VZCZCXYZ0012
PP RUEHWEB
DE RUEHBU #0791/01 1132108
ZNR UUUUU ZZH
P 232108Z APR 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 7927
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 6112
RUEHBR/AMEMBASSY BRASILIA PRIORITY 5972
RUEHCV/AMEMBASSY CARACAS PRIORITY 1196
RUEHGT/AMEMBASSY GUATEMALA PRIORITY 0191
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 6379
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 0357
RUEHVL/AMEMBASSY VILNIUS PRIORITY 0027
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3254
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY
UNCLAS BUENOS AIRES 000791
SIPDIS
SENSITIVE
SIPDIS
NSC FOR JOSE CARDENAS, ROD HUNTER
PASS FED BOARD OF GOVERNORS FOR KROSZNER, ROBITAILLE
PASS EXIM BANK FOR MICHELE WILKINS
PASS OPIC FOR JOHN SIMON, GEORGE SCHULTZ, RUTH ANN NICASTRI
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
E.O. 12958: N/A
TAGS: EFIN ECON EINV AR
SUBJECT: FOREIGN BANKS SEE STRONG GROWTH OPPORTUNITIES IN
ARGENTINA, BUT WEIGHED AGAINST AN UNPREDICTABLE OPERATING
ENVIRONMENT
Summary
-------
1. (SBU) Representatives of foreign banks operating in
Argentina praised the GoA's prudent fiscal policy, predicted
at least two more years of high growth, and discounted the
possibility of an external shock-led crisis anytime soon,
during an April 10 lunch for the Ambassador hosted by the
Argentine Bankers Association. Nevertheless, they
acknowledged that weak rule of law, inconsistent rules of the
game, and unpredictable government intervention in the
economy were deterrents to large-scale, long-term foreign
investment. The consensus was that the GoA would continue
with current policies after the October election, although
several predicted that President Kirchner would tighten
fiscal policy in 2008 after loosening the purse strings
during the election year. End Summary.
Foreign Banks Brief on Argentine Financial Sector
--------------------------------------------- ----
2. (SBU) The Argentine Bank Association (ABA) hosted the
Ambassador and Econoffs to lunch on April 10 to discuss the
state of Argentina's financial sector, their views on
opportunities and risks in the Argentine economy, and their
predictions on the sustainability of GoA economic policies.
Participants included ABA President Mario Vicens and
Presidents/Directors of the Argentine branches of JP Morgan
Chase Bank, American Express Bank, Citibank, Deutsche Bank,
HSBC Bank, BNP Paribas, Standard Bank, Banco do Brasil, Banco
Cetelem, BBVA Banco Frances, and Banco Rio de la Plata.
(Note: Founded in 1999, ABA's 37 members and associates
collectively employ over 20,000 and represent approximately
50% of Argentine banking sector assets, 55% of total
deposits, and 49% of total loans. End Note).
Banks Happy with Two More Years of High Growth
--------------------------------------------- -
3. (SBU) ABA President Vicens highlighted the positive
developments in Argentina's economy and financial sector.
Banks (foreign and domestic) have expanded rapidly following
the 2001/2002 financial crisis, mirroring the country's
strong economic recovery. (Note: Following massive
disintermediation in the wake of the crisis, total financial
system assets increased 110% in nominal terms from 2001 to
2006. Deposits grew almost 160% and loans 34% during the
same period. End Note). Vicens and others pres praised the
GoA's macroeconomic performance as prudent and cautious,
highlighting the importance of the primary fiscal and current
account surpluses -- both evidence of the high savings rate
in Argentina.
4. (SBU) Deutsche Bank's rep stated that, despite some
longer-term uncertainties, he thought most local analysts
were correct that the economy would continue growing at a
high rate through 2007 and 2008. Revealing their short-term
horizon, all present agreed that they would be happy if the
GoA's policies gave them two more good years.
5. (SBU) For the longer term, JP Morgan's rep noted that he
was unconcerned about external shocks, such as a fall in
commodity prices, causing problems for the economy. However,
JP Morgan was factoring political uncertainties into its risk
analysis for the market, including the Kirchner government's
growing ties to Chavez' Venezuela, tensions between Uruguay
and Argentina, and the GoA's recent bellicose statements and
actions with regards to the Malvinas (Falklands).
Nevertheless, JP Morgan and others argued that Argentina was
actually a safer bet for financial sector investments than
many other emerging market countries, given that it had
already gone through its default and another one was highly
unlikely for the foreseeable future.
"Short Term Policies Equal Short Term Investments"
--------------------------------------------- -----
6. (SBU) Vicens acknowledged that uncertainties related to
the GoA's interventionist tendencies, and willingness to
change laws, impose new regulations and taxes, and general
unpredictability, deterred investment and particularly
large-scale investment in sectors requiring a longer term
view (i.e., the energy sector). Others present noted that
the private sector responded to the GoA's short term focus
(on the October elections) with short term investments.
There is a lot of interest in relatively high-yielding
Argentine financial instruments, while investment in the real
economy is primarily in areas such as tourism and
construction, where quick turnaround is possible.
Post-Election Predictions
-------------------------
7. (SBU) Prompted by Ambassador's request for predictions for
post-October elections, the general consensus was that either
Nestor Kirchner or his wife Cristina would easily win the
Presidency, and neither would make significant changes to
current macro or micro policies. The most the JP Morgan rep
expected was for the fiscally conservative Kirchner to slow
down expenditures in 2008, after allowing spending to
increase rapidly in the run-up to the elections (Note:
Government expenditures are growing at a 40% pace so far in
2007, significantly faster than the also impressive growth in
revenues of about 30%. End Note). Vicens, echoed by several
others, also predicted that a Cristina Kirchner
administration would have a stronger focus on foreign affairs
and building Argentina's image abroad, but would not differ
significantly from the current administration in other ways.
WAYNE