VZCZCXYZ0005
RR RUEHWEB

DE RUEHBU #1263/01 2541913
ZNR UUUUU ZZH
R 101913Z SEP 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1989
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEHFR/AMEMBASSY PARIS 1447

UNCLAS BUENOS AIRES 001263 
 
PARIS FOR USOECD 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV OPIC EXIM BEXP AR
SUBJECT: Argentina: Seizing the Bilateral Opportunity - Building on 
GoA's Paris Club Repayment Pledge 
 
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Summary 
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¶1. (SBU) The GoA's surprise September 2 announcement that it will 
soon pay all Paris Club debt, which would include fully clearing 
some $402 million in arrears to the USG, opens the door to 
Argentina's normalization with official USG credit agencies.  Once 
arrears to the USG are reconciled and cleared, our Eximbank, OPIC 
and USTDA will be free to consider re-engaging in Argentina to 
support U.S. exporters and investors by offering new sovereign 
credits or facilitating programs that will help expand bilateral 
commerce.  Similarly, the U.S. military will be once again able to 
consider offering Foreign Military Financing, Excess Defense 
Articles, and Global Peacekeeping Operations Initiative programs. 
The USG should move quickly to capitalize on the trade and 
investment opportunities that this opening offers -- our European 
and Japanese counterparts are certain to be doing the same.  Post 
recognizes that any decision to re-enter the Argentine market will 
be made individually by USG agencies, and we stand ready to provide 
any and all information requested. End Summary. 
 
--------------------------------------------- ----- 
Paris Club Arrears Constrain USG Credits, Programs 
--------------------------------------------- ----- 
 
¶2. (SBU) President Kirchner's surprise September 2 announcement that 
Argentina will repay the nation's debt to Paris Club creditors 
represents an important step in Argentina's normalization from the 
financial and economic trauma of the 2001/2 economic crisis.  GoA 
officials have told us they intend to reconcile arrears with the 
Paris Club Secretariat and finalize payments to sovereign creditors 
by calendar year-end 2008.  Once Argentine arrears to the USG - 
currently estimated at $402 million -- are cleared, USG "Brooke" and 
"620Q" sanctions will be lifted.  (Brooke sanctions are triggered by 
being in arrears for more than 12 months on USG loans funded through 
the Foreign Operations Appropriations Act, while 620q sanctions are 
triggered when the debtor is in arrears for more than 6 months on a 
loan funded through the Foreign Assistance Act.) 
 
¶3. (SBU) These sanctions, along with specific U.S. official credit 
agency charter restrictions against lending into arrears, currently 
prevent USG's Eximbank, OPIC and USTDA from supporting U.S. 
exporters and investors by offering new sovereign credits or 
otherwise facilitating programs that will help expand bilateral 
commerce.  These sanctions have also prevented the U.S. military 
from offering Foreign Military Financing (FMF), Excess Defense 
Articles through 505 Drawdown authority, and have limited use of 
Global Peacekeeping Operations Initiative funding.  Once Paris Club 
arrears are paid down, U.S. credit agencies can re-assess their 
interest in re-initiating activities in Argentina. 
 
-------------------------------------------- 
Jump Starting Paris Club Debt Reconciliation 
-------------------------------------------- 
 
¶4. (SBU) As of the last (April 2008) Paris Club Secretariat review, 
the total stock of Argentine debt outstanding to Paris Club 
creditors --  including arrears, late interest, and future principal 
payments  -- totaled $7.92 billion, of which $5.36 billion was in 
arrears and $1.22 billion was late interest.  Of this amount, the 
total stock of Argentine debt outstanding to the USG totaled $425.4 
million, of which $401.9 million was in arrears, including late 
interest.  Of the $425.4 million owed to the USG, the total stock of 
debt outstanding to the U.S. Eximbank is $389.1 million, of which 
$368.1 is in arrears, including late interest.  The total stock of 
debt outstanding to USAID is $36.2 million, of which all but $2.5 
million is in arrears.  While formal reconciliation of these credits 
and arrears will be conducted through the Paris Club Secretariat, we 
could assist the process by providing the GoA's Economy Ministry 
Secretariat of Finance a detailed breakdown of credits along with 
accompanying documentation. 
 
-------------------------------------------- 
Eximbank:  Engine for U.S. Export Generation 
-------------------------------------------- 
 
¶5. (SBU) The GoA has made clear that one of the reasons it has 
decided to pay down Paris Club arrears was to regain access to 
export credit agency longer term financing to support needed 
 
domestic infrastructure project development.  Had the GoA decided to 
negotiate a gradual pay-down of arrears, U.S. exporters would have 
been placed at a competitive disadvantage versus their European and 
Japanese competitors.  While the U.S. Eximbank charter requires that 
all/all arrears on Eximbank credits be cleared before the Bank can 
consider going back "on cover" for sovereign exposure, it is unclear 
whether other nations export credit agencies (Frances COFACE, 
Germany's Hermes, Britain's ECGD, etc.) are similarly constrained. 
 
