VZCZCXYZ0023
RR RUEHWEB

DE RUEHBU #0966/01 1182009
ZNR UUUUU ZZH
R 282009Z APR 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4340
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 2155
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000966 
 
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 two week ending April 28, 2006 
 
 
--------------------------------------------- -------- 
Bi-Weekly Highlights 
--------------------------------------------- -------- 
 
- BCRA increases its 2006 growth forecast to "above 7 
percent". 
- BCRA monetary policy appears to be tightening 
- April Government Confidence Index down 6 percent m-o- 
m. 
- April Consumer Confidence Index down 9.8 percent m-o- 
m. 
- GOA runs an ARP 1.4 billion primary fiscal surplus 
in March- lower than expected. 
- GOA increases public sector wages by 19 percent. 
- March industrial production index up 7.5 percent y-o- 
y. 
- Commentary of the Week: "The Style of One of 
Kirchner's Most Controversial Officials, Moreno, the 
Tough Guy Who Guards Prices." 
 
--------------------------------------------- -------- 
BCRA increases its 2006 growth forecast to "above 7 
percent" and maintains inflation forecast at 8-11 
percent. 
--------------------------------------------- -------- 
 
¶1.  In its second quarter inflation report, the BCRA 
increased its 2006 growth forecast from 6 percent to 
"above 7 percent" based on the strong economic 
performance during the first two months of the year 
and the statistical carry-over effect from 2005. 
According to the report, the continued strength of the 
fiscal and trade surpluses, along with the BCRA's 
increasing reserves and the recovery of the financial 
system, allowed the BCRA to revise its growth forecast 
upwards.  The BCRA maintained its 2006 inflation 
forecast unchanged at 8-11 percent.  The BCRA 
highlighted that inflation in the first quarter was 
2.9 percent, below market expectations and well below 
the 4 percent inflation during the same period in 
¶2005. 
 
--------------------------------------------- -------- 
BCRA monetary policy appears to be tightening. 
--------------------------------------------- -------- 
 
¶2.  Recent BCRA measures and the evolution of key 
monetary variables indicate that the BCRA has shifted 
towards a tighter monetary policy.  The BCRA 
introduced two measures that will take pesos out of 
circulation and yield higher interest rates for time 
deposits.  First, the BCRA increased bank liquidity 
requirements for sight accounts (current and savings 
accounts) by 2 percentage points to 17 percent. 
Second, it eliminated the 2.55 percent annual rate 
that the BCRA pays banks for their minimum reserves. 
 
¶3.  The BCRA fulfilled its first-quarter monetary 
target for M2 (cash plus public and private sector 
current and savings account) with an average M2 level 
of ARP 106.2 billion - close to the lower end of its 
Monetary Program band of ARP 104.4 billion.  Still, M2 
grew 26 percent y-o-y in the first quarter, and M2 
growth will have to decelerate to 21 percent during 
the rest of the year to fulfill the Monetary Program. 
(M2 grew 25 percent in 2005.) 
 
¶4.  The BCRA ended its policy of shortening Lebac 
maturities to avoid interest rate increases in 
December 2005.  Since the beginning of the year, the 
BCRA policy shifted to issue longer-term Nobacs which 
carry a variable rate of Badlar (rate for deposits of 
more than ARP 1 million) plus a spread (determined at 
the BCRA auction).  Badlar rates have more than 
doubled in the past year, from 4.4 percent in April 
2005 to 8.9 percent this month.  Currently the BCRA is 
paying interest rates of 12 percent for the 2-year 
Nobac -- roughly equal to expected inflation -- and 
Nobacs now represent 40 percent of the BCRA 
 
instruments. 
 
--------------------------------------------- -------- 
GOA says it will reduce its USD 6.8 billion World Bank 
debt by 30 percent. 
--------------------------------------------- -------- 
 
¶5.  On April 24, an official in the GOA delegation to 
the World Bank and International Monetary Fund spring 
meetings stated that the GOA plans to reduce its USD 
6.8 billion debt with the World Bank by 30 percent, 
and that the GOA plans to focus on borrowing from the 
Inter-American Development Bank, where the GOA will 
ask for new loans to finance infrastructure projects. 
Miceli told the press that the IADB is more responsive 
to GOA policy objectives. 
 
