VZCZCXYZ0009
RR RUEHWEB

DE RUEHBU #0066/01 0161945
ZNR UUUUU ZZH
R 161945Z JAN 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 6971
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000066 
 
SIPDIS 
 
SIPDIS 
 
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC 
PASS NSC FOR JOSE CARDENAS 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN 
TREASURY FOR ALICE FAIBISHENKO 
USDOC FOR ALEXANDER PREACHER AND JOHN ANDERSEN 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB ENRG AR
SUBJECT: Argentina Economic and Financial Weekly for the week ending 
January 12, 2007 
 
 
¶1. Provided below is Embassy Buenos Aires' Economic and Financial 
Review, covering the period January 8 - 12, 2007.  The unclassified 
email version of this report includes tables and charts tracking 
Argentine economic developments.  Contact Econoff Chris Landberg at 
landbergca@state.gov to be included on the email distribution list. 
 
----------------- 
Weekly Highlights 
----------------- 
 
- Central Bank earns $1.4 billion on investments of official 
reserves. 
-- Central Bank successfully issues ARP 332 million of new 
three-year Nobacs. 
-- GoA increases export taxes on soy and soy-products to subsidize 
local consumption, avoid price increases. 
-- Planning Minister De Vido receives ARP 1.2 billion additional 
funds to subsidize energy and transportation. 
-- GoA allows 15% electricity tariff increase for commercial and 
industrial users. 
 
------------------- 
Banking and Finance 
------------------- 
 
Central Bank earns $1.4 billion on investments of official 
reserves. 
--------------------------------------------- ------ 
¶2. The Argentine Central Bank (BCRA) announced that it had earned 
$1.4 billion in 2006 on its investment of reserves, representing a 
5.7% annual yield.  According to the BCRA, the positive result was 
due to three factors:  the extension of maturities of its 
investments, currency diversification (especially EUR and JPY) and 
gold investments.  A top BCRA official privately stated to Econoffs 
on January 11 that the BCRA could have earned a higher yield -- in 
the 6.00 to 6.10% range -- if it were free to invest the reserves 
without fear of attachment by holdout bondholders.  As of January 5, 
BCRA reserves stood at $32.3 billion. 
 
Central Bank successfully issues ARP 332 million of new three-year 
Nobacs. 
--------------------------------------------- ------- 
¶3. The BCRA received ARP 3.0 billion in bids at its January 9 Nobacs 
auction, during which the BCRA introduced its new 3-year, fixed and 
variable rate Nobacs.  Prior to this, Nobacs' longest maturity had 
been two years.  (Note:  Nobacs are medium-term paper, denominated 
in pesos or dollars, which the BCRA issues to manage liquidity). 
The BCRA accepted only 11% of bids, issuing ARP 324 million of 
variable rate Nobacs and ARP 8 million of fixed rate Nobacs (with a 
coupon of 8%).  The yield on the fixed rate Nobacs reached 11.95%, 
and on the variable rate Nobacs stood at 12.20%.  Banks' strong 
participation guaranteed the success of the auction.  They find the 
variable rate Nobacs especially attractive as a hedging tool against 
increasing interest rates.  The introduction of the three-year 
Nobacs will also allow the BCRA to extend further the average life 
of its portfolio, which currently stands at 350 days.  (Note:  The 
BCRA extended this by 40% in 2006, from 250 days). 
 
--------------- 
Economic Policy 
--------------- 
 
GoA increases export taxes on soy and soy-products to subsidize 
local consumption, avoid price increases. 
--------------------------------------------- -------- 
¶4. During a January 11 press conference, Minister of Economy Felisa 
Miceli announced that the GoA would increase export taxes on soy and 
soy products by four percentage points to 27.5% and 24%, 
respectively.  Miceli said the GoA expected to collect an additional 
$400 million from the export tax increase, which it will use to 
subsidize domestic consumption of wheat, corn and soy.  The Minister 
explained that the subsidies will be channeled to a GoA agency 
(called AG Commercial Control agency), which will distribute funds 
to millers, dairy farmers and beef and poultry producers, as a means 
to avoid increases in the price of flour, bread, pasta, and dairy 
products.  She argued that increases in international commodity 
prices had increased the cost of products included in the basic food 
basket.  The announcement was not a surprise, since rumors of an 
export tax increase on soy or wheat have been circulating for the 
last month.  This is one more attempt by the GoA to use heterodox 
 
 
methods to keep inflation under control -- methods that have had at 
least temporary success, with inflation falling to single digits 
(9.8%) in 2006.  Nevertheless, non-government Argentine economists 
are already forecasting a rougher time in 2007 -- beginning with at 
least a 1% m-o-m increase in the January 2007 CPI due to price 
increases for food, cigarettes, health care fees, taxis, tourism, 
and electricity (see below). 
 
Planning Minister De Vido receives ARP 1.2 billion additional funds 
to subsidize energy and transportation. 
--------------------------------------------- ------ 
¶5. On January 11, the GoA published two resolutions (1082 and 1083) 
in the Official Gazette amending the 2006 Budget.  GoA Chief of 
Cabinet Alberto Angel Fernandez -- empowered by the "Superpowers" 
amendment to the Financial Administrative Law, which gives him 
discretionary authority to reconfigure the budget without 
Congressional approval -- is using these resolutions to redistribute 
ARP 1.2 billion to the Ministry of Planning -- led by powerful 
Minister (and President Kirchner's top advisor) Julio De Vido -- to 
fund additional subsidies for electricity (ARP 423 million) and 
transportation (ARP 554 million), as well as to finance housing 
projects (ARP 309 million).  This is the GoA's first action in 2007 
to use its control over the budget to finance expenditures that will 
win votes in the October election. 
 
------ 
Energy 
------ 
 
GoA allows 15% electricity tariff increase for commercial and 
industrial users. 
--------------------------------------------- ---- 
¶6. On January 8, the GoA published in the Official Gazette two 
decrees (1957 and 1959) allowing two distribution companies (Edenor 
and Edesur) to implement a 15% electricity tariff increase on 
commercial and industrial users that had been agreed on over a year 
ago.  The tariff increase, which will affect 600,000 users, will be 
retroactive to November 2005.  The GoA had earlier authorized GasBan 
(the gas distribution company controlled by Spain's Gas Natural) to 
increase gas tariffs by an average 17% for commercial and industrial 
users in April 2006.   Increases to residential users will not be 
introduced until 2008, which was expected given the presidential 
election in October; however, consumers may be indirectly be 
affected by the increases since companies will likely attempt to 
pass-through the increased costs to consumers.  (Note:  Edenor and 
Edesur jointly provide energy to 3.7 million residential users.) 
 
¶7. To see more Buenos Aires reporting, visit our classified website 
at:  http://www.state.sgov.gov/p/wha/buenosaires 
 
 
WAYNE 
 
2