Cablegate: Argentina: Economy Minister Says Debt Swap On Track

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TO RUEHC/SECSTATE WASHDC 0397
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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RUEHLO/AMEMBASSY LONDON 0014
RUEHME/AMEMBASSY MEXICO
RUEHMO/AMEMBASSY MOSCOW 0011
RUEHNE/AMEMBASSY NEW DELHI 0029
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RUEHSA/AMEMBASSY PRETORIA 0018
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C O N F I D E N T I A L SECTION 01 OF 03 BUENOS AIRES 000055

SENSITIVE
SIPDIS
SIPDIS
AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA
AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC
AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE

E.O. 12958: DECL: 2020/01/28

TAGS: ECON EFIN EINV ETRD PGOV AR

SUBJECT: Argentina: Economy Minister Says Debt Swap On Track

REF: BUENOS AIRES 25

CLASSIFIED BY: Martinez, Vilma, Ambassador; REASON: 1.4(B), (D)

Summary

------------

1. (C) In a January 26 meeting with the Ambassador and DCM,

Economy Minister Amado Boudou emphasized the positive despite the

many challenges he faces. Confident and composed despite the late

hour of the meeting and the severe political pressure he has faced

in the past month, Boudou insisted that the GOA's plans to reengage

international markets are moving ahead, and that the plan to use

Central Bank reserves to guarantee 2010 debt service payments (the

controversial Fondo Bicentenario) would be implemented.

Frustrated with the imbroglio surrounding the leadership of the

Central Bank, Boudou said that the situation ""would be resolved

this week."" While claiming that the proposed debt restructuring

would move ahead, Boudou asked that the Embassy convey to the U.S.

Securities and Exchange Commission (SEC) the importance of speed

and flexibility in its review of the GOA's submissions for

regulatory approval of the debt swap. Boudou agreed to work with

the Embassy to manage the GOA reaction to the upcoming publication

of the Investment Climate Statement, which might contain language

critical of aspects of Argentina's investment climate. Finally, on

ICSID, Boudou was non-committal, listening approvingly to the DCM's

discussion of the importance of the GOA's efforts to reach an

agreement with Azurix, but without pledging to move ahead on other

ICSID cases. End Summary.

Boudou to Redrado: ""You're Fired""

---------------------------------------------

2. (C) On the issue of the leadership of the Central Bank (BCRA),

Boudou expressed frustration that the situation has dragged on for

so long, lamenting that ""we've wasted the whole month on this."" He

vowed that the saga would end soon and that the status of (former)

BCRA President Martin Redrado will ""be resolved this week."" Saying

that Redrado no longer has the luxury of resigning, Boudou stated

emphatically that ""we're firing him."" He emphasized that the GOA

now considers former BCRA Vice President Pesce to be the head of

the Bank. Boudou backed away from his comments earlier this month

that Mario Blejer would succeed Redrado as BCRA head. He said that

he met with him two weeks ago, but Blejer, an experienced and

respected economic figure (and former BCRA head), is wary of being

involved in this controversial and unpredictable situation.

Holdout Proposal

-----------------------

3. (C) Boudou argued that the controversy regarding the BCRA is

unrelated to progress on the proposed debt restructuring proposal,

BUENOS AIR 00000055 002 OF 003

which the GOA is now working hard to get through the international

regulatory approval process. Quick SEC approval is vital, he said,

since regulatory agencies in Italy and Germany will only act after

the SEC issues its findings with regard to the debt swap. The SEC

is working along three separate tracks, reviewing current economic

developments in Argentina, examining the technical aspects of the

proposed agreement, and developing a set of ""warnings"" to potential

investors regarding the risks (as is usual practice in developing

the prospectus for a securities issuance). Boudou explained that

the SEC has asked for clarifications from the GOA in several areas

and that the GOA has done its best to respond as fully as possible.

However, he noted that the SEC needs to understand that the GOA is

not in a position to deal with controversial aspects of its

economic policies, such as the problems associated with the

government's statistics agency, INDEC. Doing so would exact a huge

political price from the GOA, given the local media's aggressive

campaigns against the government. Boudou acknowledged the

problematic nature of some GOA policies, but he opined that the SEC

should respond expeditiously and show some understanding of the

government's difficult political position so that the debt swap

could advance. He also noted that bondholders who are the GOA's

intended partners in this deal know Argentina's economic situation

well and don't need the SEC to spell it out for them. In response,

the Ambassador and DCM pointed out that the SEC is an autonomous

regulatory agency which works independently of the executive

branch. Boudou indicated that he understood that they could not do

anything beyond passing along the substance of his remarks.

Paris Club, ICSID

----------------------

4. (C) Despite the controversy surrounding the creation of the

Bicentennial Fund to use BCRA reserves to guarantee the payment of

debt service due in 2010, Boudou said that the GOA would proceed

with establishing the fund. In addition, he also noted that the

government intends to normalize relations with the Paris Club, but

would not move seriously on that until after a debt swap deal with

the bondholder holdouts is completed. On the issue of ICSID

judgments and the Azurix case in particular, the DCM explained that

the U.S. is encouraged by Argentina's engaging in negotiations to

reach an agreement with Azurix, and stressed the importance of

finalizing the deal so that Azurix would drop its petition to

remove GSP preferences from Argentine exports. He added that the

GOA should build on this to address other ICSID cases as well.

Boudou listened attentively, but did not give a substantive

response on the issue.

Spending is Good for the Economy

---------------------------------------------

5. (C) The Ambassador asked Boudou about the concerns of private

economic analysts regarding the increasing rate of government

expenditure growth, and noted the potential negative impact this

BUENOS AIR 00000055 003 OF 003

could have on inflation. Boudou responded by noting the long-term

success of the GOA's economic policies and defended the

counter-cyclical spending policies as necessary to promote economic

growth, adding half-jokingly that ""we're just following your

example."" He said that the government would continue to spend on

public investment and employment, and added that it would

intelligently use the reserves in the Bicentennial Fund for the

benefit of the Argentine people.

Investment Climate Statement Release

--------------------------------------------- ------

6. (C) The Ambassador noted that the Investment Climate Statement

(ICS) would be issued in the coming weeks, and hoped that the

Embassy and the GOA would work together to minimize any negative

reactions from the government that could complicate the bilateral

relationship. Boudou noted that the Argentine press has a tendency

to exaggerate and sometimes forces the government to respond more

harshly to perceived slights than warranted. However, he agreed

that the GOA and the Embassy should work together to prepare for

the release of the document and contain any negative fallout.

Comment

-------------

7. (C) Boudou has been under tremendous political pressure this

past month, since the imbroglio over the Bicentennial Fund and the

leadership of the BCRA began. Press rumors are rampant that his

position as Economy Minister is imperiled by the Kirchners'

dissatisfaction over his handling of the Redrado affair. But

Boudou did not behave like a man whose career is hanging by a

thread. The meeting occurred in the evening after being delayed

several times due to Boudou's appearance before the Congressional

committee investigating the Redrado situation. He was then

convoked to the President's office. Despite the lateness of the

hour and his marathon grilling before the committee (and perhaps in

the Casa Rosada as well), Boudou was fresh, enthusiastic, calm, and

totally composed during the meeting. He appears committed to

completing the debt swap and then moving forward on dealing with

the Paris Club debt. Whether he gets the chance to see these

things through depends ultimately on his future standing with CFK

and her husband. As the sacking January 27 of Osvaldo Guglielmino,

the Attorney General in the Treasury suggests, the standing of

senior government officials in the eyes of the Kirchners, always

tenuous even in the best of times, can change very quickly in the

current environment.

MARTINEZ

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