--------------------------------------------- -------- 
GOA considering a USD 600 million debt offering in 
international markets. 
--------------------------------------------- -------- 
 
¶6.  On April 26, business daily El Cronista Comercial 
reported that the GOA is considering tapping 
international markets for USD 600 million to complete 
its 2006 financing program.  According to Cronista, 
the GOA is updating its SEC 18K Form (a document 
summarizing Argentina's economic and political 
performance).  The new instrument would reportedly be 
a USD-denominated bond issued under U.S. law, and 
would be the first debt issuance outside of Argentina 
since the debt restructuring (no further details on 
the bond's financial conditions were reported).  The 
GOA's U.S. legal advisors are working on a strategy to 
allow the GOA to tap international markets without 
running the risk of attachment due to judgments 
obtained by holdout bondholders in U.S. courts.  The 
GOA's financing needs for 2006 are quite low, as 
little as USD 1.5-2.0 billion, according to some 
financial analysts. 
 
--------------------------------------------- -------- 
GOA allowed to impose gas and electricity surcharges 
to finance infrastructure projects. 
--------------------------------------------- -------- 
 
¶7.  On April 26, the Senate approved and turned into 
law a bill allowing the executive branch to charge a 
surcharge on electricity and gas tariffs, with the 
proceeds going into fiduciary trust funds to finance 
infrastructure projects.  The GOA previously had said 
that the surcharge would only affect large users, but 
the bill does not exempt residential users from these 
charges. Opposition senators harshly criticized the 
bill saying it increases residential tariffs and gives 
the Ministry of Planning the power to set tariffs, 
determine investments and award contracts. 
 
--------------------------------------------- -------- 
Amendments facilitate UIF's information gathering on 
money laundering. 
--------------------------------------------- -------- 
 
¶8.  On April 24, the GOA published in the Official 
Gazette the first amendments to the Money Laundering 
Law of 2000.  The amendments will facilitate 
information gathering by the Argentine Financial 
Intelligence Unit (Unidad de Informacion Financiera or 
UIF) by revoking bank, stock exchange and professional 
secrecy defenses against UIF requests for information. 
The amendments also will make it easier for the UIF to 
get access to tax information, and restrict exemptions 
from prosecution for family members and "intimate 
friends" who assist money launderers.  The amendments 
were approved by Congress at the end of March. 
 
--------------------------------------------- -------- 
GOA and textile sector negotiating price restraint 
agreement for basic clothing. 
 
--------------------------------------------- -------- 
 
¶9.  Recently appointed Secretary of Internal Trade 
Guillermo Moreno (see Commentary of the Week) met this 
week with representatives from the textile industry to 
discuss a price restraint agreement covering a basket 
of basic clothing (including shirts, t-shirts and 
jeans of a standard quality).  The agreement seeks to 
freeze prices until the end of the year and is 
expected to be signed next week.  The negotiations 
come after the clothing component of the CPI increased 
6.1 percent m-o-m in March.  Moreno is also pressuring 
shopping centers to fix the price of commercial space 
for those textile manufacturers who agree to the price 
restraints. 
 
--------------------------------------------- -------- 
Employment index increased 0.7 percent m-o-m in March 
- according to Ministry of Labor survey. 
--------------------------------------------- -------- 
 
¶10.  The Ministry of Labor announced that its 
employment index increased 0.7 percent m-o-m in March. 
The construction sector had the highest job creation 
in March (up 2.3 percent m-o-m) followed by 
manufacturing (up 0.9 percent m-o-m) and the trade and 
services sector (up 0.5 percent m-o-m).  The index 
increased 9 percent y-o-y.  (The index is based on 
surveys from the cities of Buenos Aires, Mendoza, 
Rosario and Cordoba). 
 
