VZCZCXYZ0001
RR RUEHWEB

DE RUEHBU #0859/01 1071325
ZNR UUUUU ZZH
R 171325Z APR 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4179
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 2141
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000859 
 
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 April 13, 2006 
 
 
--------------------------------------------- -------- 
Weekly Highlights 
--------------------------------------------- -------- 
 
- Wage increases may jeopardize price restraint 
agreements with supermarkets. 
- Guillermo Moreno to negotiate and control price 
restraint agreements. 
- Gas Ban tariff increases for residential users will 
not go into effect in 2006. 
- FDI in Argentina increased 9 percent y-o-y to USD 
4.6 billion. 
- The peso appreciated 0.3 percent against the USD 
this week, closing at 3.09 ARP/USD. 
- Private sector external debt fell 5 percent q-o-q to 
USD 49.5 billion in Q3 05. 
- Commentary of the Week:  "The Worries of Autumn". 
(Note: Thursday, April 13 and Friday, April 14 are 
holidays in Argentina.  End Note.) 
 
--------------------------------------------- -------- 
Wage increases may jeopardize price restraint 
agreements with supermarkets. 
--------------------------------------------- -------- 
 
¶1.  Supermarket representatives warned this week that 
their agreements to keep prices unchanged on 200 basic 
goods may not be possible if their costs increase as a 
result of the wage negotiations with the commercial 
employees union.  The union is asking for a 28 percent 
wage increase but reportedly they are willing to 
accept a 10-15 percent increase, following last week's 
precedent set by the transport union, which accepted a 
19 percent wage increase.  Wages account for 30 
percent of supermarket costs.  The Vice-Minister of 
Labor said that wage negotiations will not generate 
wage increases that increase inflation.  On April 13, 
El Cronista reported that the commercial employees 
union agreed to a 19 percent wage increase (to be 
implemented in three installments) which will be 
formalized next week. 
 
--------------------------------------------- -------- 
Moreno to lead the Secretariat of Coordination to 
negotiate and control price restraint agreements. 
--------------------------------------------- -------- 
 
¶2.  On April 13, local media reported that President 
Kirchner decided to appoint Guillermo Moreno, 
currently Secretary of Communications of the Ministry 
of Planning, as Secretary of Technical Coordination of 
the Ministry of Economy.  Moreno will replace Lisandro 
Salas, who will take Moreno's place as Secretary of 
Communications.  The move reportedly reflects 
President Kirchner's displeasure with the lack of 
success of his efforts to force the private sector to 
hold down consumer prices.  According to sources, 
Kirchner is convinced that Salas was not aggressive 
enough in security private sector cooperation. 
Moreno, a hardliner, is expected to put more pressure 
in enforcing the existing price agreement.    The GOA 
is concerned that wage demands may jeopardize price 
restraint agreements because of the cost increases 
they may generate.  Many analysts see Moreno's 
appointment as another step in Planning Minister De 
Vido's intervention in the Ministry of Economy, 
although outgoing Secretary Salas was also a De Vido 
loyalist.  The latest BCRA consensus survey forecasts 
a 0.9 percent m-o-m inflation increase for April and a 
12 percent y-o-y rise for 2006. 
 
--------------------------------------------- -------- 
Economy Minister Miceli leads Argentine delegation to 
the IMF/WB meetings next week. 
--------------------------------------------- -------- 
 
¶3.  Minister of Economy Felisa Miceli will travel to 
Washington DC on April 20 to participate in the IMF 
and World Bank Spring Annual Meetings.  Reportedly, 
 
she will meet with IMF Director Rodrigo Rato, U.S. 
Treasury Secretary John Snow and World Bank President 
Paul Wolfowitz.  During the meetings, Miceli will 
reportedly ask that IFIs redirect loans to the 
productive sector and suggest eliminating 
conditionality in loans granted by IFIs.  The 
Argentine delegation will also include BCRA President 
Martin Redrado, Secretary of Finance Alfredo Mac 
Laughlin and Secretary of Economic Policy Oscar 
Tangelson. 
 
