U.S. Court Lifting of Asset Freeze Calms Argentine Waters,

C O N F I D E N T I A L BUENOS AIRES 000025

SIPDIS

E.O. 12958: DECL: 2020/01/20
TAGS: ECON EFIN PREL PGOV AR
SUBJECT: U.S. Court Lifting of Asset Freeze Calms Argentine Waters,
but Political Fallout Continues

CLASSIFIED BY: Thomas P. Kelly, Charge; REASON: 1.4(B),(D)


1. (C) Summary: A New York District Judge's decision on January
15 to temporarily lift the freeze on Argentine Central Bank (BCRA)
reserves in the U.S. calmed the markets and appeared to give the
GoA some breathing room to resolve the issues of Martin Redrado's
fate as BCRA President and the future of the Bicentennial Fund
(BF). Still in question is the timing for the launch of the GoA's
debt swap offer to the remaining bond holdouts. BCRA Vice
President Pesce told CDA in a January 19 meeting that he and the
majority of the Board of Directors were now effectively running the
BCRA and that the current uncertainty over BCRA leadership and the
BF would be resolved in the coming weeks. Pesce's main concern is
to ensure the sanctity of BCRA reserves in U.S. financial markets
that avoids forcing a transfer to European markets with concomitant
disruption of Argentine commodity exports to 300 million global
customers. President Fernandez called a press conference on
January 19 to announce that she was postponing her trip to China,
saying that she could not leave Vice President Cobos, acting as a
"leader of the opposition" in charge of the government. At the
same time she announced that the issue of Redrado's status could be
reviewed by a Congressional committee, a concession to the
legislature that may still allow her government to push Redrado
out. End Summary.



Redrado Outvoted - and on His Way Out?




2. (SBU) The GOA is appealing a federal judge's decision to
reinstate Redrado as BCRA president. Meanwhile, on January 14,
BCRA directors, by a 6 to 2 vote, stripped Redrado of most of his
authority to act without prior board instructions. An unnamed BCRA
official was quoted in the press as saying that "before, everything
was done unilaterally; Redrado generally made these decisions
without referring to the Board." There are 10 voting members on the
BCRA Board, including Redrado (whose vote would break a tie). Six
of those members are perceived as Kirchner supporters, including
Pesce, whom CFK named as Redrado's interim replacement. CDA has
been told by several well-placed sources, including a former
Central Bank President and a well-connected private banker, that
Redrado probably won't stay in the job much longer; he's made his
point, won the initial legal skirmish, and burnished his reputation
by standing up to the Kirchners. They say that Redrado may find
untenable his position as embattled BCRA head, and that it may well
be increasingly difficult for him to withstand the pressure that is
applied on him. Nonetheless, Redrado struck a defiant note to the
press January 15: "They think they've killed me, but I think
they've committed suicide," he said in reference to his ongoing
conflict with the executive branch and BCRA Board .




3. (SBU) The banker told CDA that Mario Blejer is still willing to
take over the Central Bank, but only after Redrado's status
clarifies satisfactorily. According to news reports, Blejer has
said that he would only accept the position if he felt assured of
the BCRA's continued autonomy. Embassy contacts say Blejer has a
solid reputation and his appointment would reassure the financial
community; however, some opposition politicians have said they
would oppose his appointment in the current environment. There is
press speculation today that the Kirchners may sack Boudou because
of their pique about his mishandling of the crisis (Redrado
reportedly found out about his sacking via Blejer, after Boudou
approached him about replacing Redrado) and replace him with
Blejer, but Embassy contacts believe it is unlikely that Blejer
would take the job, which he reportedly turned down last year.
(Boudou got the job instead.)




4. (SBU) In New York, District Court judge Thomas Griesa lifted on
January 15 an embargo on BCRA funds he had placed earlier that
week, reportedly to give the parties time to talk and come to an
agreement. The BCRA had argued that BCRA funds should not be
attachable even if the proposed transfer of reserves to the GoA
eventually takes place. Redrado, in comments to local press on
January 15 observed: "If we had an adverse [final] ruling in the
U.S., we would be putting at risk not only funds that are in the
U.S. but those in every country in the world, and we are not going
to permit that."


Issue Splitting Opposition?




5. (C) The political opposition continues to seek a way to force a
discussion of the issue in Congress, but characteristically is
beginning to turn on itself. The legislature is in recess until
March, and CFK had previously refused to call an extraordinary
session; Cobos had stated that he would not take advantage of his
position as Acting President in CFK's absence in order to convoke
the Congress during CFK's trip to China that was set to begin on
January 25, before she cancelled it. Members of a Bicameral
Committee in Congress met January 13 to discuss presidential
decrees authorizing the transfer of over $6.5 billion of reserves
to the executive to make debt payments and firing BCRA President
Redrado, without reaching resolution. Following reportedly heated
words, the Committee split 8-8 on how to proceed, with CFK
supporters blocking attempts at achieving a quorum in Congress. The
efforts have created a rift in the opposition. Deputy (and 2007
presidential candidate) Elisa Carrio has accused Radical Senator
Gerardo Morales of carrying on secret negotiations with the
Kirchners; Morales denied the charges. Rumors persist that Morales
has offered Radical support for Redrado's removal in exchange for
an agreement to discuss Redrado's fate and the transfer of funds.
Officialists in the Congress apparently had their marching orders:
Lower House president Eduardo Fellner (a CFK supporter in the same
party),according to Clarin, has said that "If I call a session,
the crazy guy (i.e., Nestor Kirchner) will kick me out."



