Argentina Economic and Financial Review, Jan 22-28, 2010

UNCLAS SECTION 01 OF 04 BUENOS AIRES 000096 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON EINV ETRD ELAB EAIR AR SUBJECT: Argentina Economic and Financial Review, Jan 22-28, 2010 REF: 09 BUENOS AIRES 1175 ¶1. (U) Provided below is Embassy Buenos Aires' Economic and Financial Review covering the period January 22-28, 2010. 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. -------------- -------------- -------------- GoA unlikely to launch holdout offer before March -------------- -------------- -------------- ¶2. (SBU) The US Security and Exchange Commission (SEC) started January 27 to analyze the answers submitted by the GoA to a number of SEC queries regarding the GoA's proposed offer to the holdouts who did not participate in the 2005 debt restructuring. This process could take some time and might generate additional questions. During the lead-up to the 2005 debt exchange, there were three such information exchanges that preceded the launching of the transaction. Consequently, the GoA is now reportedly working under the assumption that the launching of the debt swap will be delayed until March. -------------- -------------- -------------- Congressional Bicameral Commission Examining GoA request to remove BCRA President -------------- -------------- -------------- ¶3. (SBU) The Congressional Budget and Finance Bicameral Commission held its first meeting on January 26 to examine the GoA's request to remove (now former) Central Bank President Martin Redrado from office for reasons of malpractice. While the final opinion/recommendation of the commission is non-binding, the GoA is legally required to consult the commission before being allowed to remove the Central Bank President. So far, the commission has met with Minister of Economy Amado Boudou, Acting Central Bank President Miguel Pesce, (now former) Treasury Attorney Guillermo Guglielmino, and Redrado. At this point, it is unclear whether the testimony and information-gathering phase of the proceedings is complete. If it is, the Commission might issue an opinion during the first week of February. -------------- -------------- -------------- BCRA reserves will not go to Bicentennial Fund until Congress debates the issue -------------- -------------- -------------- ¶4. (SBU) On January 22, the Court of Appeals ratified an earlier decision that Central Bank reserves cannot be used to fund the Bicentennial Fund without Congressional approval of the "emergency" presidential decree (DNU -decree of necessity and urgency) that created it. The Court of Appeals also ruled that the GoA cannot appoint a permanent replacement for Martin Redrado without consulting with the Congress. Meanwhile, Central Bank Vice-President Miguel Angel Pesce took over as acting President of BUENOS AIR 00000096 002 OF 004 the Central Bank on January 22. Following the Court of Appeals decision re the use of BCRA reserves, the GoA reportedly started signaling that it may call Congress into session during the February recess to deal with this issue. In statements to the press on January 27, Minister of Economy Amado Boudou insisted that "the GoA will continue working to implement the Bicentennial Fund as it was designed using the Central Bank reserves to pay 2010 debt obligations." -------------- -------------- -------------- Treasury Attorney Guglielmino to be replaced by Da Rocha -------------- -------------- -------------- ¶5. (SBU) On January 27, Treasury Attorney Osvaldo Guglielmino presented his resignation for "personal reasons." Press reports, presumably sourced from the government, said that he was fired after his lackluster performance defending the GoA position before a Congressional committee investigating the BCRA leadership controversy. Many private analysts claim, however, that he is being scapegoated for the BCRA fiasco and the failure, so far, to implement the Bicentennial Fund. His successor, named on January 28, is Joaquin Da Rocha, a lawyer who is reportedly close to Chief of Cabinet Anibal Fernandez. He has recently been working at his own law firm and as an advisor to Minister of Justice, Security and Human Rights Julio Alak. Previously, he worked as Undersecretary of Justice for the Province of Buenos Aires (1988-1991) and as the government representative to the Council of Magistrates (2003-2006). ¶6. (SBU) Background: The Treasury Attorney (Procurador General del Tesoro) enjoys the rank of "Minister" and heads the legal office working to defend the interests of the Argentine State in foreign jurisdictions and international tribunals. The Treasury Attorney leads Argentina's defense against all arbitration claims filed by foreign firms against Argentina through the World Bank's International Center for Settlement of Investment Disputes (ICSID) and within the Argentine legal system, and is the main legal advisor to the President. -------------- -------------- -------------- ATFA Holdouts seek BCRA reserves deposited at BIS -------------- -------------- -------------- ¶7. (SBU) On January 26, local daily Ambito Financiero reported that American Task Force for Argentina (ATFA) is asking the Bank for International Settlements (BIS) for access to the US$40 billion in reserves that Argentina has deposited in the entity. According to ATFA representative Robert Shapiro, the GoA is using the BIS to hide money from judicial orders around the world. He stated that: "the President (CFK) can escape from legal decisions, but she can't degrade