--------------------------------------------- -------- 
Gas Ban tariff increases for residential users will 
not go into effect in 2006. 
--------------------------------------------- -------- 
 
¶4.  On April 10, the GOA issued a decree authorizing a 
15 percent average tariff increase for Gas Ban 
customers (including commercial, industrial and 
residential consumers).  Gas Ban is one of the main 
providers of natural gas in the city of Buenos Aires. 
The decree stated that the increase would be 
retroactive to November 1 for commercial and 
industrial users, and to January 1 for residential 
users.  However, the same day that the decree was 
published in the Official Gazette, a spokesman for the 
Ministry of Planning said that tariff increases will 
not go into effect until 2007, despite the published 
decree.  On April 11, Minister of Planning De Vido 
said that there is no time frame to implement the gas 
tariff increase and that the GOA will seek to ensure 
that any tariff increase does not increase inflation. 
 
--------------------------------------------- -------- 
Bolivia limits gas exports to Argentina to supply 
Brazil. 
--------------------------------------------- -------- 
 
¶5.  On April 7, after a pipeline break caused by bad 
weather, Bolivia started limiting its gas exports to 
Argentina in order to guarantee its exports to Brazil. 
The President of YPFB company said that the company 
gave priority to supplying Brazil because it has a 20- 
year agreement with Brazil, but only a temporary 
agreement with Argentina to supply 4.5-5 million cubic 
meters of gas per day.  The reduced gas exports to 
Argentina did not cause shortages because temperatures 
were low and industries are not at their peak 
production.  However, Argentine gas companies 
responded by cutting exports to northern Chile to 
maintain supply in Argentina. 
 
--------------------------------------------- -------- 
GOA studying new measures to avoid electricity 
shortages in 2007-2008. 
--------------------------------------------- -------- 
 
¶6.  At a seminar on April 11, Secretary of Energy 
Cameron said that the GOA is planning new and 
innovative measures to avoid the threat of a power 
supply shortage in 2007 and 2008.  The GOA will 
encourage large electricity consumers to have their 
own capacity generation and avoid buying in the 
wholesale electricity market during seasonal peaks in 
consumption.  In return, the GOA would subsidize or 
reimburse those companies for the additional cost of 
producing their own electricity. 
 
--------------------------------------------- -------- 
Ciganotto appointed President of Banco Nacion to 
replace Lospinato. 
--------------------------------------------- -------- 
 
¶7.  On April 7, the GOA issued a decree appointing 
Gabriela Ciganotto as President of Banco Nacion (the 
largest bank in Argentina, wholly owned by the GOA), 
replacing Ricardo Lospinato.  Lospinato has been 
President of Banco Nacion only since November 2005, 
when Felisa Miceli took office as Minister of Economy. 
 
Reportedly, Lospinato resigned due to differences with 
Miceli over the management of the bank.  Ciganotto is 
an accountant who has worked at Banco Nacion for 
several years and has close contact with First Lady 
Cristina Fernandez de Kirchner. 
 
--------------------------------------------- -------- 
BCRA rolls over its maturities at  lower interest 
rates; Investors concentrated their bids in Nobacs. 
--------------------------------------------- -------- 
 
¶8.  The BCRA received only ARP 213 million in bids at 
its April 11 Lebac auction, compared to the ARP 1.4 
billion in Lebacs that came due during the week. 
However, the BCRA received ARP 1.7 billion in bids in 
its Nobac auction.  As in previous auctions, the BCRA 
therefore was able to roll over its maturities by 
accepting bids for ARP 1.7 billion (ARP 110 million in 
Lebacs and ARP 1.6 million in Nobacs).  The yield on 
the 35-day Lebac decreased from 6.67 percent to 6.61 
percent, the yield on the 56-day Lebac remained 
decreased from 6.85 percent to 6.80 percent, while the 
yield on the 84-day Lebac decreased slightly from 7.35 
percent to 7.29 percent.  Lebacs for other maturities 
were withdrawn due to lack of interest.  The spread on 
the nine-month Nobac decreased twenty basis points 
from 2.75 percent to 2.55 percent, while the spread on 
the two-year Nobac dropped twenty-four basis points 
from 4.67 percent to 4.43 percent.  Investors continue 
concentrating their bids in Nobacs (88 percent of 
total bids), since these instruments have a variable 
rate and provide a higher yield, which has enabled the 
BCRA to continue decreasing their spread. 
 
