VZCZCXYZ0009
RR RUEHWEB
DE RUEHBU #1398/01 2832030
ZNR UUUUU ZZH
R 092030Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2219
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
UNCLAS BUENOS AIRES 001398
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV AR
SUBJECT: Argentina Structures Modest Development Bank on Brazil
BNDES Model
Ref: Sao Paulo 522
Buenos Aires 1374
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Summary
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1. (SBU) Former Economy Minister Miguel Peirano is now working to
transform Argentina's state-owned Bank for Commerce and External
Trade (BICE) into a development bank on the model of Brazil's BNDES.
He argues that countries with such unstable economic and financial
histories as Argentina and Brazil need state development bank
institutions to provide the kinds of long-term infrastructure
finance that would otherwise be unavailable from private sector
sources. Peirano is seeking substantial new capital and long-term
loan financing in the US$500 - $600 million range from regional
development bank CAF and from the IDB, but does not see BICE growing
into the sort of behemoth that BNDES has become. Nor does he see
BICE challenging the hegemony of Argentina's two major state-owned
lending banks, Banco de la Nacion and Banco de la Provincia de
Buenos Aires. Instead, BICE will focus on "cautious" long-term
lending of 8-10 year money to Argentine private and public sector
projects, primarily through other Argentine banks to use their
management, credit analysis resources, and branch networks as force
multipliers. Peirano called "pragmatic" the GoA's establishment of
Coordinating Table to organize GoA-wide management of currency,
trade, budget, and debt policies in response to the international
financial crisis. A long-time promoter of building and protecting
Argentina's industrial capacity, Peirano favors a "competitive"
Argentine currency in the face of recent devaluations of the
Brazilian real. End Summary.
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Former Economy Minister to Build Development Bank
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2. (SBU) In an October 7 meeting with Ambassador, former Economy
Minister and current Banco de Inversion y Comercio Exterior (BICE)
President Miguel Peirano reviewed his efforts to transform this
little known state-owned entity into a substantial development bank
that will help meet Argentine industry's need for long term
capital.
3. (SBU) BICE is a public entity created in 1991 with a mandate to
finance productive investment, infrastructure and trade. Under
Argentine financial regulation, it is "second-story" financial
entity, authorized to conduct all commercial banking activities with
the exception of taking deposits. It finances its longer-term
lending via issues of debt securities and credit lines from other
banks and IFIs. BICE is currently a small player in Argentina's
financial system: with total assets (as of May 2008) of +/- US$ 500
million, it holds only 0.5% of total financial system assets.
Peirano highlighted that BICE holds one of the lowest loan
delinquency rates in the Argentine banking system.
4. (SBU) Peirano outlined ambitious plans to substantially boost
BICE's domestic profile by seeking substantial new capital and long
term loan financing in the US$500 - $600 million range. He plans to
seek the funding mainly from regional development bank CAF
(Corporacion Andina de Fomento) and the Inter-American Development
Bank (IDB). The Development Bank of China, Peirano noted, had just
provided BICE with US$ 35 million in unconditioned long-term funding
(10-year at Libor) for on-lending to Argentine companies.
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Molding Development Bank on BNDES Model
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5. (SBU) Peirano hopes to build BICE into an Argentine development
bank on the Brazilian Banco Nacional de Desenvolvimiento (BNDES)
model. He recalled that President Cristina Fernandez de Kirchner
and Brazilian President Lula da Silva had signed agreements during
September meetings in Buenos Aires that called for joint financing
of bilateral integration projects. Following this accord, Peirano
said he met with his BNDES counterpart to set up regional
integration project financing working groups.
6. (SBU) Countries with such unstable economic and financial
histories such as Argentina and Brazil need state development bank
institutions to provide the kinds of long term infrastructure
finance that would otherwise be unavailable from private sector
sources, Periano said. Given their very short term deposit base, he
said, private Argentine banks are only willing to lend out 3-4
years, an inadequate tenor to support investment in new plant and
capital equipment.
7. (SBU) Peirano does not see BICE growing into the sort of behemoth
that BNDES has become - he noted that BNDES had extended over US$50
billion in credits over the past year. (Ref A notes BNDES disbursed
a full 17% of total credits in Brazil in 2007, 40% for
infrastructure projects, and 30% for private sector manufacturing
and industrial projects.) Nor does Peirano see BICE challenging the
hegemony of Argentina's two major state-owned lending banks, Banco
de la Nacion (federally owned) and Banco de la Provincia de Buenos
Aires (provincially owned), which together account for 35% of system
deposits and 20% of total lending in Argentina. Instead, he said,
BICE will focus on "cautious" long-term lending of 8-10 year money
to support Argentine private and public sector infrastructure and
industrial development projects.
8. (SBU) Peirano plans to do this primarily through other Argentine
banks, in order to use their management, credit analysis resources,
and branch networks as force multipliers. "Reasonable" interest
rates would be subsidized by retained earnings. In answer to
Ambassador's questions on lessons learned from the failure of
Argentina's earlier development bank BANADE (Banca Nacional de
Desarrollo), Peirano agreed that asset concentration and corruption
were contributing factors to BANADE's demise. (BANADE, created in
1970, was liquidated in 1993 due to solvency and financial problems.
