VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0758/01 0931922
ZNR UUUUU ZZH
R 031922Z APR 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4032
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 2128
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000758 
 
SIPDIS 
 
SIPDIS 
 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
TREASURY FOR DAS LEE, RAMIN TOLOUI AND CHRIS KUSHLIS 
NSC FOR SUE CRONIN 
AND OCC FOR CARLOS HERNANDEZ 
USDOC FOR ALEXANDER PEACHER 
USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY 
USSOUTHCOM FOR POLAD 
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB ALOW AR
SUBJECT: Argentina Economic and Financial Weekly for 
the week ending March 31, 2006 
 
 
--------------------------------------------- -------- 
Weekly Highlights 
--------------------------------------------- -------- 
 
- GOA expands its restrictions on beef exports to 
include processed beef and cattle. 
- Enargas allows distributors to increase gas tariffs 
an average of 20 percent. 
- The Chamber of Deputies approved the rescission of 
Aguas Argentina's concession contract 
- Standard and Poor's upgrades Argentina's sovereign 
credit rating. 
- February trade surplus reaches USD 706 million - 
below market expectations. 
- Commentary of the Week: "Defending the View that the 
Recent GDO Increase was a Historical Record" 
 
--------------------------------------------- -------- 
GOA expands its restrictions on beef exports to 
include processed beef and cattle. 
--------------------------------------------- -------- 
 
¶1.  On March 31, the GOA issued a resolution 
strengthening restrictions on beef export.  The 
resolution includes exports of processed beef and 
cattle in the previous 180-day beef export ban.  The 
aim of this measure is to increase local supply and 
avoid further increases in domestic beef prices.  With 
this new restriction, only beef exports to the 
European Union under the Hilton quota program and 
exports guaranteed under bilateral agreements with 
Argentina are exempt from the suspension 
 
--------------------------------------------- -------- 
Enargas allowed distributors to increase gas tariffs 
an a average 20 percent. 
--------------------------------------------- -------- 
 
¶2.  Enargas (the National Gas Regulator) allowed an 
average 20 percent rise in the price of natural gas 
for wholesale users (industrial and commercial users). 
The increase will be retroactive to July 2005 and will 
serve to compensate gas distributors for the higher 
prices they have been paying for gas at wellhead. 
Still pending is the gas tariff increase for 
residential users. 
 
--------------------------------------------- -------- 
The Chamber of Deputies approved the rescission of 
Aguas Argentina's concession contract 
--------------------------------------------- -------- 
 
¶3.  On March 29, the Chamber of Deputies approved the 
bill that rescinds Aguas Argentina's concession 
contract.  However, Deputies postponed until next week 
the debate on the creation of the state-owned water 
company AYSA (Agua y Saneamientos Argentinos SA), 
because some deputies questioned the legal figure of 
the new company. 
 
--------------------------------------------- -------- 
GOA to issue USD 500 million of the Bonar V bond in 
the near future. 
--------------------------------------------- -------- 
 
¶4.  On March 28, the Minister of Economy Felisa Micela 
announced that the GOA is planning to issue USD 500 
million worth of the Bonar V by the end of next week. 
The issuance would be the second tranche in a program 
of USD 1.5 billion that is planned for this year.  The 
first tranche of USD 500 million of the Bonar V was 
sold last week at a yield of 8.36 percent.  Miceli 
stated that GOA aims to issue the USD 1.5 billion 
worth of Bonar V during the year, in order to fulfill 
the 2006 financial program.  The Bonar V is a USD 
denominated bond that amortizes principal at maturity 
and pays 7 percent interest coupon semiannually. 
 
--------------------------------------------- -------- 
 
Standard and Poor's upgraded Argentina's sovereign 
credit rating. 
--------------------------------------------- -------- 
 
¶5.  On March 24, the credit rating agency Standard 
and Poor's (SP) upgraded Argentina's long-term 
sovereign credit rating to "B" from "B minus" and 
short-term credit rating to "B" from "C".  SP press 
release stated that Argentina's upgrade was supported 
by its solid economic and fiscal performances in 
recent years and the expectation that this trend will 
continue over the next two years.  The sovereign 
credit rating has a "stable" outlook, reflecting 
Argentina's improved external and fiscal flexibility. 
 