--------------------------------------------- -------- 
GOA financial needs easily achievable for 2006. 
--------------------------------------------- -------- 
 
¶9.  According to the Embassy's analysis, the GOA will 
have little difficulty meeting its financing needs in 
¶2006.  Using conservative assumptions, the GOA will 
face payments of USD 11 billion and have resources of 
USD 12.3 billion and a financial surplus of USD 1.3 
billion.  This assumes at least USD 2 billion in new 
debt issuance, which appears easily achievable given 
that the GOA already has issued USD 500 million and is 
preparing to issue an additional USD 500 million in 
the near future.  The USD 1.3 billion surplus also 
assumes that the IADB refinances USD 1.4 billion and 
that the BCRA provides another USD 600 million in 
financing.  Resources could reach USD 15.3 billion 
under a more optimistic scenario, in which Venezuela 
buys another USD 1.5 billion in GOA debt and the 
market absorbs another USD 1.5 billion in new debt. 
This seems possible if the current strong appetite for 
emerging market debt continues and given the recent 
S&P upgrade in Argentine debt. 
 
--------------------------------------------- -------- 
Private sector external debt fell 5 percent q-o-q to 
USD 49.5 billion in Q3 05. 
--------------------------------------------- -------- 
 
¶10.  According to a BCRA report, the private sector's 
external debt decreased 5 percent q-o-q in the third 
quarter of 2005.  Private sector debt totaled USD 49.5 
billion in September 2005 (27 percent of GDP), of 
which 90 percent (USD 44.4 billion) was in the non- 
financial private sector and 10 percent (USD 5.1 
billion) in the private financial sector.  The private 
sector has reduced its external debt by USD 28.4 
billion since December 2001. 
 
--------------------------------------------- -------- 
The peso appreciated 0.3 percent against the USD this 
week, closing at 3.09 ARP/USD. 
--------------------------------------------- -------- 
 
¶11.  The peso appreciated 0.3 percent the USD this 
 
 
week, closing at 3.09 ARP/USD.  This week's 
appreciation is mainly attributed to increased sales 
by exporters due to the harvest season as well as 
increased dollar sales by companies in need of pesos 
to pay taxes and the relatively high level of the call 
rate (11 percent).  The BCRA did not prevent the 
peso's appreciation despite its stronger intervention 
of USD 82 million on April 12 (its largest 
intervention since March 1).  It accumulated USD 178 
million in reserves in the three working days of this 
week.  The BCRA has purchased USD 2.6 billion since 
the beginning of the year and its reserves reached USD 
21.8 billion on April 10.  The peso exchange rate has 
depreciated 1.3 percent since the beginning of the 
calendar year 
 
--------------------------------------------- -------- 
75 percent of companies surveyed by CEP plan to 
increase production in 2006. 
--------------------------------------------- -------- 
 
¶12.  A survey by the Centro de Estudios para la 
Produccion (CEP) - a research center under the 
Secretary of Industry - showed that 75 percent of the 
 
SIPDIS 
companies consulted plan to increase their production 
in 2006, and that 50 percent of those companies plan 
to increase production by more than 5 percent.  The 
sectors planning the largest increases in production 
in terms of volume are food and beverages, 
petrochemicals, rubber and plastics and construction 
inputs.  Also, 80 percent of the companies surveyed 
expect sales increases and 70 percent of the companies 
believe that they will increase their exports compared 
to 2005.  The CEP prepares its report by surveying one- 
hundred large industrial companies. 
 
--------------------------------------------- -------- 
FDI in Argentina increased 9 percent y-o-y to USD 4.6 
billion. 
--------------------------------------------- -------- 
 
¶13.  The Economic Commission for Latin America and the 
Caribbean (ECLAC) reported that foreign direct 
investment in Argentina increased 9 percent y-o-y to 
USD 4.6 billion, reaching its highest level since the 
 
2001 financial crisis.  According to the report, 
increased exports and economic growth improved 
investment perspectives for the country.  Strong 
domestic demand also encouraged some manufacturing 
companies to increase their production capacity. 
 