--------------------------------------------- -------- 
April Government Confidence Index down 6 percent m-o- 
m. 
--------------------------------------------- -------- 
 
¶11.  The Government Confidence Index decreased 6 
percent m-o-m in April to 2.54 points, but is still 
0.6 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, even though it decreased 6 percent m-o-m. 
Public opinion of GOA general performance and 
efficiency of public spending decreased 9 percent and 
14 percent m-o-m, respectively.  The index rose 2 
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.] 
 
--------------------------------------------- -------- 
BCRA rolls over its maturities at lower interest 
rates. 
--------------------------------------------- -------- 
 
¶12.  The BCRA received ARP 252 million in bids at its 
April 25 Lebac auction, compared to the ARP 109 
million in Lebacs that came due during the week, while 
the BCRA received ARP 1.2 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 765 million (ARP 163 million in Lebacs and ARP 
600 million in Nobacs).  The yield on the 35-day Lebac 
decreased slightly from 6.62 percent to 6.60 percent, 
the yield on the 84-day Lebac decreased from 7.20 
percent to 7.10 percent, while the yield on the 1-year 
Lebac remained unchanged at 11.50 percent.  Lebacs for 
maturities of more than one-year were withdrawn due to 
lack of interest.  The spread on the one-year Nobac 
decreased sharply (forty basis points) from 2.90 
percent to 2.50 percent, while the spread on the two- 
year Nobac dropped forty five basis points from 4.15 
percent to 3.70 percent.  This auction continues the 
previous auctions' shift from Lebacs to Nobacs.  This 
shift is due to the market's desire to acquire 
 
instruments with flexible interest rates.  The Badlar 
rate (the base rate for Nobacs) is currently at 8.9 
percent. 
 
--------------------------------------------- -------- 
Six provinces sign agreements with the GOA to refinance ARP 
3.0 billion provincial debt. 
--------------------------------------------- -------- 
 
¶13.  On April 26, local media reported that six provinces 
(Buenos Aires, Entre Rios, Jujuy, Misiones, Rio Negro and 
Tucuman) had signed agreements with the GOA to refinance 
their ARP 3.0 billion in provincial debt to the GOA.  The 
agreement will allow provinces to refinance their loans for 
seven years at a 6 percent fixed rate, with the first 
principal payments due in January 2008.  In exchange, 
provinces agreed to ratify to the Fiscal Responsibility Law 
(if they had not already done so), committed to expenditure 
and debt restrictions, and the need to report on their 
fiscal situation.  Five additional provinces (Catamarca, 
Cordoba, Chaco, Corrientes and Formosa) are expected to 
follow suit in coming weeks.  Total provincial debt stands 
at ARP 75 billion, of which 70 percent is owed to the GOA. 
 
--------------------------------------------- -------- 
IADB approves USD 280 million loan to Argentina. 
--------------------------------------------- -------- 
 
¶14.  On April 26, the Board of Directors of the Inter- 
American Development Bank (IADB) approved a USD 280 
million loan to Argentina.  The loan will finance 
scientific and technological projects in the areas of 
biotechnology, chemical sciences, information 
technology and cattle and crop farming.  The loan 
matures in 20 years, has a 4.5-year grace period and 
carries a variable interest rate. 
 
--------------------------------------------- -------- 
The peso appreciated 1 percent against the USD during 
the last two weeks, closing at 3.06 ARP/USD. 
--------------------------------------------- -------- 
 
¶15.  The peso appreciated 1.0 percent the USD during 
the last two weeks, closing at 3.06 ARP/USD.  The peso 
appreciation is mainly attributed to increased sales 
by exporters due to the harvest season and increased 
demand for pesos by companies who have to pay the 
income tax at the beginning of May.  The appreciation 
of the peso also came in spite of strong BCRA 
intervention in the foreign exchange market.  During 
the last two weeks, the BCRA purchased USD 757 million 
and has accumulated USD 1.1 billion so far in April, 
bringing BCRA reserves to USD 22.2 billion (as of 
April 25).  The peso exchange rate has depreciated 0.3 
percent since the beginning of the calendar year. 
 