BANADE was implicated in corruption scandals and had a portfolio of
unpaid loans in judicial process for ARP 5.7 billion, of which a
full 60% were concentrated in only 20 companies. In October 2005,
Banade was finally closed via a resolution from then-Economy
Minister Lavagna.)
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Peirano on GoA's Financial Crisis Management
--------------------------------------------
9. (SBU) Peirano called "pragmatic" the GoA's move to establish an
inter-agency "Coordinating Table" chaired by Chief of Cabinet Sergio
Massa. The group, to include senior Economy Ministry, Central Bank,
and financial sector regulatory officials, will organize GoA-wide
management of currency, trade, budget, and debt policies in response
to the international financial crisis. "Better a coordinating table
than a crisis committee, no?" he quipped. Peirano made clear he
favored a "competitive" Argentine currency in the face of recent
devaluations of the Brazilian real (Ref B). He called China's huge
trade and capital flows a "threat" to global markets and called for
a new global financial regulatory system to monitor and control
potentially destabilizing capital flows.
10. (SBU) Finally, Peirano noted his warm relations with the U.S.
Embassy, first as Industries Secretary, later as Economy Minister
and currently as BICE President. "Argentina has got to stay close
to the United States and Brazil - I've always said this."
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Peirano Background and Bio Material
-----------------------------------
11. (SBU) Miguel Peirano was appointed to head BICE (Banco de
Inversisn y Comercio Exterior) in April 2008. Prior to that he
served as Minster of Economy from July - December 2007, elevated
from his Secretary of Industry post to replace the scandal-weakened
Felicia Miceli. Analysts agreed that Peirano was selected for the
Minister position as a loyal, non-controversial placeholder to see
the Kirchner administration through to October 2007 elections and to
signal continuity of the GoA's signature economic policy formula
that promotes consumption-led growth (via price controls and
subsidies) and protects job-creating industrial development (via
"administered" trade and a "competitive" undervalued currency). In
a cabinet increasingly riven by factional strife between Planning
Minister De Vido and then-Chief of Cabinet Fernandez, Peirano was
reportedly on good terms with all key inner-circle players,
including De Vido, Fernandez, Presidential Legal Secretary Zannini,
and Central Bank Governor Redrado. Although initially touted as the
lead candidate for Economy Minister in the follow-on a Cristina
Fernandez de Kirchner administration, Peirano resigned in December
2007 after publicly battling with Internal Commerce Secretary
Guillermo Moreno over control of Argentine national statistics
agency INDEC.
12. (SBU) As Economy Minister, Peirano retained the majority of the
Economy Ministry's appointed lieutenants and publicly affirmed key
GoA economic policy tenets. He called widely questioned lowball
official inflation statistics "credible," the energy crisis
"manageable," and protection of Argentina's growing industrial base
"fundamental" to the nation's welfare. Young (43), single, and a
reputed workaholic, Perano shares a strong industrial policy bias
with Planning Minister De Vido. He was previously well known to the
Embassy's Economic Section from his tenure as the Economy Ministry's
Industry Secretary, where his mandate was to promote the rapid
growth and consolidation of Argentina's industrial base by shielding
it from international competition via a hard line on WTO Doha NAMA
trade negotiations and by policing a series of "voluntary" private
sector and otherwise managed trade agreements with Mercosur
neighbors. In discussions with EconCouns, Peirano's points were:
(1) Argentina requires a diverse and deep industrial base to
increase domestic value-added and decrease Argentina's dependence on
primary commodity (primarily agricultural) exports; (2) current high
global commodity prices are a probably transient phenomena to be
enjoyed and exploited via high export tariffs on primary commodity
exports. These windfall revenues are providing the GoA the
wherewithal to provide targeted subsidies to develop this industry.
These subsidies, including domestic energy prices well below world
market levels, combine with a dedicated policy to maintain
Argentina's currency. A strong industrial base, in Peirano's view,
is the key to improving the terms of trade that will see middle
income Argentina increase its wealth base to eventually graduate
into the ranks of developed nations.
13. (SBU) Prior to entering the Ministry in 2003 under ex-Economy
Minister Roberto Lavagna, Peirano served as an economic advisor to
the powerful Argentine Industrial Union (UIA), whose senior
membership -- a "who's who" of Argentina's industrial oligarchy --
celebrated his ascension. While at UIA, Peirano also worked as an
advisor to the chamber of footwear (1996-1999) and the chamber of
wood products (1999-2001). Peirano has advised the Banco de la
Provincia de Buenos Aires Board (1999-2001), the City of Buenos
Aires Government's Directorate of Industry (1997-1998) and the
Buenos Aires City Business Association (1998-2000). After
graduating with honors in Economics in the early 1990s from the
Universidad Nacional de Buenos Aires (UBA), he worked on financial
issues at Techint International for two years.
WAYNE