VZCZCXYZ0000
RR RUEHWEB
DE RUEHBU #1514/01 2151936
ZNR UUUUU ZZH
R 031936Z AUG 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 8819
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6416
RUEHMN/AMEMBASSY MONTEVIDEO 6626
RUEHSG/AMEMBASSY SANTIAGO 0636
RUEHBR/AMEMBASSY BRASILIA 6274
RUEHSG/AMEMBASSY SANTIAGO 0637
RUEHLP/AMEMBASSY LA PAZ AUG SAO PAULO 3453
RUEHRI/AMCONSUL RIO DE JANEIRO 2294
UNCLAS BUENOS AIRES 001514
SIPDIS
SIPDIS
SENSITIVE
EB/OMA FOR ASIROTIC, IDETWEILER
EB/ESC/IEC/EPC FOR MMCMANUS, JIZZO
WHA/EPSC FOR PMEIER
E FOR THOMAS PIERCE
PASS NSC FOR DPRICE, MSMART
PASS USTR FOR KATHERINE DUCKWORTH AND MARY SULLIVAN
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
TREASURY FOR NLEE AND LTRAN
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD
E.O. 12958: N/A
TAGS: EINV ECON ENRG EPET PREL AR
SUBJECT: PRESIDENT CHAVEZ'S AUGUST 6 VISIT TO ARGENTINA: BONDS,
ENERGY, BOLIVARIAN FRATERNITY
Ref: (a) Buenos Aires 1415
(b) Buenos Aires 311
(c) Caracas 1518
(d) Buenos Aires 55
(e) 06 Buenos Aires 2240
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Summary
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1. (SBU) President Chavez arrives in Buenos Aires August 6 for a
meeting with President Kirchner en route to Bolivia. The agenda
will be principally economic: the issuance of a third tranche of
the joint GoA/GoV "Bono del Sur" valued at up to US$1 billion will
be announced. Other likely announcements will include the proposed
joint construction of an LNG de-gasification plant in Argentina, the
sale of Venezuelan diesel fuel to Argentina to address current
shortages, and Argentine technical assistance in the construction of
new industrial good factories in Venezuela. Our GoA contacts
continue to emphasize that Argentina's relationship with Caracas
remains pragmatic and principally driven by economic considerations,
and that they share neither Chavez's social ideology nor his
Bolivarian ambitions.
END SUMMARY
2. (U) President Chavez arrives the afternoon of Monday, August 6 in
Buenos Aires for a dinner meeting with President Kirchner and first
lady Cristina Kirchner, following which agreements on a new tranche
of GoV-supported financing and agreements in the energy sector are
to be announced. Chavez is scheduled to depart Buenos Aires for
Bolivia early Tuesday morning.
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Argentina Seeks Additional GoV Bond Support
-------------------------------------------
3. (SBU) Argentine and Venezuelan media are reporting Presidents
Chavez and Kirchner will announce the issuance of a third tranche of
the "Bono del Sur" during Chavez' visit. Although the press reports
that GoA Finance Secretary Sergio Chodos recently returned from Bono
del Sur negotiations in Caracas, Post's contacts at the GoA Economy
Ministry cannot (or will not) confirm that the two governments have
concluded an agreement on the issuance. Nevertheless, media reports
speculate that it will consist of US$500 million from each country,
or US$1 billion total, possibly followed up later in the year with
two more issuances of $500 million (or $250 million each).
4. (SBU) Local analysts have questioned why the GoA would want to
move forward with this issuance now, given recent increases in
Argentina's country risk premium and GoA public statements that it
currently has sufficient funds to cover expected expenditures for
the remainder of 2007. If the GoA were to sell dollar-denominated
Boden 2015 (7-year) bonds to the GoV at current market prices, it
would pay a yield of about 10.4%, 240 basis points higher than rates
for equivalent maturity bonds paid in February. It would seem more
prudent to give the markets time to settle, and issue after country
risk spreads have fallen (as most analysts expect will happen over
the next few months).
