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UNCLAS SECTION 01 OF 03 BUENOS AIRES 001207
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: ARGENTINA ECONOMIC AND FINANCIAL REVIEW, OCTOBER
30-NOVEMBER 5, 2009
1. (U) Provided below is Embassy Buenos Aires' Economic and
Financial Review covering the period October 30-November 5, 2009.
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.
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DEPUTIES APPROVE THE SUSPENSION OF THE "BOLT LAW"
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2. (SBU) On November 4, the Chamber of Deputies approved a bill to
suspend the so-called "Bolt Law" (Ley Cerrojo), approved in 2005 as
part of the original debt restructuring. The bill passed handily,
with widespread support from the Frente para La Victoria party, the
radical party (UCR), the PRO, and the Union Peronista. 165 Deputies
supported, 28 opposed, and five abstained. The bill has moved to
the Senate, where approval is expected within the next two weeks.
[Background: The law prevents the GoA from making additional offers
to holdouts who did not participate in the 2005 debt restructuring
without prior authorization from the Congress. For additional
background, see October 29 Argentina Economic and Financial
Report.]
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WEAK OCTOBER TAX COLLECTION UP ONLY 8.8% Y-O-Y
--------------------------------------------- -
3. (SBU) The GoA announced November 3 that October tax collection
increased a disappointing 8.8% y-o-y to ARP 26.4 billion, in line
with the BCRA consensus survey estimate of ARP 26.5 billion. This
was the second lowest increase this year. Considered in real terms,
with annual inflation of 15-17% according to most private analysts,
the result appears even worse. Furthermore when excluding social
security administration revenues, which have jumped 52% y-o-y due to
the nationalization of pension funds in October 2008, tax collection
would have declined 0.7% y-o-y. In a press release, the Secretary
of the Treasury Juan Carlos Pezoa and the Director of AFIP
(equivalent to the IRS) Ricardo Echegaray praised the result as
better than expected, explaining that strong domestic consumption
and the positive effect of the measures enacted by the GoA to
counter the impact of the international financial crisis have
generated higher-than-expected tax revenues. The main drivers of
the October collections were social security administration
revenues, VAT, and fuel taxes. Income tax and Financial Transaction
Tax revenues have decelerated strongly (up only 5% and 1% y-o-y,
respectively), while export tax revenues dropped 21% y-o-y due
mainly to the fall of international commodity prices as well as a
reduction in export volume. In addition, import duties fall 13%
y-o-y. Year-to-date, total GoA tax collection increased 12% y-o-y
to ARP 251 billion.
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CONGRESS APPROVES "TECHNOLOGY TAX"
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4. (SBU) The Argentine Congress passed a law on November 4,
establishing value-added tax rates up to 21% on cell phones,
televisions, digital cameras and other electronic items not produced
in the southern Tierra del Fuego foreign trade zone. Laptops and
certain types of air-conditioners were excluded from the text of the
bill. The Lower House, on November 4, approved several changes made
by the Senate to the original legislation, passing it with 126
supporting, seven opposing, and 54 abstaining. According to the
government, the bill aims to increase government revenue through
higher tax collection, and encourage investment in Tierra del Fuego
to promote local manufacturing and job growth. Additionally, the
law taxes electronic products with a new "internal tax" of between
20.5% and 26%, which, according to Presidential decree number
252/2009, will be reduced by two-thirds for electronics produced in
Tierra del Fuego.
5. (SBU) According to the El Cronista financial daily, Minister of
Production Debora Giorgi said that "importers (of electronics) are
reaping extraordinary profits. They purchase goods from places like
southeastern parts of Asia and Manaus (Brazil) that have different
tax schemes." Argentine IT industry executives and analysts have
noted, however, that the tax increase will reduce technology use and
create an insurmountable handicap for multinationals and IT firms
based outside of Tierra del Fuego. Dow Jones reported that
opposition leader Francisco de Narvaez said to the press that "(this
law) will increase the digital divide for millions of Argentines,"
BUENOS AIR 00001207 002 OF 003
and "it will strongly benefit the assembly industry in Tierra del
Fuego, to the detriment of industries in provinces like Cordoba,
Buenos Aires, San Luis, and Santa Fe." The Chamber of Information
Technology and Communication, representing multinational telecom
firms in Argentina, estimates that the higher taxes could boost
prices for products like computer monitors and cell phones by as
much as 34%, which could reduce sales and result in much lower
value-added tax revenue from this sector. Argentina's San Andres
University analyzed the sector, and found that Argentine-based
manufacturers as a whole account for only about $300 million of
Argentina's approximately $4 billion market in telecommunications
and computer goods, indicating that a policy measure to promote
local production will affect all, but benefit only a few.
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THE GOA ANNOUNCES MONTHLY CHILD SUBSIDY OF ARP 180
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6. (SBU) President Cristina Fernandez announced October 29 the
creation of a new child benefit. The plan, implemented by
Presidential decree, targets every Argentine child under 18 years
old whose parents are unemployed, work "informally," or receive less
than the minimum wage of ARP 1,500 per month. It will pay a monthly
benefit of ARP 180 to parents for every child, up to five children.
In a move to improve health and education, the GoA plan conditions
these payments on the submission of certain academic and healthcare
certificates. The President explained that this program will cost
the social security system about ARP 10 billion a year, which will
be financed by the social security system. The sources of financing
are not clear.
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BCRA PRESIDENT CALLS FOR G-20 COORDINATION
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7. (SBU) Ahead of his trip to Scotland for the gathering of G-20
Finance Chiefs, Argentine Central Bank President Martin Redrado
stated November 4 that G-20 members should coordinate their
responses to the potentially adverse consequences of a widespread
reversal in stimulus policies, once the global economy rebounds. He
also recommended that the G-20 agree on how to deal with the
consequences of a potential tightening in monetary policies by
developed countries. He expressed concern that a rapid reversal of
low interest rates policies could lead to financial outflows from
emerging markets, including Argentina.
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WAGES KEEP INCREASING
---------------------
8. (SBU) The National Bureau of Statistics (INDEC) announced
November 2 that the wage index increased 1.77% m-o-m in September,
above expectations of 1.40%, as measured by the BCRA survey.
September's increase is the second highest of the year, after July's
increase of 2.21%. This index defines wages as a price, without
considering hours worked or special payments for productivity gains.
It surveys the private and public sectors, where salaries rose
1.47% and 1.19%, respectively. The cumulative increase of the index
in the first nine months of the year was 13%. The BCRA consensus
survey forecasts an overall 15% increase in the wage index for 2009,
and 13% for 2010.
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OCTOBER LABOR DEMAND INDEX DOWN 1.3% M-O-M
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9. (SBU) The October labor demand index calculated by Di Tella
University decreased 1.3% m-o-m to 49 points, far below the 110
level it reached in February 2008. The index is currently close to
its level of 57 at the end of 2002, during Argentina's deep economic
contraction. The historic average for the index is 85. The
decrease is largely due to a fall in the demand for professionals
and technical personnel (down 22% and 20%, respectively), followed
by a fall in the demand for services (down 11%), as well as for
administrative and commercial personnel (down 4% and 3%,
respectively). The index has decreased a cumulative 29% so far this
year. According to Di Tella University, the outlook for the last
two months of 2009 continues to be negative. The expectation is
that there will not be an increase in demand for labor, and that
unemployment will increase. As of the end of the second quarter of
2009, INDEC reported an unemployment rate 8.8% - significantly below
the estimates of various private analysts. [The Di Tella index is
based on comparisons of job vacancy announcements printed in the two
largest newspapers of the country.]
BUENOS AIR 00001207 003 OF 003
MARTINEZ