteau to discuss economic issues of interest to the U.S. Congress and the state of the Argentine economy. ¶3. (SBU) Congressman Engel emphasized the growing pressure on Congress from U.S. non-tendered bondholders ("bond holdouts"),seeking restitution from the GoA following Argentina's default in 2001. While acknowledging that resolving the Paris Club is the top priority, Rep. Engel emphasized that members of Congress from both parties meet frequently with bondholder representatives, who are frustrated due to the GoA's lack of action on this issue. He asked the Minister for advice on what Members of Congress can tell the holdouts regarding prospects for re-opening negotiations. ¶4. (SBU) Representative Engel also noted the extremely high-level interest from both Congress and the USG in the status of Mr. Eduardo Saiegh's compensation claim, stemming from his experience in 1980 when he was detained, tortured, and dispossessed of his bank, Banco Latinoamericano (see Refs C and D for background). Rep. Engel called the case a "travesty," and while recognizing that there were many other such cases dating back to the military dictatorship of the 1970s and early 1980s, this particular case is increasingly high-profile in Washington and has caught high-level, bipartisan attention in Congress. (Embassy had passed Lousteau as well as the Foreign Ministry and Casa Rosada background, in anticipation of Representative Engel raising the Saiegh case.) Lousteau on Holdouts: Must Differentiate Among Bondholders -------------- -------------- ¶5. (C) Somewhat surprisingly, Minister Lousteau did not repeat the GoA's usual public line that the 2005 debt exchange is permanently closed and the GoA has no intention of re-opening it (meaning: holdout bondholders are out of luck). Instead, while acknowledging that continuing political pressure from holdouts is a problem in many countries, Lousteau argued that the 2005 debt exchange had been a success. As evidence, he claimed that about 87% of BUENOS AIR 00000229 002 OF 003 U.S. bondholders had accepted the GoA's offer. He pointed out, furthermore, that the bondholders that accepted the deal had benefited enormously from the positive performance of the GDP-linked unit, a warrant attached to all bonds issued in the 2005 debt restructuring and linked to GDP growth. He claimed that the GDP unit had outperformed almost all other emerging market financial instruments. ¶6. (C) Without explicitly stating that Argentina would settle with some but not all of the holdouts, Lousteau stressed that when discussing re-opening the debt exchange it was important to differentiate between the various types of bondholders. In particular, he drew comparisons between European pensioners holding Argentine bonds from well before the 2001 default, who had suffered greatly from the 2001 default, and the large hedge funds and other speculators who bought highly distressed Argentine debt for pennies on the dollar just prior to or right after the default. ¶7. (C) Rep. Engel asked whether Lousteau was saying that speculators that purchased Argentine bonds right before or after the crash should have known what they were getting into. Lousteau responded by alleging that many of the speculators had bought the debt, and not tendered it during the debt exchange, on the bet that favorable court decisions in the U.S. and Europe would allow them to collect 100% on bonds for which they paid less than 20 cents on the dollar. Therefore, he considered these bondholders totally different from those that were not speculative. Lousteau on Paris Club: Want Deal Without IMF Involvement -------------- -------------- ¶8. (C) Lousteau reiterated his past comments to Ambassador (Ref E),that the GoA wants to pay its debts to official Paris Club creditors, has the ability to pay over time, and will make a repayment offer relatively soon, but the GoA cannot accept any IMF oversight role. He argued that Argentina had suffered a lot from bad IMF advice and had paid the IMF back early to get rid of IMF supervision. A new IMF supervisory role "is not acceptable to us." He indicated that others might be able to help deal with the issues normally handled by the IMF in these kinds of negotiations. Lousteau recognized that the GoA should have focused on resolving this situation earlier, but argued that the sharply painful experience of the 2001-2002 financial crisis had led the GoA to focus almost exclusively on dealing with internal social issues and priorities. Nevertheless, he emphasized that, contrary to allegations in the press, this issue did not dominate or undermine bilateral relations with the USG. Lousteau on Saiegh: Settlement Deal Not Possible -------------- -------------- ¶9. (SBU) Regarding the Saiegh dispute, Lousteau and Finance Secretary Secondini argued that the Argentine judicial system SIPDIS has never made a ruling in favor of Saiegh, which means there has been no official determination on the facts or any party's culpability in the expropriation of Banco Latinoamericano. Without such a ruling, Lousteau commented, the GoA is not in a position to negotiate a settlement deal. Nevertheless, he assured the Congressional representatives that Finance Secretary Secondini would review all available documentation on the case and discuss it in more detail with Embassy representatives. ¶10. (SBU) Ambassador-designate to the U.S. Hector Timerman, also present in the meeting, agreed that Mr. Saiegh's experience was a travesty. He described his own family's experience with torture at the hands of the military dictatorship in the 1970s, and asserted that the U.S. Congress and USG had helped to save many lives during that period, including that of his father. Nevertheless, Timerman argued that there was nothing blocking Mr. Saiegh from seeking justice through Argentine courts, and that this was the appropriate means to resolve the claim. (Note: In a subsequent reception, Codel members heard directly from Mr. Saiegh, who said he has an administrative decision in his favor, which he argued should suffice for the GoA to agree to negotiate a deal.) The Economy: Remarkable Recovery and Great Opportunities -------------- -------------- ¶11. (SBU) Lousteau also briefed the Codel on the state of the Argentine economy, highlighting the incredible recovery since 2003, with five consecutive years of over 8.5% real GDP growth. He forecast growth of 7% in 2008. Lousteau noted that in Argentina's entire history it had never sustained more than four consecutive years of more than 4% growth, so BUENOS AIR 00000229 003 OF 003 the current boom is unprecedented. He emphasized that the performance was all the more remarkable and important given that it followed the tremendously painful 20% real decline in GDP between 1998 and 2002, culminating with the financial crisis, debt default, and pesification of assets. ¶12. (SBU) Lousteau argued that the twin (fiscal and current account) surpluses, a stable yet flexible exchange rate, and high official reserves put the country in a much stronger position to face external shocks than ever in its history. He also highlighted potential areas of growth, as well as opportunities for foreign investment, particularly in the agri-business ("food-processing") and high-tech ("business service") sectors, and asked the Representatives to transmit to the United States news of the strong economy and investment opportunities. ¶13. (SBU) Lousteau downplayed controversial issues like high inflation and manipulation of official statistics, and stated that Argentina's main challenges now are to maintain high-growth rates by continuing to take advantage of high global commodity prices, while managing the impact of higher global food prices and a more open and globalized economy on the Argentine people. But he did admit there was a public last of trust in the way inflation had been measured, as well as serious flaws in previously used methodology. This then had become "a bigger issue than it should have been." Lousteau invited the Congressional Representatives to let him know "where they have doubts or questions and we will do our best to address your concerns." Comment -------------- ¶14. (SBU) Despite having only two months on the job and little high-level experience to rely on, Lousteau showed impressive command of the issues during the meeting with CODEL members. It is not yet clear whether Minister Lousteau has much power or influence within Cristina Fernandez de Kirchner's administration. However, speaking in excellent English, offering concise and well-considered observations -- with no notes -- and deftly dealing with difficult and controversial issues such as data manipulation, Lousteau showed that he has the potential to become an excellent economic representative, and salesman, for the GoA to other countries and multilateral institutions. WAYNE