GOA ECONOMY MINISTER ON "BUY AMERICA," DEBT SWAPS,

C O N F I D E N T I A L SECTION 01 OF 03 BUENOS AIRES 000133

SIPDIS

E.O. 12958: DECL: 02/05/2019
TAGS: ECON EFIN ETRD EXIM AR
SUBJECT: GOA ECONOMY MINISTER ON "BUY AMERICA," DEBT SWAPS,
PENSIONS NATIONALIZATION, AND EXIMBANK TOLLING AGREEMENT

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

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Summary
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1. (C) Argentine Economy Minister Carlos Fernandez noted GoA
concerns with the "buy America" provisions in pending U.S.
economic stimulus legislation during a February 4 meeting
with Ambassador that mostly focused on G-20 issues (septel).
The Minister highlighted the GoA's recent successful debt
swap, which will open to foreign bondholders soon, but
downplayed chances of a deal soon with "holdouts." The
Ambassador called for fair treatment of U.S. companies that
had investments expropriated when the GoA nationalized the
private pension funds in December, particularly with regards
to compensation. Ambassador also urged Fernandez to engage
directly in completing a tolling agreement with ExImBank.
Fernandez said he would soon respond to a Financial Action
Task Force (FATF) letter raising concerns about the GoA's new
capital repatriation law. He noted that the GoA published
implementing regulations of that law February 2, which he
claimed eliminated the potential for abuse of the law for
purposes of laundering money. End Summary.


2. (C) The Minister and Ambassador focused on the GoA's
participation in ongoing and upcoming G-20 meetings (reported
septel). This cable describes their discussion of bilateral
issues.

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Argentine Concerns Re "Buy America" Provisions
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3. (C) Reflecting concerns raised in local media, Minister
Fernandez asked the Ambassador for details about the "buy
America" provision included in the stimulus package pending
in the U.S. Congress. The Ambassador noted that the
legislation was still being debated in the Congress, and the
end result would be a matter of negotiation in Congress and
with the administration. He highlighted President Obama's
February 3 statements on the need to avoid creating problems
with our trading partners, and also pointed out that many
U.S. companies, in addition to our trading partners, had
expressed concern about the provision as originally drafted.
(Comment: While the meeting received prominent and positive
press play, articles highlighted the Ambassador and
Minister's discussion of this issue, portraying the exchange
as a GoA reclama on the issue, even though Fernandez was very
restrained in his comments. There are serious local concerns
that the provision could disadvantage Argentine steel exports
to the United States.)

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Debt Issues: Local Debt Swap and Plans for Holdouts
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4. (C) The Ambassador congratulated the Minister on achieving
a 97% acceptance rate in the GoA's recent debt exchange of
locally-held Guaranteed Loans ("Prestamos Garantizados"),
which according to press reports will result in lowering the
GoA's financing needs in 2009 by over US$1.5 billion.
Fernandez said the successful swap sent an important signal
to the market that the GoA "still has sufficient resources to
pay its debts, despite everything going on in the world." He
said the GoA would keep the exchange open for a few more days
to allow the last few domestic holders of these bonds to
participate, and planned soon to open the exchange to foreign
holders. He noted that the GoA would provide the same offer
during the foreign tranche of the swap, or maybe even
slightly worse, but expected heavy participation because
"everybody wants to exchange the illiquid Guaranteed Loans
for more liquid bonds." (This issue reported in more detail
septel.)


5. (C) Fernandez took the opportunity to bash rating
agencies, which currently have "worse ratings for Argentina
than in 2001," before Argentina's default and devaluation.
He accused these entities of failing to anticipate both
Argentina's 2001 crisis and the ongoing international crisis,
and argued it made no sense for Argentina to be considered so
much riskier than other countries in the region after six
years of strong fiscal and trade surpluses. He suspected the
ratings were based more on politics than technical reasons.


6. (C) The Ambassador commented that the perception that
Argentina is a riskier market in large part derives from the
GoA's outstanding debt situation with both Paris Club

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creditors and holdouts. Fernandez responed that the
political will is still there, and the GoA sees these as
priority issues that must be resolved as soon as feasible.
However, he contradicted press and private sector speculation
that the GoA will soon attempt to restructure untendered
defaulted bonds (the so-called "holdouts"),arguing that
"international conditions must first return to normal."