--------------------------------------------- -------- 
February monthly economic activity index up 9.5 
percent y-o-y - stronger than expected. 
--------------------------------------------- -------- 
 
¶16.  The monthly economic activity index increased 
9.5 percent y-o-y in February, well above the BCRA 
market survey forecast of 8.9 percent.  The growth in 
the index is the result of continued strong activity 
in the construction and tourism sectors as well as by 
public infrastructure projects.  The index increased 
1 percent m-o-m after remaining flat the previous 
month.  The latest BCRA consensus survey estimates 
8.6 percent economic activity growth for 2006, an 
upward revision from its previous forecast of 7 
percent.  The monthly economic activity index is 
viewed as a reliable leading indicator of GDP. 
 
--------------------------------------------- -------- 
GOA and beef sector reached an agreement to reduce 
beef prices. 
--------------------------------------------- -------- 
 
¶17.  On April 20, the GOA reached an agreement with 
the beef sector to reduce beef prices on twelve 
popular cuts by 15 percent, expanding a previous 
agreement (signed at the beginning of April) which 
included eleven popular cuts.  This latest agreement 
includes a series of reference prices for use by 
meatpackers selling beef to wholesalers at the Liniers 
cattle market, and suggested prices for butchers and 
supermarkets selling to the public.  The GOA also 
promised to create fiduciary trust funds within 90 
days to promote investment and increase domestic 
cattle supply.  These trust funds will be financed by 
the price difference between the market price that 
meatpackers pay ranchers at Liniers and the reference 
price in the agreement.  The recently appointed and 
renamed Secretary of Internal Commerce, Guillermo 
Moreno, said that this agreement will help reduce 
inflation and reiterated that the GOA may lift the ban 
on beef exports once domestic beef prices fall 
significantly.  [At the beginning of March 8, the GOA 
imposed a ban beef exports for 180 days and raised 
export taxes on boned cuts and heat-processed beef 
from 5 percent to 15 percent in an attempt to keep 
inflation under control.] 
 
--------------------------------------------- -------- 
GOA runs an ARP 1.4 billion primary fiscal surplus in 
March - lower than expected. 
--------------------------------------------- -------- 
 
¶18.  The GOA announced a primary fiscal surplus of ARP 
1.4 billion in March, below market expectations of ARP 
1.6 billion.  This brings the accumulated fiscal 
surplus for the first quarter of 2006 to ARP 4.9 
billion, compared to ARP 4.2 billion in the same 
period last year.  The lower-than-expected March 
result is the result of higher expenses, mainly debt 
interest payments, transfers to provinces and capital 
expenditures.  In March, revenues increased 25.6 
percent y-o-y to ARP 11.2 billion, while expenditures 
rose 26.7 percent y-o-y to ARP 9.2 billion.  The 
primary fiscal surplus increased 13.7 percent y-o-y. 
The BCRA consensus forecasts an ARP 22.6 billion 
primary fiscal surplus for 2006. 
 
--------------------------------------------- -------- 
GOA increases public sector wages by 19 percent. 
--------------------------------------------- -------- 
 
¶19.  On April 19, the GOA announced that it will 
increase public sector salaries by 19 percent. 
However, only one of the two public sector unions 
agreed to this increase, while the union representing 
the majority of the public sector employees rejected 
the increase and continued to demand a 30 percent 
increase.  The 19 percent increase will be implemented 
in two stages, 10 percent in June and 9 percent in 
August.  The increase will benefit 87,000 workers and 
will not jeopardize the GOA's primary fiscal surplus 
as half of the increase was already provided for in 
2006 Budget.  According to Indec (the GOA statistics 
bureau), public sector salaries have lost 28 percent 
of their purchasing power since the 2002 devaluation 
(without this most recent salary increase).  This 
agreement tracks with the 19 percent salary increase 
agreement reached between the GOA and the truckers' 
union two weeks ago. 
 
