IDB EXECUTIVE VP ZELIKOW ON ARGENTINA PROGRAM;

C O N F I D E N T I A L BUENOS AIRES 000084 SIPDIS SIPDIS E.O. 12958: DECL: 01/24/2018 TAGS: ECON EFIN EAID AR SUBJECT: IDB EXECUTIVE VP ZELIKOW ON ARGENTINA PROGRAM; POST SUPPORTS LENDING CEILING INCREASE TO $8 BILLION AND URGES DISCRETION ON VOTES AND STATEMENTS AT THIS TIME REF: BUENOS AIRES 2216 Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) -------------- Summary -------------- ¶1. (C) During a January 10 meeting with Ambassador, IDB Executive Vice President Daniel Zelikow supported increasing the lending ceiling to Argentina, particularly for private sector and sub-national projects, while acknowledging the need to assuage concerns of other IDB member countries. Zelikow highlighted the long list of good projects, noting that the GoA will need to prioritize given IDB lending limits. Ambassador acknowledged the opportunities, but also noted USG concerns with GoA interventionist policies, including in areas where much IDB lending is focused, e.g., energy and agricultural exports. IDB Country Director Daniel Oliveira seconded these concerns, but argued that the IDB can gradually influence the GoA to adopt more rational policies. Comment: Post urges Washington agencies to provide high-profile support for an increase of the lending ceiling. Unlike some of the alternatives, the IDB provides a reliable and transparent source of financing and affords IDB board members the venue to nudge GoA policymaking in a more sustainable direction (unlike the alternative of Venezuelan financing, for example). However, Post urges caution in USG votes and statements at this time, given the current problems in the bilateral relationship and public and private attention to what the USG is doing vis-a-vis Argentina. To the degree that we want to express concerns, we should do so in conjunction with other board members. End Summary. -------------- - Zelikow Support for Increasing Lending Ceiling -------------- - ¶2. (SBU) Ambassador met with IDB Executive Vice President Daniel Zelikow January 10, during Zelikow's two-day visit to Argentina. Zelikow met with new Economy Minister Martin Lousteau and Vice President Cobos, and also toured IDB projects along with IDB Country Director Oliveira. Zelikow said his government meetings had focused mostly on the current program, the possibility of expanding the lending ceiling from $6 to $8 billion in the next country strategy, and the GoA's long list of proposed projects. Although press articles during and after the visit primarily focused on Argentina's interest increase its lending window, several articles erroneously reported that Zelikow had offered the IDB's assistance to resolve the impasse with the Paris Club. Rather, he urged privately that the Economic Minister establish a dialogue with the U.S. Treasury (see para 7 below). ¶3. (C) Zelikow said it was a good development that IDB lending to Argentina had become more focused on investment projects in recent years, but argued that the IDB was underexposed in the private and sub-national (provincial) sectors. He also argued that the IDB needed to reorient itself in the market to maintain relevance and not compete in areas where the private sector is doing an adequate job. And in Argentina, this meant looking into opportunities in many of the poorer areas of the country, which investors and financial institutions have largely neglected. ¶4. (C) Zelikow argued that increasing the lending envelope for Argentina was a natural consequence of Argentina's continuing borrowing needs and the diminishing needs of other countries. He acknowledged that this also resulted in having lending to Argentina increase as a share of the total, and further recognized that this had caused concern among many IDB shareholders. Nevertheless, he discounted it as a prudential issue; rather, he saw it as just a matter for the IDB to ensure adequate attention on and funding for all borrowing countries. -------------- Concerns re GoA's interventionist policies -------------- ¶5. (C) Zelikow noted that the GoA has given the IDB a long list of generally good projects, so he had passed the message during his visit that the GoA should prioritize on the basis of quality projects, given that the IDB is at the boundaries of its lending abilities. The Ambassador agreed that there were many investment opportunities in Argentina, following five years of extremely rapid growth, as well as a competitive work force and internationally competitive sectors. Also, he agreed that IDB projects are beneficial not only because of their direct impact, but because they require higher oversight and transparency standards. However, he noted USG concerns with GoA policies of intervention in the private sector, and commented that many of these policies were inconsistent with the objectives of IDB-supported programs. ¶6. (C) In particular, the Ambassador noted that the IDB board was on the verge of voting on an agricultural sector loan (the CCLIP for PROSAP II) designed to improve the competitiveness of Argentina's agricultural exports. Meanwhile, the Ambassador commented, the government had imposed a whole array of export taxes and export restraints (and outright bans in some cases),which clearly impeded the competitiveness of the agricultural and other sectors. The Ambassador assured Zelikow that Post supported this particular loan, given that it comes on top of an existing program and should help improve agricultural sector competitiveness in the longer-term. Nevertheless, he urged Zelikow to pay attention to the GoA's questionable overall policy mix when aligning the IDB's program priorities in Argentina. (Comment: Post supports setting a marker during IDB board meetings that projects in support of exports appear inconsistent with current GoA policies, as long as this kind of statement is coordinated with other board members. End Comment.) -------------- -------------- Paris Club -- erroneous press reports re IDB offer of assistance -------------- -------------- ¶7. (C) Zelikow commented that Argentina's situation with the Paris Club (total debt of approximately $6.5 billion, with about $4.5 billion in arrears) had come up during his meeting with Economy Minister Lousteau. He asked about status and wondered what if any role the IDB could play to be helpful. The Ambassador and Econoff took advantage of the question to brief Zelikow on U.S. efforts in this area over the last two years, explaining the importance of the IMF agreement as a precedent and going through possible scenarios that the GoA could potentially pursue to resolve the situation. Zelikow told Ambassador that he had advised Lousteau to establish a quiet dialogue with the U.S. Treasury as a good way to help move this process ahead. Country Director Oliveira called Econoff several days later to confirm that local press articles reporting that Zelikow had offered IDB assistance to resolve the Paris Club impasse were erroneous. He said Zelikow had made no such offer, and speculated that it must have been Lousteau who leaked details of the meeting and had purposefully exaggerated their discussion of the Paris Club negotiations. Oliveira commented that Zelikow felt slightly deceived, but Econoff reassured that this is a common occurrence in Argentina, particularly with the Paris Club issue, where GoA officials frequently leak inaccurate information to the press to advance the government's or a personal agenda. -------------- Comment -------------- ¶8. (C) Post supports an increase of the lending window for Argentina, and further argues that the USG should support the increase in a high-profile way, that leaves no question that the USG was a critical supporter of the initiative and instrumental in its approval by the IDB board. The IDB program provides a reliable source of financing that also ensures competitive, transparent bids, oversight, and gives countries in the region (and on the IDB board) the opportunity to comment on projects. It is also one of the few existing vehicles that offer the USG and other concerned governments the means to influence the GoA to pursue more sustainable economic policies. As IDB President Moreno told the Ambassador in a previous meeting (Reftel),the other alternative is Venezuela. Expanding IDB lending is clearly a superior alternative, and in our view the USG should use IDB board meetings as one more tool to encourage better policy-making and help guide Argentina back to re-engagement with international financial markets. However, Post urges Washington agencies to use extra caution during this sensitive period in bilateral relations when voting or making statements during IDB board meetings. At this point, even subtle criticism of the GoA will likely backfire. The local press has consistently blown many U.S. comments and actions out of proportion, often exacerbating already palpable tensions in the bilateral relationship. Therefore, Post strongly urges Washington agencies to coordinate critical comments with other Board members, so as to strengthen the arguments and lessen the profile of the USG. End Comment. WAYNE