VZCZCXYZ0001
RR RUEHWEB
DE RUEHBU #1407/01 2881317
ZNR UUUUU ZZH
R 141317Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2231
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
UNCLAS BUENOS AIRES 001407
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: EFIN ECON EINV AR
SUBJECT: Argentina: GoA Pressures IDB for New Financing
Refs: Buenos Aires 1396, 1395, 1374, 1220
-------
Summary
-------
1. (SBU) IDB President Luis Moreno noted growing GoA fears that
global financial turmoil will exacerbate Argentina's already
restricted access to international credit. Following his meeting in
New York with President Christina Fernandez de Kirchner (CFK), the
GoA has requested that the IDB increase loan approval to US$2
billion/year with accelerated disbursements. IDB local ResRep
Daniel Oliveira reports "informal" IDB guidance to limit new credit
approvals to $1.5 billion per year due to strained IDB capacity.
According to Moreno, the IDB Board is reluctant to change current
lending policy toward Argentina. Olivera noted GoA pressure on the
IDB to re-initiate budget (vs. project) financing, but said that any
new IDB Policy-Based Lending would require an extensive
macro-economic review of the GoA economic policy framework that will
likely not be positive. Instead, the local IDB office is focusing
its energies on working with the GoA Ministries of Social
Development and of Labor to develop a $1.6 billion two-year project
to revamp Argentina's social safety net programs. On recent GoA
initiatives to normalize relations with bond holdouts, Moreno said
that Economy Minister Carlos Fernandez told him that holdouts
representing more than half of outstandings were "on board" with the
Barclays/Citi/Deutsche bank proposals. Moreno commented on a
growing consensus that Argentina's falling commodity prices augur
difficult economic challenges for Argentina, a topic that will
doubtless be on the minds of GoA participants in October 12-14 Bank
/Fund annual meeting in Washington. End Summary.
------------------------------------------
GoA Requests Accelerated IEB Disbursements
------------------------------------------
2. (SBU) IDB President Luis Moreno met with Ambassador October 7
during a brief visit to Buenos Aires on his way to Paraguay to
participate in the hemispheric "Vital Voices" conference here
(septel). Moreno noted growing GoA fears that global financial
turmoil will exacerbate Argentina's already restricted access to
international credit, and he speculated that the IDB will play a
more prominent role in the broader WHA region as the international
financial crisis unfolds and private sector credit availability
tightens. He said that, following his late September UNGA-margin
meeting in New York with President Christina Fernandez de Kirchner
(CFK), the GoA has requested the IDB increase loan approval to US$2
billion/year with accelerated disbursements. According to Moreno,
the IDB Board is reluctant to change current lending policy toward
Argentina.
3. (SBU) In a September meeting with EconCouns, IDB ResRep Daniel
Olivera (protect) noted that, while $2.5 billion in new project
loans were approved by the IDB Board in 2007, his Argentine IDB
mission is under "informal" guidance from its Washington
headquarters to limit new approvals to $1.5 billion per year for the
next few years, largely because increased demand for IDB funding
throughout the hemisphere is straining Bank capacity. Oliveira said
that IDB disbursements to Argentina in 2008 to date total $1.1
billion while GoA re-payments in 2007 totaled some $1 billion in
principal and $500 million in interest. With a total current IDB
exposure to Argentina in the $6 billion range, the IDB, Oliveira
said, has an informal agreement with the GoA to keep new
disbursements and payment roughly cash neutral.
----------------------------------------
Re-Vamping Argentina's Social Safely Net
----------------------------------------
4. (SBU) Olivera noted to EconCouns continuing GoA pressure on the
IDB to reinitiate budget (vs. project) financing, but said that new
IDB Policy-Based Lending (PBL) programs are unlikely, since they
would require an extensive macroeconomic review of the GoA economic
policy framework that would not be positive. Instead, the local IDB
office is focusing its energies on working with the Ministries of
Social Development and of Labor to develop a wholesale revamp of the
nation's social safety net programs: this would involve the IDB
funding a $1.6 billion, two-year program (to be presented to the IDB
Board in 2009) to reorganize and rationalize "Family Plans"
currently funded through the Social Development Ministry; phase out
the "Head of Household" programs currently funded by the World Bank
(and considered a vehicle for political patronage to provincial
mayors and union groups);, and rework both unemployment insurance
(under the Ministry of Labor) and the part of public pension
dedicated to the poor (currently under social security
administration ANSES).
--------------------------------------------- ----
Moreno on GoA Bond Holdout Normalization & Crisis
--------------------------------------------- ----
4. (SBU) On recent GoA initiatives to reenter the international
credit markets by paying down Paris Club arrears (Ref A) and
normalize relations with bond holdouts (Refs B,C), Moreno said that
Minister Carlos Fernandez had told him that holdouts representing
more than half of outstandings (roughly $10 billion of $20 billion
in original principal) were "on board" with the
Barclays/Citi/Deutsche bank proposals. (This accords with
information Post has received independently from local bankers.)
5. (SBU) Moreno commented on growing signs of private sector
antagonism towards the GoA based on populist economic policies
driving inflation, bad regulation, and strong and combative labor
unions. Ambassador noted that new Chief of Cabinet Sergio Massa is
seen here as an advocate steering GOA policy-making towards more
productive interaction with Argentina's private sector. Moreno
commented on a growing consensus that Argentina falling commodity
prices augur difficult economic challenges for Argentina, a topic
that will doubtless be on the minds of GoA participants in October
12-14 Bank/Fund annual meeting in Washington. Moreno noted that, on
his recent trip to Europe to meet with Nordic shareholders, there
was a growing consensus on the need for governments to take quick,
coordinated action is essential to stabilize markets and build
confidence. Similar coordination and consensus building will be
needed in Latin America, he concluded.
-------
Comment
-------
6. (SBU) The GoA sees additional multilateral development bank
resources for Argentina, including direct budget lending, as an
important component of a funding package to see the nation through
2009/2010 spikes in debt maturities (Reftels). But Argentina
already represents the IDB's second largest exposure after Brazil,
and the global financial crisis will doubtless expand calls for
limited IDB funding resources by other hemispheric members.
Moreno's statement that the IDB Board is reluctant to change current
lending policy toward Argentina is telling. It appears unlikely
that the large quantities of new front-loaded disbursements the GoA
is seeking will be forthcoming.
WAYNE