--------------------------------------------- -------- 
February trade surplus of USD 706 million - below 
market expectations. 
--------------------------------------------- -------- 
 
¶6.  The February trade surplus reached USD 706 
million, below the BCRA consensus forecast of USD 804 
million.  The lower than expected surplus is due to 
stronger import growth.  Export revenues increased 17 
percent y-o-y to USD 3 billion, with increases in both 
prices (+11 percent) and quantities (5 percent). 
Exports were driven by an increase in fuel and energy 
(+32 percent y-o-y), agro-industrial products (+24 
percent y-o-y), industrial goods (+8 percent y-o-y) 
and primary goods (+6 percent y-o-y).  Imports 
increased 25 percent y-o-y to USD 2.3 billion, showing 
strong domestic demand, with increases in both 
quantities (+22 percent) and prices (+2 percent). 
Imports were driven by increases in accessories for 
capital goods (+42 percent), vehicles for passengers 
(+ 40 percent), consumer goods (+36 percent), capital 
goods (+34 percent), fuel and oil (+16 percent) and 
intermediate goods (+9 percent).  According to the 
BCRA consensus survey, the trade surplus is expected 
to narrow to USD 10.2 billion in 2006 compared to USD 
11.3 billion in 2005. 
 
--------------------------------------------- -------- 
BCRA rolls over its maturities.  Investors 
concentrated their bids in Nobacs and short term 
Lebacs. 
--------------------------------------------- -------- 
 
¶7.  The BCRA received ARP 662 million in bids at its 
March 28 Lebac auction, less than the ARP 1.3 billion 
in Lebacs that came due during the week.  However, the 
BCRA received ARP 962 million in bids in its Nobac 
auction.  As in previous auctions, the BCRA was able 
to roll over its maturities by accepting bids for ARP 
1.35 billion (ARP 649 million in Lebacs and ARP 702 
million in Nobacs).  The yield on the 35-day Lebac 
decreased from 6.7 percent to 6.69 percent, while the 
yield on the 63-day Lebac dropped ten basis points 
from 6.95 percent to 6.85 percent.  The yield on the 
91-day Lebac dropped from 7.28 percent to 7.18 
percent.  Lebacs for other maturities were withdrawn 
due to lack of interest.  Investors concentrated more 
than 59 percent of their bids in Nobacs of more than 9 
months.  The spread on the nine-month Nobac decreased 
two basis points from 3.0 percent to 2.8 percent, 
while the spread on the two-year Nobac dropped nine 
basis points from 4.82 percent to 4.73 percent. 
Investors continue concentrating their bids in Nobacs, 
since these instruments have a variable rate and 
provide a higher yield and short-term Lebacs given 
that these instruments do not have any adjustment in 
its interest. 
 
--------------------------------------------- -------- 
Balance of Payments: Current account surplus of USD 
5.4 billion and net capital inflows of USD 2.7 billion 
in 2005. 
--------------------------------------------- -------- 
 
¶8.  On March 22, the GOA announced its balance of 
payments results with a current account surplus of USD 
1.5 billion in the fourth quarter, bringing total 
current account surplus to USD 5.4 billion in 2005 - 
compared to USD 3.3 billion in 2004.  The trade 
surplus reached USD 12.7 billion in 2005 - compared to 
USD 13.2 billion in 2004. 
 
¶9.  The capital and financial account showed net 
capital inflows of USD 1.5 billion in the fourth 
quarter, bringing total net capital inflows to USD 2.7 
billion in 2005 - compared to USD 1.7 billion in 2004. 
Inflows during 2005 were mainly from the non-financial 
public sector for USD 611 million and from the non- 
financial private sector for USD 3.5 billion, which 
were partially offset by outflows of the financial 
private sector outflows of USD 1.4 billion.  The 
increase in capital inflows is mainly explained by the 
end of the debt exchange, the increasing demand for 
GOA bonds, and the strong economic growth that boosted 
investments inside the country.  Central Bank reserves 
increased USD 8.8 billion mainly due to BCRA purchases 
in the foreign exchange market, bringing BCRA reserves 
at the end of December to USD 28 billion. 
 
