Argentina Economic and Financial Review, December 4-10, 2009

UNCLAS SECTION 01 OF 02 BUENOS AIRES 001346 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON EINV ETRD ELAB EAIR AR SUBJECT: Argentina Economic and Financial Review, December 4-10, 2009 REF: 09 BUENOS AIRES 1175 ¶1. (U) Provided below is Embassy Buenos Aires' Economic and Financial Review covering the period December 4-10, 2009. The unclassified email version of this report includes tables and charts tracking Argentine economic developments. Contact Econ OMS Megan Walton at WaltonM@state.gov to be included on the email distribution list. This document is sensitive but unclassified. It should not be disseminated outside of USG channels or in any public forum without the written concurrence of the originator. It should not be posted on the internet. -------------- -------------- -------------- President signs the decree to authorize moving ahead on debt restructuring offer -------------- -------------- -------------- ¶2. (SBU) On December 9, President Cristina Fernandez de Kirchner signed a decree authorizing the GoA to move ahead in the process of preparing an offer to the holdouts from the 2005 debt restructuring. On December 10, the GoA published the decree in the Official Gazette (N1953),thereby formally giving the Ministry of Economy the authority to issue new bonds to exchange for the defaulted bonds that are expected to be surrendered in the upcoming offer to those who did not participate in the 2005 debt restructuring. Also, the GoA published on the same date in the Official Gazette the Law (N26.547) that suspends the so-called "Bolt Law" (Ley Cerrojo),a key legal step in the process leading up to the presentation of a formal offer to the holdouts. This Law was approved by Congress on November 18, but becomes effective with this publication. [Background: The Bolt law, originally approved in 2005, prevented the GoA from making additional offers to holdouts without prior authorization from the Congress.] Meanwhile, the GoA is still waiting for regulatory approvals from the Security and Exchange Commission (SEC) and a number of other international regulatory agencies in order to formally announce an offer. It is unclear whether these approvals will come in time to allow the GoA to launch the offer before the end of the year. Most analysts believe that the launch will not be initiated until January 2010 at the earliest. -------------- -- The GoA to use part of SDRs to pay the GDP warrant -------------- -- ¶3. (SBU) According to the local press, the GoA plans to use part of its $2.5 billion IMF Special Drawing Rights (SDR) allocation to meet the $1.2 billion payout on GDP warrants due on December 15. GDP warrants were attached to all the bonds -- Par, Discount and Quasi-Par -- issued in the 2005 GoA debt restructuring, and linked to GDP growth. That is, they pay when Argentina's economic growth exceeds a certain level. Six months after the settlement of the debt restructuring -- in November 2005 -- these units started to trade separately. The warrants pay the holders 5% of the value of excess GDP growth beyond a predetermined figure based on a forecasted trend, which has ranged from about 4.3% in 2005 to 3.2% in 2013, after which it stabilizes at 3%. This year's payment is related to 2008 growth, when the economy expanded by 6.8% according to INDEC. Given that the SDRs are not a currency, the only way to transform the SDR allocation into usable currency is to sell them to another central bank for hard dollars. On August 28, the IMF issued a total of $250 billion in SDRs to member countries in line with their shareholder stakes. BUENOS AIR 00001346 002 OF 002 -------------- -------------- -------------- Businessmen moderately optimistic on 2010 economic performance -------------- -------------- -------------- ¶4. (SBU) According to a survey entitled "Leader's Vision" published December 9 on El Cronista, businessmen are moderately optimistic regarding next year's economic performance. The main results of the survey, which was carried out among 200 businessmen, include: * About 40% of the businessmen surveyed expect GDP to grow 2-3%; in tandem, they expect to increase their sales, both domestically and internationally. However, they acknowledged that they would face higher costs and a negative business climate which could limit the investment necessary for stronger GDP growth. A third of those surveyed believed that growth would be limited to 0-2%. * 72% of those surveyed said that inflation will be 15% in 2010. Only 6% forecast inflation higher than 20%. * Inflation and non-adherence to the rule of law are the top concerns for businessmen, followed by government interference in setting prices and higher costs for their inputs. * About 65% do not foresee any changes in company payrolls. 18% said they would likely increase their payrolls by more than 10%, while 12% indicated they would increase them by less than 10%. * About 31% of the businessmen said they would invest to increase production, another 23% plan to invest to maintain production, and 17% will invest to reduce costs. 17% of those surveyed plan to invest to increase exports. Only 1% indicated that they had no plans to invest. MARTINEZ