and debase an international financial institution to do it. Argentina is using the BIS and abusing its international role in order to evade court judgments in the U.S., Italy, Japan, England and France." Reportedly, ATFA is seeking to reach out to the U.S. Treasury and to European Central banks for their support. Argentina reportedly has about 80% of its US$48 billion in reserves at the BIS, compared to a 4% average for other countries. -------------- -------------- -------------- Trade Surplus reaches US$ 16.9 billion in 2009 BUENOS AIR 00000096 003 OF 004 -------------- -------------- -------------- ¶8. (SBU) The National Statistical Agency (INDEC) announced January 22 a 2009 trade surplus of US$ 16.9 billion. There was a substantial drop in overall trade volumes compared to 2008. The US$ 55.7 billion in exports and US$38.7 billion in imports represented drops of 20% y-o-y and 32% y-o-y, respectively, compared to 2008. The Mercosur region remained the GoA's main trade partner, accounting for 25% of its exports and 34% of its imports. Economic analyst Mauricio Claver???? of Abeceb.com declared that "there is nothing to be pleased about" - as the surplus "was a product of the historic contraction of international commerce, where Argentine exports dropped significantly, albeit less than the imports." Notwithstanding the diminished international trade volumes for the year, December was a good month, during which Argentina exported US$ 4.8 billion and imported US$ 3.6 billion, a rise of 17% and 4%, respectively, over December 2008. Most Argentine economists expect trade volumes to continue increasing in 2010 as the global economic recovery continues. -------------- -------------- -------------- EMAE increased in November for the third consecutive month -------------- -------------- -------------- ¶9. (SBU) The National Statistics Agency (INDEC) announced January 15 that the Monthly Economic activity index (EMAE - a proxy for real GDP growth) increased 2.2% y-o-y during November, considerably more than the approximately 0.8% circulated by some private sector analysts. The INDEC figure represents the third month in a row of an increased rate of growth (0.4% and 0.6% in the previous two months). There was no y-o-y variation in August, and the index decreased between May and July 2009. November EMAE's positive result was mainly driven by a rise in exports, especially in the automobile sector. ¶10. (SBU) According to INDEC, in the first eleven months of the year, EMAE increased a cumulative 0.5% y-o-y, and the GoA made a preliminary announcement that 2009 GDP growth was in the 0.9% range. Private analysts are predicting a strong recovery in 2010, with GDP growth of about 4%. -------------- -------------- -------------- Business climate improves, but inflation, political uncertainty still major concerns -------------- -------------- -------------- ¶11. (SBU) On January 20, SEL Consultores released the results of its business climate survey in Argentina, and its comparison with the rest of the region. The survey, conducted with 146 company directors and managers of large- and medium-size enterprises, covers the fourth quarter of 2009. The following points summarize the companies' expectations for 2010, as indicated in the Sel survey: - The surveyed companies estimated an average GDP increase of 3.9% for 2010. Expectations regarding their own companies' growth were milder, with 66% of respondents expecting their situation to improve this year. Both results constitute an improvement over the previous survey. BUENOS AIR 00000096 004 OF 004 - Companies reported that their main concerns are inflation and cost increases (69%),compared to only 31% in the previous survey. Average expected inflation is 17%, 11 points higher than official forecasts. Average expected salary increases are about 16%. On a macroeconomic level, respondents highlighted as their main concerns: legal uncertainty and state intervention (55%),lack of confidence and general instability (53%),and inflation (51%). - 40% of the firms will increase investment in 2010; 48% of this group will focus on maintenance or company reorganization plans, with no significant technological innovation. 45% of the firms will not change their investment levels at all, and 59% claimed that the political context and government actions negatively affected their investment decisions. - 74% of the surveyed companies forecasts sales increases in 2010. 66% estimated growth below10% (sales growth expectations averaged 7.5%). With regard to the labor market, 28% of the companies reduced their headcount in 2009. For 2010, 64% of the companies plan to keep their current headcount, while 30% said they will hire new personnel, increasing their workforces by about 1.5%. These results reflect low employment-product elasticity, and indicate that employment is not expected to return to pre-crisis levels. - 48% of surveyed directors referred to the investment climate as "regular", while 49% describe it as "negative". According to the survey, these perceptions are based on: legal uncertainty (81%), state intervention (44%),general instability (42%) and labor union problems (20%). 51% of those surveyed believe that 2009's investment climate worsened compared to 2008. Only 34% of the surveyed companies think that it will improve in 2010. - Argentina's institutional framework for investment is regarded as less favorable than in Brazil, Chile, Uruguay and Mexico. It is considered superior only to that in Venezuela. MARTINEZ