--------------------------------------------- -------- 
BALANCE OF PAYMENTS        2005     2004   Difference 
(USD in M) 
--------------------------------------------- -------- 
(A) CURRENT ACCOUNT      5,407      3,278       2,129 
 
1 TRADE BALANCE          12,714    13,239        -525 
2 SERVICES               -1,666    -1,666           0 
3 INVESTMENT SERVICES & DIVIDENDS 
                         -6,312    -8,922       2,610 
4 TRANSFERS                 671       627          44 
--------------------------------------------- -------- 
(B) CAPITAL AND FINANCIAL ACCOUNT 
                           2,764     1,782        982 
1 CAPITAL ACCOUNT             90        43         47 
2 FINANCIAL ACCOUNT        2,674     1,739        935 
--------------------------------------------- -------- 
(C) ERRORS AND OMMISSIONS    686       259        427 
--------------------------------------------- -------- 
(D) INTERNATIONAL RESERVES -8,857    -5,319    -3,538 
--------------------------------------------- -------- 
OVERALL BALANCE (A)+(B)+(C)-(D) 
                           0.00        -         0.00 
--------------------------------------------- -------- 
 
--------------------------------------------- -------- 
March Government Confidence Index up 3.1 percent m-o- 
m. 
--------------------------------------------- -------- 
 
¶10.  The Government Confidence Index increased 3.1 
percent m-o-m in March to 2.7 points, and is 11 points 
above the average during the Kirchner administration, 
and well above the 1.2 point reading in May 2003 when 
President Kirchner took office.  Confidence in the 
GOA's ability to solve citizens' problems is still the 
factor generating the most confidence.  Public opinion 
of GOA general performance increased 5 percent m-o-m, 
while public opinion on efficiency of public spending 
remained unchanged.  The index fell 4 percent y-o-y. 
[The Government Confidence Index is a survey-based 
index prepared by Di Tella University.  It varies from 
zero to five points and seeks to measure public 
opinion of GOA general performance, efficiency of 
pubic spending, honesty of GOA officials and the 
government's ability to solve problems.] 
 
--------------------------------------------- -------- 
The peso was unchanged against the USD this week, 
closing at 3.09 ARP/USD. 
--------------------------------------------- -------- 
 
¶11.  The peso remained flat versus the USD this week, 
closing at 3.09 ARP/USD.  Earlier in the week, the 
 
peso depreciated one cent to 3.10 ARP/USD, due to 
strong dollar demand.  The BCRA purchased USD 98 
million in the FX market in the first four days of the 
week, and only purchased EUR 4 million in the last two 
days of the week.  The BCRA has purchased USD 2.3 
billion since the beginning of the year, compared to 
USD 829 million during the same period last year.  The 
peso exchange rate has depreciated 1.3 percent since 
the beginning of the calendar year. 
 
--------------------------------------------- -------- 
Commentary of the Week: "Defending the View that the 
Recent GDO Increase was a Historical Record".  (Note: 
By Guillermo Wierzba, President of the CEFID-AR think 
tank, published in response to the article by Abel 
Viglione reproduced in last week's Weekly Report.  End 
Note.) 
--------------------------------------------- -------- 
 
¶12.  The force of the quantitative data on the 
evolution of Argentine economy demands recognition of 
its successful performance by economists of different 
schools of thought.  Nevertheless, their deepest 
reflections and conclusions are dissimilar and come 
from distinctly different points of view about 
economic processes. 
 
¶13.  The orthodox point of view does not give up a 
good dose of realism and sense of opportunity, and 
expresses opinions that assume the improvements that 
the current numbers represent are unobjectionable. 
But they omit to pass judgment on the merits of the 
success that has come from the change in the political 
and economic paradigm, and they express reservations 
and warnings with respect to the most audacious, 
heterdox and progressive elements of the course 
chosen. 
 
