Argentina: On the Road to London G-20

UNCLAS BUENOS AIRES 000369

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON ETRD KSUM PGOV AR
SUBJECT: Argentina: On the Road to London G-20

Ref: Buenos Airs 294, 230

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Summary
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1. (SBU) Argentine President Cristina Fernandez de Kirchner's
(CFK's) upbeat and cooperative participation in the March 27-28
Progressive Governance Summit in Chile should presage constructive
GoA positions at the upcoming G-20 summit. GoA officials highlight
CFK's "outstanding" bilaterals in Santiago with Vice President Biden
and British Prime Minister Brown, and claim the GoA supports all
U.S. G-20 positions except on IMF reform, where it seeks radically
reduced conditionality, not just increased IMF resources. There is
also discussion among GoA officials that, in anticipation of some
medium-term GoA need for IMF funding to offset its rapidly declining
tax base, some G-20 acknowledgement of prior "poor" IMF treatment of
Argentina as well as sufficient cosmetic G-20 mandated IMF reforms
could provide the Kirchner administration sufficient political cover
to return to the IMF. In line with the GoA's political
inclinations, CFK can be expected to push for an expanded role for
government oversight in the global economy. She also may criticize
developed nations for instigating the financial crisis and demand
progress on agricultural subsidies as a pre-condition for
re-starting WTO Doha round talks. Other GoA priorities include
rating agency reform, regulatory oversight of derivatives, and the
elimination of tax havens. Despite some policy differences, the
indications are that CFK wants to play a constructive role at the
summit, and broadly supports the U.S. call for fiscal stimulus to
revive global demand. End Summary.

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Previewing GoA Interventions at the G-20 Summit
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2. (SBU) GoA contacts and local media are presenting President
Cristina Fernandez de Kirchner's (CFK's) comments at the March 27-28
Progressive Governance Summit on causes and remedies for the global
financial crisis in Santiago, Chile as a preview of the GoA's
position at the upcoming G-20 London heads of state summit. GoA
Economy Ministry Secretary for Political Economy Martin Abeles, in a
March 30 conversation with EconCouns, called CFK's participation
there upbeat and constructive. He said that at this late date,
senior Economy Ministry and Central Bank officials anticipate that
at the London Summit, CFK will echo Brazilian President Lula's
criticism of the developed north for having instigated the global
financial crisis. He anticipated that she will demand that emerging
market economies like Argentina have ready access to
minimal-conditionality IFI financing to deal with the crisis'
fallout on domestic markets.


3. (SBU) Citing mutually reinforcing market failures that have
expanded the financial crisis' reach to the broader global economy
-- and true to the Kirchner administration's interventionist bent --
Abeles predicted that CFK will also insist that expanded government
participation in economic decision-making be an integral part of the
new global economic architecture. He confirmed that CFK will call
for rating agency reform, more regulatory oversight of derivative
securities, and a focus on eliminating global tax havens. On
protectionism, Abeles anticipated that CFK would hew to the GoA's
longstanding call for developed nation movement on agricultural
subsidies and recognition of the need for "proportional" gaps
between developing and developed nation movement on industrial
tariffs as pre-conditions for re-energizing the Doha trade round.

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CFK at Santiago Progressive Summit: More Worldly
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4. (SBU) Highlighting CFK's Santiago bilaterals with Vice President
Biden and British Prime Minister Brown, local media has been
contrasting her "agreement" with the USG and UK on the need for
concerted G-20 government action to recover global demand with
French and German concerns about the potential inflationary impact
of vastly expanded government spending. Media has also highlighted
CFK's agreement with the USG and UK on the need to reform the IMF,
expand lending capacity and efficiency of the MDBs (and particularly
the Inter-American Development Bank),and impose clear and
consistent global financial system oversight and regulation.


5. (SBU) Foreign Minister Taiana noted to media in Santiago that
both VP Biden and PM Brown had highlighted to CFK "Argentina's
experience in crisis (management) and its perseverance in demanding
changes in the IMF." According to Taiana, CFK replied to Biden that
"the Argentine system imploded in ways similar to what is now
happening on a global level, and so we have a certain expertise in
this theme. What is happening now in the world already happened, on
a smaller scale, in this region." In her direct comments to media
at the Santiago Summit, CFK criticized IFIs for not having given
advance warning of the crisis and called for their "profound reform
given their disorientation and lack of answers." She said that "to
allow the MDBs greater capacity, they must be reformed," and noted
that Argentina would propose that "important" new money be provided
to the World Bank and IDB for emerging economy infrastructure
projects. Finally, on trade policy, CFK is reported to have called
for developed countries to lift agricultural trade barriers,
including subsides.