GoA Legal Counter-Offensive




6. (SBU) Osvaldo Guglielmino, Procurador General del Tesoro of
Argentina (Attorney General for financial matters),filed charges
of "fraudulent process" against federal judge Maria Jose Sarmiento
and opposition Congressman Federico Pinedo on January 14. The
judge made the initial rulings against Redrado's dismissal and
transfer of USD 6.57 billion of BCRA reserves to the BF in response
to a suit submitted by Pinedo (PRO party). Cabinet Chief Anibal
Fernandez justified to the press the GOA's filing of criminal
charges, pointing out that "everything Pinedo asked for, the judge
granted." Pinedo spoke to the press about the charges filed
against him January 14: "They want to put us all in jail. They'll
make it so we have a (congressional) quorum in jail so we can
debate the decrees there." Buenos Aires Mayor Mauricio Macri (a
likely 2011 presidential candidate from Pinedo's political party)
joined the fray, saying that "If it weren't for Pinedo's lawsuit,
they would have frozen $3 billion in Argentine funds [January 15].
They should thank him." (Historical footnote: Pinedo's grandfather
was Finance Minister in 1933-34 and 1940 and authored the BCRA's
original charter.)



BCRA VP Pesce: This Too Shall Pass




7. (C) The CDA, accompanied by ECouns, met January 19 with BCRA
Vice President Miguel Angel Pesce at Pesce's request. Pesce said
that the U.S. court decision to lift the freeze on BCRA reserves in
the U.S. was a very positive step that gives the GoA time to calmly
and deliberately resolve the BCRA leadership and Bicentennial Fund
issues. Pesce predicted that the Congress, Presidency, and Courts
would come to an agreement in the coming weeks through
consultations. Pesce said that he had the support of the majority
of BCRA Directors to effectively run the Central Bank as Interim
President and that Redrado will soon go. Pesce added that Redrado,
who has political aspirations and was scheduled to finish his BCRA
term in September, made a bad decision in challenging CFK on the BF
and his departure. Pesce believes the best result would be for him
to remain as interim BCRA President until Redrado's term expires in
September, at which time CFK can nominate a new BCRA President.
(Pesce seemed interested in getting the nod for a full term in
September as well.) He told CDA that what must be avoided at all
costs are further freezes on BCRA reserves in the U.S. that force
the BCRA to shift all of its reserves to Europe, with the potential
to seriously disrupt grain markets that would not only impact 40
million Argentines but Argentina's "300 million global customers."


He said that revenues for the sale of Argentina's soy crop,
expected to be the country's best ever, will begin to surge in
March.



Cristina Cancels Travel, Attacks VP Cobos




8. (U) Late on January 19, CFK gave a rare press conference to
discuss the crisis. She announced the cancellation of trip to
China because Vice President Cobos "is not fulfilling the role
imposed upon him by the Constitution, and has not only become the
leader of the opposition, but is opposing and obstructing measures
which are the jurisdiction of the President." However, she
acknowledged that she would ask Fellner to convene a bicameral
committee - where Cobos will apparently have the tiebreaking vote -
to discuss Redrado's tenure as BCRA President, though its opinion
would be non-binding. Notably, she refused to ask for a similar
committee or a special session of Congress to discuss the transfer
of BCRA reserves, though she indicated that Congress could discuss
it when it returns from recess in March. CFK also reiterated that
the planned debt swap offer to remaining holdouts was on track to
launch soon. During the question and answer period, CFK became
increasingly combative, chiding critics of her government's
economic policies, adding critical comments about the owners of
leading daily Clarin, and rebuking her handlers for allowing more
questions than she anticipated. She responded to a question about
whether Argentines can learn by the cross-the-aisles equanimity
displayed by Chilean politicians after the recent presidential
election there, "So you're saying that Chileans are better than
Argentines?"



Comment




9. (C) The lifting of the U.S. Court freeze on BCRA reserves and
Economy Minister Boudou's January 18 statement that the debt swap
offer remains on track has calmed the Argentine financial markets
for the moment, with JP Morgan predicting that the spread between
US Treasuries and Argentine bonds - which had widened during the
conflict - will once again narrow as the deal goes forward. The
President's concession to let Congress review the issue of Redrado
may in fact allow the GOA to get its way while shielding it from
the charge of acting autocratically. The Bicentennial Fund issue
may now be deferred until Congress reconvenes in March, and may
also reflect second thoughts by the GOA about the BF as currently
structured and its attendant legal vulnerabilities to U.S. vulture
funds holding defaulted Argentine bonds. CFK's postponement of a
major visit to China carries costs in terms of more perceived
inconsistency in Argentina foreign policy. It may well have been
motivated by a fear that Cobos would use his position as acting
executive to attempt some maneuver on the Redrado and BF issues,
but it may simply be part of the GOA leadership's effort to add
pressure on Cobos to resign.
KELLY