¶14.  Abel Viglione, an economist with FIEL, published 
a note  [reproduced in the March 23rd Weekly Report] 
in which he simultaneously emphasized the growth 
obtained from 2003 to the present, but then disputes 
quantitatively this evolution in an analysis comparing 
it with other situations from different historical 
periods from the 19th century until convertibility. 
In the mentioned note, he runs the methodological risk 
of putting together short, three-year series, and 
comparing with them dispersed moments in a long period 
that runs from the 19th to the 21st century.  The 
exercise is carried out by contrasting the components 
of aggregate demand, making abstract very important 
qualitative elements:  the profound differences in the 
composition and complexity of GDP in the different 
moments analyzed, the greater or lesser quality of the 
national accounting system (which certainly was very 
precarious in the first periods analyzed), the 
macroeconomic sustainability in which the economy 
operated, the financial conditions for growth, as well 
as the social senstivity of growth. 
 
--------------------------------------------- -------- 
Comparison 
--------------------------------------------- -------- 
 
¶15.  The article emphasizes the construction of a 
ranking comparing the growth during the government of 
Jurez Celman (which ended in a very serious crisis) 
with that of Quintana (which developed into the most 
dynamic years of Argentina in the world economy, in 
the context of a strong penetration into the English 
food market), and with the one of Yrigoyen (which 
began at the close of World War I and coincided with 
the reopening of international trade and the 
continuance of the first import substitutions that 
took place during the conflict).  The article also 
includes in the comparison the first years of 
convertibility and the present period.  The conclusion 
of the economist from FIEL, as shown in the title of 
his article, was that  the present growth is good, but 
 
it is less than the growth during the majority of the 
other periods analyzed.  From this, he concludes that 
the current expansion was not the most important of 
the last hundred years. 
 
¶16.  We cannot ignore that the purpose of Viglione's 
article was to compare the first part of 
convertibility with the economic performance of 2003- 
¶2005.  The comparative analysis adds little value in 
terms of economic conclusions, and actually 
contributes to the confusion.  The article says very 
little and it omits the fundamental point when it 
talks of GDP growth rates without putting them in the 
context of their distinct economic models.  The first 
three years of convertibility were those of 
privatizations, the liquidation of the public equity 
and the installation of the pillars of an economic 
policy model that was unsustainable in the long term. 
In those first years of convertibility, in spite of 
the important GDP growth rates, the unemployment rate 
also was growing, and reached 9.9 percent in 1993. 
The model also included a fixed exchange rate, an 
appreciated currency, and an economy without a state 
presence and with concentrated and omnipresent 
markets. 
 
¶17.  The present growth, however, is taking place in 
the context of a consistent macroeconomic model, with 
a solid external sector, sound public finances, a 
decreasing unemployment rate and low interest rates 
compatible with growth in investment. 
 
¶18.  The relevant discussion is to analyze economic 
growth rates along with the qualitative concepts in 
which the growth develops.  The neo-liberal logic, 
which adored the "stabilization at any price" of 
convertibility and promoted the economic reforms of 
the 1990s that led to the 2001 disaster, now tries to 
downplay the consistency of economic policy and avoid 
the debates that are needed. 
 
¶19.  In the article, the FIEL economist cannot stop 
himself from including a note expressing his sadness 
about GDP measured in dollars at the over-valued 
exchange rate of convertibility.  He also cannot help 
but mention the growth of other Latin American 
countries during the last few years to put Argentine 
growth in perspective, even though growth rates in 
Argentina were higher than those of all other 
countries in the region. 
 
¶20.  There has to be a debate about relevant issues. 
Today, those are analyzing, thinking and discussing 
how to continue growing, about how to define and 
strengthen a strategy for development, of the 
characteristics of the reconstruction of the State and 
its role in the economy, and of the redistribution 
policy that aims to make sure that the benefits of 
growth are enjoyed intensely by all sectors of 
society. (Note: We reproduce selected articles by 
local experts for the benefit of our readers.  The 
opinions expressed are those of the authors, not of 
the Embassy.  End Note.) 
 
GUTIERREZ