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Argentine Nationalization of Pension Funds
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7. (C) The Ambassador highlighted Washington interest in the
GoA's nationalization of the private pension funds in
December, as well as USG concern about GoA treatment of the
two U.S. companies (MetLife and NYLife) that had their assets
expropriated. The Ambassador called for the GoA to ensure
that their interests and those of their employees and
shareholders were appropriately protected. Fernandez
reassured Ambassador that the GoA was also concerned about
the thousands of employees that worked for the 10 private
pension funds, and was looking to employ as many as possible
at the Argentine Social Security Agency (ANSES, which took
possession of the private funds' assets in mid-December).
Fernandez also assured that the GoA would be reasonable and
prudent with regards to the question of compensation, and its
actions would accord with Argentine laws. (Comment:
Fernandez likely has little say over this issue in the
cabinet, but Post is delivering a similar message during all
contacts with appropriate GoA officials.)

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ExImBank Tolling Agreement
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8. (SBU) The Ambassador explained that ExIm has renewed its
effort to sign a tolling agreement with the GoA, and asked
for the Minister to engage directly in completing the
documents and then sending the agreement and decree to the
President for signature. Although Fernandez seemed
unfamiliar with the issue, after hearing explanations by
EconOff of how this agreement would benefit both Argentina
and ExIm, and would protect both of their legal rights,
Fernandez agreed to follow-up personally with his staff in
the Secretariat of Finance, who are handling the issue.


9. (SBU) Background: the purpose of this agreement is to
extend the statute of limitations on ExIm's non-performing
loans to the GoA. Economy Ministry staff, ExIm officials,
and the GoA's legal counsel, Cleary Gottlieb, completed a
draft agreement in August 2008, and EconMin staff were on the
verge of sending it to the Minister for approval. However,
both sides agreed informally to delay the process after
President Cristina Fernandez de Kirchner (CFK) announced
September 2, 2008, that the GoA would pay all Paris Club
debts -- including the roughly $425 million owed to EXIM and
other USG agencies -- in one lump sum. However, given that
the GoA never followed through on the promise, and the
deterioration in international and domestic financial markets
makes any Paris Club payment soon unlikely, ExIm and Finance
Secretariat staff agreed to resume the effort.

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Argentine Capital Repatriation Law
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10. (C) In response to the Ambassador's question, Fernandez
noted that the GoA issued implementing regulations on
February 2 covering its recent and controversial law on
capital repatriation passed by the Argentine Congress last
December. He argued that these regulations preclude any
possible abuse of the law for the purpose of laundering money
-- especially funds deriving from illicit means. Now that
the GoA has completed all legislative and regulatory
documentation, Fernandez said he would finally respond to
FATF's December 8 letter to him, which expressed concern
about the potential risks of passing such a law and asked for
details.


11. (C) Comment: the implementing regulations require that
financial transfers originate in countries that meet
international money laundering/terrorism finance standards,
and also require the local financial institutions receiving
the funds to comply with all relevant Central Bank and
Financial Investigative Unit rules and regulations. GoA and
Central Bank officials say that these restrictions are
sufficient to eliminate the potential for money laundering,
but Post's private sector contacts warn that there is still

BUENOS AIR 00000133 003 OF 003


significant room for abuse, particularly with regards to
movements of cash. (Reported in more detail septel.)

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Publication of Investment Climate Statement
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12. (C) As a pull aside, the Ambassador informed Fernandez
that the USG would soon publish the latest versions of the
Investment Climate Statement and Country Commercial Guide.
The Ambassador emphasized that these are balanced technical
evaluations of Argentina's investment and business climate,
but warned that the press has used these reports in the past
to stir up conflict between our two countries. Fernandez
reassured the Ambassador that GoA officials are fully
familiar with the Argentine press' penchant for hyperbole.

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Comment
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13. (C) This was the Ambassador's first formal meeting with
Minister Fernandez since July 2008, when they met during the
visit of WHA A/S Shannon and Treasury DAS O'Neill on the
margins of the bilateral consultations, though they have
talked by telephone and at events in between. This compares
to the almost monthly meetings the Ambassador enjoyed with
Fernandez's three predecessors, and is an indication of this
Minister's low profile and diminished role in the CFK
administration. Never a power player in the cabinet, his
role was even further reduced when CFK split his Ministry
into two (Economy and Production) in late November. Whereas
before he had -- at least in theory -- a say in issues
related to industry, trade, and agriculture, Fernandez is now
the Minister in charge of only finance and the budget. While
Fernandez comes across as forthright and honest, and has a
good reputation as a competent technocrat, especially on
budget-related issues, his influence is limited. There is
little doubt that the real decisions on the economy are being
made in the Casa Rosada and presidential residence Los
Olivos, the lair of presidential spouse Nestor Kirchner. End
Comment.

WAYNE