--------------------------------------------- -------- 
Domestic oil prices under pressure. 
--------------------------------------------- -------- 
 
¶20.  On April 20, Esso's Public Affairs Director 
denied there would be any increase in domestic oil 
prices following the recent increase in international 
oil prices (which remained above USD 70 per barrel 
during the week), or a reduction in domestic supply. 
However, he noted that Argentine domestic oil prices 
are 40-50 percent below oil prices in Brazil.  Esso's 
 
representative also said that oil producing companies 
and non-integrated refining companies are currently in 
negotiations over the domestic price refiners will pay 
for crude oil. 
 
¶21.  Earlier in the week of April 21, Chief of Cabinet 
Alberto Fernandez denied that recent increases in 
international oil prices would impact domestic prices 
given the agreement between producing and refining 
companies.  However, the companies say that this 
agreement expires when international oil prices rise 
above USD 70 per barrel.  [Under the current agreement 
with a price of oil of USD 70 per barrel, oil 
companies can sell to the domestic market at USD 45 
per barrel, while they can export at USD 47.6 per 
barrel.]  According to press reports, non-integrated 
refining companies (such as Esso and Shell) are asking 
the GOA to reach a new agreement since the oil 
increase is hurting their potential earnings.  An 
increase in domestic oil prices could undermine the 
GOA's attempt to control inflation, which is 
forecasted to increase by 1 percent m-o-m in April. 
 
--------------------------------------------- -------- 
Ministry of Planning to take over military 
manufacturing from the Ministry of Economy. 
--------------------------------------------- -------- 
 
¶22.  On April 18, the Senate Defense and Budget 
Committee approved the bill to transfer "Fabricaciones 
Militares" (the agency in charge of purchasing and 
producing national defense arms and equipment) from 
the Ministry of Economy to the Ministry of Planning. 
The bill is scheduled for debate at the Senate on May 
3 and is expected to be approved.  It would be the 
latest in a string of transfers of resources and 
authority to Minister of Planning De Vido at the 
expense of Minister of Economy Felisa Miceli.  In 
another area, the GOA is planning to transfer the Air 
Regions Command, the Argentine FAA, from the Ministry 
of Defense to the Secretariat of Transportation in the 
Ministry of Planning. 
 
--------------------------------------------- -------- 
IMF recommends higher utility tariffs and interest 
rates and a flexible exchange rate. 
--------------------------------------------- -------- 
 
¶23.  In its World Economic Outlook report, the 
International Monetary Fund (IMF) praised Argentina's 
strong expansion but warned that the GOA should 
increase utility tariffs, let the peso appreciate and 
control inflation to avoid damage Argentina's 
competitiveness.  The IMF recommended a combination of 
higher interest rates and exchange rate flexibility to 
manage domestic demand pressures and keep inflation 
under control.  The IMF revised upwards its GDP growth 
estimate from 4.3 percent to 7 percent, while 
estimating that inflation will reach at 12.9 percent 
in 2006 and 15 percent in 2007.  This revised IMF 
growth estimate continues to lag behind local growth 
estimates (see first item above). 
 
--------------------------------------------- -------- 
March industrial production index up 7.5 percent y-o- 
y. 
--------------------------------------------- -------- 
 
¶24.  The industrial production index rose 7.5 percent 
y-o-y in March, in line with market expectations. 
First quarter growth was 0.5 percent q-o-q.  During 
March, the fastest growing sectors were auto 
production (up 28 percent), tobacco production (up 16 
percent), and minerals (up 17 percent).  There was a 
slight decrease in paper and cardboard (-3.8 percent). 
The index increased 11.6 percent m-o-m without 
seasonal adjustment and 0.4 percent m-o-m when 
seasonally adjusted.  The BCRA consensus survey 
forecasts 6.8 percent industrial production growth for 
 
2006 - a slight upward revision from the previous 6.4 
percent forecast. 
 
¶25.  The industry-wide capacity utilization index 
reached 71.6 percent in March, up 1.3 percent over 
February and just slightly higher than the 71 percent 
reached in March 2005.  The sectors showing the 
highest capacity utilization were metal based 
industries (98.8 percent), oil refining (94.0 
percent), textiles (80.5 percent), and printing (78.0 
percent).  The sectors with the lowest capacity 
utilization were auto production (52.0 percent) and 
minerals (58.0 percent). 
 