--------------------------------------------- -------- 
Provincial growth rates averaged 10 percent in 2005. 
--------------------------------------------- -------- 
 
¶14.  According to a report by Economa & Regiones, 
provinces grew at an average rate of 10 percent in 
¶2005.  The provinces showing the highest growth rates 
were Chaco, La Pampa and Entre Rios, all provinces 
where agriculture, forestry and cattle are major 
industries.  The provinces with the lowest growth 
rates were Santa Cruz, Chubut and Neuquen, where oil 
and gas are the major industry.  The oil sector's slow 
growth is due to high export taxes and price caps 
adverse impact on investment.  The report concludes 
that in the economic model adopted after the 2002 
financial collapse, provinces with agriculture and 
primary goods production were the winners along with 
the city of Buenos Aires and the Province of Buenos 
Aires, which benefited from import substitution.  The 
report forecasts that provincial differences will 
deepen under the current economic model. 
 
--------------------------------------------- -------- 
Commentary of the Week: "The Worries of Autumn" 
by Andres Chambouleyron.  (Note: Translated and 
published with permission of the author from an 
article published in La Nacion on April 9.  End Note) 
--------------------------------------------- -------- 
 
 
¶15.  With 2006 growth projections about 6 percent and 
with autumn about to arrive, worries are returning 
about the capacity of producers and transporters of 
natural gas to supply the growing demand of gas in 
time and on location. 
 
¶16.  Aggregate natural gas consumption has grown at an 
average rate of 4.3 percent per year since the 
beginning of the economic recovery in 2002, compared 
to an average of 6.5 percent per year in the period 
1995-2001.  Production, on the other hand, has been 
growing at a 2.9 percent rate during 2002-2005, 
compared to an 8.2 percent rate during 1995-2001.  How 
have reserves developed?  ... reserves have fallen 
from 20 years of production in 1994 to 9.3 years in 
¶2005.  This is the result of two factors: first, that 
today we produce double the amount of gas that we 
produced in 1994 (51 billion cubic meters versus 26 
billion cubic meters) and second, that the gross rate 
of increase in reserves (discoveries of more gas 
through greater exploration) has fallen at a 5.5 
percent annual rate from 1995 to 2001, and at a 10.2 
percent annual rate between 2002 and 2004. 
 
---------------- 
A Dangerous Path 
---------------- 
 
¶17.  Assuming a future path of gas prices and 
projections of economic growth for the period 2006- 
2008, aggregate consumption of gas could grow at an 
annual rate of 3.2 percent.  If, assuming further, 
that from 2006 onwards, gas production grows at the 
same rate as it did during 2002-2005 (2.9 percent 
average annual growth) and the gross rate of growth of 
reserves is similar to that during the 2002-2004 
period (-10.2 percent average per year), the stock of 
reserves would fall from 9.3 years of production today 
to 5.2 years of production in 2008. .... 
 
¶18.  What are the solutions that will prevent this? 
One is to import gas from Bolivia or Venezuela at 
prices higher than local prices.  Nevertheless, this 
strategy won't increase the stock of reserves, and 
will only reduce the rate of loss, given that the 
increase in local demand is being met today with 
imports and not with reserves and increased local 
production.  While the major producers of gas in 
Argentina are announcing more investment in the 
sector, it is aimed mainly at greater production to 
supply the local market and meet growing internal 
demand, with only marginal amounts being invested in 
exploration. 
 
¶19.  The only way to reverse this sustained drawing 
down of reserves is through greater private investment 
in exploration.  The latest estimates from the 
Secretary of Energy put probable reserves (those that 
 
SIPDIS 
are not yet proven but likely to be so) at 262 billion 
cubic meters as of December 2004.  This is equal to 5 
years of production, which indicates that with 
adequate policies to encourage private investment 
(freedom to set prices and sell resources, contractual 
and regulatory certainty) the stock of proven reserves 
could be maintained over time at the 9-to-10 year 
level that now exists, and reduce our dependence on 
imported gas from countries that are politically and 
economically highly unstable.  (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