¶6. (SBU) In 2007, U.S. goods exports to Argentina totaled $5.3 
billion, of which the single largest category comprised equipment 
and intermediate capital goods, the type that can benefit from 
Eximbank financing.  A scarcity of foreign direct investment in the 
development of Argentina's primary infrastructure - in part due to 
investment climate concerns and in part due to the lack of 
competitive long-term financing - has led the GoA to take on 
significant new infrastructure development, including the 
development of new electricity generation plants, on its own.  There 
are significant opportunities for U.S. exporters at hand:  for 
example, General Electric's local management tells us that company 
electricity turbine, diesel locomotive, and medical equipment sales 
to the GoA would all be supported by renewed access to export credit 
agency financing. 
 
-------------------------- 
OPIC:  Strong GoA Interest 
-------------------------- 
 
¶7. (SBU) New OPIC exposure in both insurance and financing has been 
limited by 620Q sanctions under the Foreign Assistance Act.  The GoA 
has expressed strong interest in exploring a range of OPIC programs. 
 The GoA's investment promotion agency, PROSPER-AR, has been working 
with both the World Bank and Inter-American Development Bank to 
promote local venture capital fund development.  Both PROSPER-AR and 
the state-owned Banco de la Provincia de Buenos Aires, the nation's 
oldest bank, have expressed interest in tapping OPIC venture capital 
fund expertise and financing.  For its part, the GoA's Planning 
Ministry is eager to access OPIC expertise and financing to promote 
the development of low and middle income housing projects, 
particularly in the nation's interior.  The Planning Ministry's 
Secretariat of Energy has expressed interest in exploring OPIC's 
Clean Energy Initiative to encourage and support projects that 
incorporate energy efficiency and clean technologies.  A number of 
the almost 500 U.S. companies working in Argentina have expressed 
interest in exploring OPIC long-term risk insurance programs. 
 
--------------------------------------------- - 
USTDA: Promoting U.S. Technology and Standards 
--------------------------------------------- - 
 
¶8. (SBU) The U.S. Trade and Development Agency (USTDA) advances 
economic development and U.S. commercial interests in developing and 
middle-income countries by funding technical assistance, feasibility 
studies, training, orientation visits, and business workshops that 
support the development of a modern infrastructure and a fair and 
open trading environment.  Since the agency's creation in 1981, 
USTDA investments in Latin America and the Caribbean have produced 
over $6.1 billion in U.S. exports.  USTDA's re-engagement in 
Argentina would help enhance U.S. Embassy -- and particularly 
Foreign Commercial Service -- efforts to stimulate U.S. exports.  In 
the past, USTDA has been an effective tool to promote the adoption 
of U.S. technology and standards for major Argentine infrastructure 
projects among Argentine government and industry decision-makers. 
 
----------------------------------------- 
U.S. Military: Tool to Broaden Engagement 
----------------------------------------- 
 
¶9. (SBU)  While a limited Brooke sanctions waiver has permitted the 
Department of Defense to continue offering Argentina IMET training, 
it has effectively stopped major purchases supported by Foreign 
Military Financing, transfer of excess defense articles through Sec. 
505 drawdown authority, and material purchases offered through the 
Global Peacekeeping Operations Initiative (GPOI).  The Military 
Group in Buenos Aires (the Embassy's security cooperation office) 
has started to engage with Argentine Ministry of Defense and service 
personnel about potential expanded engagement opportunities that 
full relief from these sanctions makes possible.  Some examples of 
broadened engagement could include the provision of either new 
material purchases or transfer of excess defense articles to satisfy 
 
standing Argentine military requirements for additional rotary and 
fixed-wing aircraft, tracked and wheeled vehicles, and command and 
control equipment along with spare and sustainment parts for U.S. 
origin equipment currently in their inventory.  Additionally, the 
availability of GPOI funding for material will offer the possibility 
to procure sorely needed command and control equipment for the 
combined Argentine/Chilean peacekeeping unit "Cruz del Sur." 
 
------------------------------- 
Comment: Seizing the Initiative 
------------------------------- 
 
¶10.  (SBU) The USG should move quickly to capitalize on trade and 
investment opportunities that the GoA's welcome decision to pay down 
Paris Club debt offers.  We can begin preparations now while work is 
ongoing to implement the GoA's decision to pay.  Our European and 
Japanese counterparts are certain to do the same.  We recognize that 
any decision to re-enter the Argentine market will be made 
individually by USG agencies based upon standard USG risk assessment 
criteria.  Post stands ready to help research and provide any and 
all information requested by these agencies. 
 
¶11. (SBU) For our part, Post will poll American Chamber of Commerce 
members here on their historical use of U.S. export credit agency 
programs and their specific interests in new credits, programs, and 
products.  Initial steps Washington credit agencies may want to 
consider include reaching out to the senior GoA delegation 
(including Planning Minister De Vido) who will accompany President 
Kirchner to meetings in late September with U.S. business 
representatives in New York (on the margins of the UN General 
Assembly) at the Council of the Americas and at the Business Council 
for International Understanding.  The opportunity for USG credit 
agencies to re-engage with Argentina is compelling and speaks to our 
interest in supporting the U.S. private sector and in deepening our 
already strong bilateral ties. 
 
WAYNE