--------------------------------------------- -------- 
April Consumer Confidence Index down 9.8 percent m-o- 
m. 
--------------------------------------------- -------- 
 
¶26.  The Consumer Confidence Index -- published by 
Universidad T. Di Tella - dropped 9.8 percent m-o-m to 
54.0 points in April, after reaching its all-time high 
of 59.9 points in March.  The index decreased in all 
three of its subcomponents: consumer willingness to 
purchase durable goods and real estate (-13.2 percent 
m-o-m), consumer sentiment towards the macroeconomic 
environment (-9.16 percent m-o-m) and negative 
expectations on individual personal situations (-7.8 
percent m-o-m).  Despite April's decrease, the index 
increased 1.7 percent in the first four months of 2006 
compared to the same period last year.  The index 
increased 3.4 percent y-o-y.  The index is based on 
surveys of individual economic sentiment and consumer 
willingness to purchase durable goods, houses and 
cars. 
 
--------------------------------------------- -------- 
Retail sector employees agree to a 19 percent salary 
increase. 
--------------------------------------------- -------- 
 
¶27.  On April 17, Minister of Labor Carlos Tomada 
announced that retail workers had agreed to a 19 
percent wage increase, down from the 28 percent they 
had demanded at the beginning of negotiations.  The 
increase will be implemented in three installments: 10 
percent in April, 5 percent in June and the remaining 
4 percent in August.  This agreement will benefit 
800,000 workers in 180,000 companies, according to 
press reports.  This increase is also in line with 
recent wage increases for the truckers' union and 
public sector workers. 
 
--------------------------------------------- -------- 
GOA envisions tripling its gas imports from Bolivia in 
¶2008. 
--------------------------------------------- -------- 
 
¶28.  On April 18, the Minister of Planning Julio De 
Vido met with Bolivian Vice-president Alvaro Garcia 
and informed him of the GOA's intention to sign a long- 
term (30-year) agreement to triple gas imports from 
Bolivia from the current maximum of 7.7 million cubic 
meters to almost 23 million cubic meters per day in 
¶2008.  However, they did not discuss the price to be 
paid for gas from Bolivia, leaving that discussion for 
technical officials.  The additional gas would be used 
to supply the proposed USD 1.2 billion north-east gas 
pipeline (GNEA), which would transport up 20 million 
cubic meters per day to Argentina's nine northeastern 
provinces when it reaches full capacity. 
 
--------------------------------------------- -------- 
Argentina scores 41 points in a Venture Capital index 
- behind most Latin American countries. 
--------------------------------------------- -------- 
 
¶29.  The Latin American Venture Capital Association 
(LAVCA) introduced a scorecard on the private equity 
 
and venture capital environment for eleven Latin 
American and Caribbean countries to identify regional 
strengths and weaknesses.  In the scorecard's first 
release, Argentina scored 41 points (out of a maximum 
of 100), behind Chile (at 76 points), Brazil (59 
points), Mexico (54 points) and Peru (47 points), but 
slightly ahead of Uruguay, which scored just 40 
points.  [The main factors that the score takes into 
account are: laws on venture capital; tax treatment 
for venture capital; protection of minority 
shareholder's rights; intellectual property rights; 
bankruptcy regulation; capital market development; and 
perceived corruption.] 
 
--------------------------------------------- -------- 
IMF denies rumors of the closure of its Buenos Aires 
office. 
--------------------------------------------- -------- 
 
¶30.  On April 18, local press reports quoted the 
International Monetary Fund (IMF) as denying rumors 
that it will close its Buenos Aires office now that 
Argentina has prepaid its USD 9.5 billion debt to the 
IMF at the beginning of the year.  The IMF explained 
that the office is key for better communications 
between the country and the IMF.  The IMF said that 
Ernesto Ramirez Rigo will head the Buenos Aires 
office, replacing Andrew Wolfe, who was transferred to 
Washington before the end of his term.  Rigo has been 
working in the Buenos Aires office as a resident 
representative. 
 