6. (SBU) In a March 29 phone call to Ambassador, Argentine
Ambassador to the U.S. (and GoA Progressive Governance Summit and
G-20 Sherpa) Hector Timerman called CFK's meeting with Vice
President Biden outstanding and said that Argentina is broadly
supportive of all U.S. G-20 positions except IMF reform, where it
wants to go further than the U.S. Timerman explained that the GoA
wants to build in some acknowledgement of what it alleges to be the
IMF's past ill-treatment of Argentina. He added that CFK is very
supportive of the U.S. stimulus package and any other steps to get
the U.S. economy going as she sees this as essential for the world's
recovery.

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A Return to the IMF? Unlikely.
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7. (SBU) Notwithstanding the consistent GoA demonization of the IMF
in the aftermath of Argentina's 2001/2 economic implosion, there
appears to be a growing anticipation among Embassy contacts in the
Economy Ministry and Central Bank that some acknowledgement of prior
"poor" IMF treatment of Argentina as well as "cosmetic" G-20
mandated IMF reforms could provide sufficient political cover for
Argentina to return to the fold. Beyond voting share and management
reform to increase emerging market weight and decision-making
participation, a key GoA goal remains a relaxation of conditionality
-- likely in anticipation of some medium-term GoA need for IMF
funding to offset its rapidly declining tax base and a bunching of
sovereign debt maturities in the 2009-11 timeframe. (Comment: This
is consistent with GoA interventions on this point during the G-20
working group and Finance Minister meetings over the last few
months-- see septel.)


8. (SBU) Nevertheless, the likelihood that Argentina could become
eligible for the IMF's newly announced Flexible Lending Facility
(FCL) appears remote. In a conversation with Econcouns, IMF
Argentine ResRep Gaston Gelos (protect) recalled that the IMF's
spokesperson specifically highlighted in public comments that
Argentina was not eligible for the FCL's pre-cursor, the Short-Term
Liquidity Facility (SLF). And by any measure, Argentina does not
meet two of the key "pre-set qualification criteria" that the IMF
says are at the core of the FCL and that will serve to signal the
Fund's confidence in the qualifying member's policies and ability to
take corrective measures when needed. These are the Fund's
assessment that the member have: (1) a track record of steady
sovereign access to international capital markets at favorable
terms; and (2) data transparency and integrity. While the Fund has
clarified that "compensating factors, including corrective policy
measures under way," would be taken into account in the FCL
qualification process, local economists agree that it is hard to
imagine the GoA would be considered eligible absent an Article IV
review that commits the GoA to cleaning up its statistical
reporting.

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Comment
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9. (SBU) Local media and pundits have commented extensively on the
"accident of history" that included Argentina in the G-20 club when
it was formed a decade ago. This inclusion recognized Argentina's
status then as a star pupil of World Bank-designed privatization
efforts and reflected a Peso-US$ peg that overvalued Argentina's
share of dollar-weighted global commerce and GDP. These observers
have expressed concern that, at this second G-20 heads of state
meeting, CFK could take advantage of the exposure provided by the
summit to distinguish herself as a populist champion of the third
world railing against the inequities of modern capitalism.


10. (SBU) Those fears seem unlikely to be realized in the wake of
the warm Santiago bilateral meetings between President Kirchner and
VP Biden and PM Brown, along with constructive GoA contributions
over the past weeks in G-20 Summit working groups on IMF, MDB and
global financial architecture reform. CFK will most certainly
criticize the developed north for instigating the global financial
crisis. Her input on trade protectionism and IMF conditionality are
also likely to diverge from the USG's. However, the indications
coming out of the Santiago summit are that she wants to play a
constructive role overall, and broadly supports the U.S. and UK
focus on doing whatever it takes -- particularly using fiscal
stimulus -- to revive and expand global demand. We hope this proves
to be the case.

WAYNE