5. (SBU) NOTE: Although both the GoA and GoV trumpet the Bono del
Sur as a vehicle for Venezuela to help Argentina, the benefit to
Argentina is limited at best. The instrument appears more of a
political creation than a financial instrument, since the the Bono
is simply a packaging of normal Argentine and Venezuelan bonds that
money center market players strip out upon purchase. From the GoA's
perspective, there is no/no difference between issuing bonds in a
private placement to Venezuela or just selling them via local
auction, since the end buyers are the same (international banks,
hedge funds) and they are both issued at market rates. On the other
hand, Venezuela -- or at least the GoV and connected Venezuelan
banks -- does derive some benefit from the transaction, by using the
sale of the Argentine bonds to manipulate the difference in official
and parallel exchange rates. END NOTE.
6. (SBU) Although the GoA does not appear to benefit economically
from the Bono del Sur, it has benefited from overall GoV purchases
of Argentine bonds, particularly the first GoV purchases in 2005.
AT that time there was less interest in Argentine bonds and the
Venezuela placements helped widen the market (given Argentina's
inability to issue debt under international law). Since May 2005,
the GoA has issued $5.5 billion in debt to the GoV, of which 23% or
$1.2 billion has been included in Bono del Sur issuances. For the
first tranche, in November 2006, the GoA issued $500 million of
dollar-denominated Boden 2012s (5-year) and Boden 2015s (7-year).
The GoA issued $750 million of Boden 2015s for the second tranche in
February 2007.
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Likely Energy Sector Accords
----------------------------
7. (SBU) Local media is reporting that Chavez/Kirchner will announce
the launch of a $400 million LNG re-gasification plant for
Argentina, jointly owned by the GoV's PdVSA and Argentina's new
state-owned energy company ENARSA. Further accords may be announced
on the Argentine purchase of Venezuelan diesel fuel, given recent
diesel shortfalls in Argentina exacerbated by the increased private
sector demand to fuel private generators during the energy crisis
(Ref A).
8. (SBU) NOTE: The announcement of a possible LNG project talks
comes as a surprise to most local energy analysts, who question the
project timing, and its lowball US$400 million price tag. They say
that $1.2 billion is more realistic budget for an LNG receiving port
degasification train. Analysts speculate that the LNG project
announcement is designed to blunt the public relations fallout from
the poor reception Chavez's proposal to build a natural gas pipeline
across the continent has received from Mercosur countries, including
Brazil. Local media reports that, in a recent televised speech,
Chavez complained the plans for a 5,600-mile pipeline "was frozen,"
adding he proposed building it for political rather than economic
reasons. Experts say the pipeline, which would be one of the
world's longest, would be a huge technical challenge that could cost
as much as $40 billion. "I'm sure these difficulties are the
product of the empire's actions," Chavez is quoted as saying, an
apparent allusion to supposed U.S. interference. He also is
reported to have accused U.S. officials of "buying" and
"blackmailing" government officials within Mercosur to prevent
Venezuela's entry, saying, "They are on a strong offensive." END
NOTE
9. (SBU) Local energy analysts also speculate there may be further
discussion of the February 2007 agreement to have GoA national oil
company ENARSA work jointly with PdVSA to explore and develop
Ayacucho upstream exploration block in Venezuela's Orinoco region.
--------------------------------------------- ---
GoV Industrialization: Argentine Tech Assistance
--------------------------------------------- ---
10. (SBU) Local media is reporting that Enrique Martinez, President
of the Argentinean National Institute of Technology (INTA), met last
week in Caracas with President Chavez to discuss Argentine technical
assistance in the construction of new industrial good factories in
Venezuela. A total of 56 projects of industrial development were
discussed during the meeting, according to the president of INTA,
including 12 companies to be dedicated to the production of home
furniture and appliances for the Venezuelan market.
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Comment
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11. (SBU) Chief of Cabinet Alberto Fernandez previewed the Chavez
visit in an August 2 radio interview, saying "They've always been
there when we needed them - Argentines should keep that in mind."
The announcement of another round of Venezuelan debt funding appears
to be the key GoV deliverable President Kirchner hopes to take away
from this visit. Our Foreign Ministry contacts continue to tell us
that the relationship with Caracas remains principally commercial,
and that they don't share Chavez's ideology or put much stock in his
Bolivarian ambitions. The GoA will continue to exploit what they
see as an important economic relationship with Venezuela while
downplaying, at least to the U.S., its political significance.
WAYNE