--------------------------------------------- -------- 
Commentary of the Week: "The Style of One of 
Kirchner's Most Controversial Officials, Moreno, the 
Tough Guy Who Guards Prices."  By Joaquin Morales 
Sola, translated and edited from an article published 
on April 23 in La Nacion 
--------------------------------------------- -------- 
 
¶31.  Guillermo Moreno believes that he who strikes 
first strikes twice.  Designated yesterday as 
Secretary of Internal Trade in the Ministry of 
 
SIPDIS 
Economy, his mission will be to provide Nestor 
Kirchner with a single-digit annual inflation rate ... 
His first objective: the price of beef.  The initial 
reaction of producers and consigners has been 
stupefaction, from which they have not yet recovered. 
 
¶32.  Moreno, who in his youth was a militant in the 
most radical wing of the Peronist youth movement ... 
is an economist who is not ignorant of the textbooks 
of his specialty.  Some would say that he understands 
it badly, but he understands it.  In turn, he is 
frequently contradictory.  He is a fervent devotee of 
maintaining a fiscal surplus, to the point that he 
scorns heterodox economists who promote deficit 
spending, yet his orthodoxy vanishes when he 
encounters the laws of the marketplace. 
 
¶33.  Moreno is convinced that his job is to distrust. 
He distrusts above all businessmen, whom he considers 
a condemned race that will injure the common people if 
governments do not protect and mediate between them. 
While classical economics tells us that only 
investment and competition can restrain prices, he is 
convinced that the club of the State is much more 
efficient, expedient and overwhelming. 
 
¶34.  Kirchner put him where he did because Kirchner 
has similar convictions.  Moreno already told his 
associates that he will examine each link in the beef 
production chain and establish the level of profit 
sufficient for each step in this complicated process. 
This is not a new thought on his part.  He already did 
this as Secretary of Communications, where he 
admonished the telephone companies because they had 
made a lot of money in the 1990's. 
 
¶35.  He stopped singing this song when a Spanish 
executive replied: "We made a lot of money when the 
national circumstances and the economy were right, 
which were circumstances created by the Argentine 
government.  So now we have to lose a lot of money 
because we made a lot before?"  Moreno never believed 
in these arguments, but he saw, in that moment, that 
he lacked the political support to continue with his 
offensive. 
 
¶36.  He practices the method of attacking first and 
negotiating afterwards.  After various apocalyptic 
encounters with the telephone companies, he ended up 
liberalizing the cellular market for them.  It was a 
way of compensating them for the freeze on the price 
of land line telephones.  As a result, the telephone 
companies have not done badly. 
 
¶37.  Another story is about the abuse he heaps on 
executives and businessmen who meet with him.  One 
group of executives from one of the principal 
telephone companies had to endure a statement by 
Moreno that was so aggressive and scatological 
(impossible to recount here within the bounds of good 
taste) that one of them later fainted. 
 
¶38.  Moreno only believes in the experience of men in 
their 50's or 60's.  He demands that those businessmen 
who have not reached that age show him the palms of 
their hands or the soles of their shoes.  "There 
aren't calluses on these hands.  You can't run a 
business that way," he said to one.  He reproached 
another one with "those shoes aren't worn.  You aren't 
capable of leading a company." 
 
¶39.  He has no pity with heretics from Kirchnerismo. 
Two years ago, at an IDEA seminar, he heard an 
executive of a telephone company call for creating the 
conditions needed to attract investment to Argentina. 
"This discussion is in opposition to the Government!" 
he exploded.  He demanded that the company remove the 
executive in question immediately.  The executive left 
his position a few hours later. 
 
¶40.  The most instructive anecdote of all is about 
Moreno's meeting with the National Communications 
Commission, an entity made up of government delegates 
from around the country.  When he arrived for the 
meeting, Moreno pulled a pistol out of his belt and 
put it down on the table.  "He did it naturally, as if 
it was a cellphone," said one of the stupefied 
witnesses.  Intimidation or just the swagger of power? 
No one knows.   His own boss, Minister Julio De Vido, 
refers to him, to other people, as "the Crazy" ("El 
Loco").   "What does the Crazy think about this 
issue?" asks the minister, and everyone knows that he 
is referring to Moreno. 
 
¶41.  This brand new official of the Ministry of 
Economy also insists that the bodyguards of ministers, 
who are members of the Federal Police but wear 
civilian dress, stand to attention for him.  "You are 
police officers?" he asks.  "Yes," they reply.  "Then 
stand to attention for me, because I am a Secretary of 
the Government."  Police in civilian dress are not 
required to stand to attention for anyone. 
 
¶42.  Moreno admires the economic experience of the 
first Peron administration, and surrounds himself with 
economists who think along similar lines, such as 
Eduardo Curia.  In Moreno's old offices in the 
Ministry of Planning, this team managed to disrupt 
even the celebrated, Buddha-like composure of former 
Economy Minister Lavagna. 
 
¶43.  Since Kirchner came to power, Moreno has 
struggled against wind and tide to bring Argentina 
into an axis with Venezuela and Bolivia.  This is his 
cosmic vision of the world and Argentina.  While other 
 
ministers (such as Foreign Minister Taiana, among 
others) have doubts about the institutional management 
of Hugo Chavez, Moreno ignores these naysayers and 
remains enchanted by the state nationalism, with a 
populist bias, of the talkative strongman from 
Caracas.  Chavez is, for Moreno, the model of a South 
American leader given the current and historical 
conditions in the region. 
 
¶44.  In dealing with public service companies in the 
past, Moreno had to restrain his aggression to insults 
in most cases.  These companies have to get along with 
the government, but they also usually have the 
protection of important foreign governments.  His 
mistreatment of Spanish businessmen finally forced the 
Argentine ambassador in Madrid, Carlos Bettini, to 
complain to his friend Kirchner.  The ambassador also 
complained about other officials of the Planning 
Ministry. 
 
¶45.  Now, Moreno has to deal with private businesses 
that, in principle, aren't dependent on the state, but 
who also lack, in many cases, any foreign protection. 
How will Moreno be in this process?  "He'll be the 
same.  First he will attack and then he will 
negotiate.  First he will choose an enemy, then he 
will knock him down, and later he will cut a deal with 
his successor," suggested an official who knows him 
well.  He has the face and mannerisms of a tough guy 
and, if any doubt remains, he always has an arrogant 
remark ready to confirm it. 
 
¶46.  He began being himself.  In recent days, he 
called private businessmen, at the ridiculous hour of 
6:30 AM, to advise them that they cannot raise prices 
without notifying him in advance.  "Don't even think 
about raising prices unless I know about it 
beforehand," he warns. 
 
¶47.  Lavagna built a concrete wall around the Ministry 
of Economy to keep Moreno out.  Felisa Miceli had 
another candidate to be Secretary ... (who, perhaps, 
would not have been much better than Moreno), but she 
decided to accede to the President's decision.  A 
vapor of weakness has surrounded Miceli since De Vido 
took charge of the major economic responsibilities. 
Moreno only listens to De Vido, his mentor and 
godfather. 
 
¶48.  His loyalty to De Vido is so great that he once 
called an important public service business and 
demanded that it withdraw a newspaper advertising 
campaign that did not paint the minister in a 
flattering manner.  "Let me be perfectly clear: not 
one centimeter of this advertising or you will never 
speak with me again," he warned. 
 
¶49.  But Kirchner always prefers mute loyalty and 
obedience to any presumption of political or 
intellectual independence.  This is why his most 
recent appointments have not lacked a certain 
eccentricity.  His cabinet is, increasingly, a sea of 
conformity and meekness.   Is there a problem in the 
country?  Are beef prices rising, for example?  In 
such moments, the entire cabinet automatically looks 
to the President, hoping that the recurrent and 
destructive idea of doing something new will come to 
him.  (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