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DE RUEHBU #0550/01 0811040
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P 221040Z MAR 07
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C O N F I D E N T I A L BUENOS AIRES 000550 
 
SIPDIS 
 
SIPDIS 
 
WHA FOR WHA/BSC, WHA/AND, WHA/EPSC 
EB/IFD/OIA FOR WSCHOLZ, MTRACTON 
EB/IFD/OMA FOR AHAVILAND AND ASIROTIC 
PASS NSC FOR JOSE CARDENAS 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
TREASURY FOR NLEE, MMALLOY, LTRAN 
 
E.O. 12958: DECL: 03/20/2027 
TAGS: EFIN EAID ENRG EAGR ETRD AR VZ
SUBJECT: CENTRAL BANK PRESIDENT REDRADO PRIVATELY WARNS GOA 
AGAINST USING RESERVES TO CAPITALIZE BANCO DEL SUR 
 
 
Classified By: Ambassador E.A. Wayne for Reasons 1.4 (b,d) 
 
¶1. (C) During a March 16 meeting, Argentine Central Bank 
(BCRA) President Martin Redrado (STRICTLY PROTECT) told the 
Ambassador that GoA officials had not/not formally approached 
him to discuss the prospect of using BCRA reserves to 
capitalize the Banco del Sur, the Venezuelan proposed 
regional development bank that has received commitments from 
Argentina, Brazil, and Bolivia to join an exploratory 
committee.  (Note:  Redrado contrasted this with the GoA's 
plan to pre-pay its entire $10 billion debt to the IMF in 
January 2006, which he said he was aware of and began 
planning for almost a year in advance.  End Note). 
Therefore, despite frequent statements to the contrary in the 
press, Redrado said it was far from clear that the BCRA would 
have any role. 
 
¶2. (C) Redrado also speculated that the Banco del Sur itself 
was far from a sure thing.  He understood that Venezuelan 
President Chavez wanted it badly, and was pushing to host the 
headquarters in Caracas.  However, Redrado said he also 
understood that the Brazilians were particularly wary of it, 
stemming from their concern that the Banco del Sur could end 
up using the regions money to support large and unviable 
infrastructure projects. 
 
¶3. (C) The Ambassador pointed out that using BCRA reserves 
for the Banco del Sur could complicate Argentina's 
discussions with Paris Club creditors, since the GoA had 
rejected using reserves to pay bilateral debt, arguing that 
this would go against the BCRA's Charter and would also 
undermine Argentina's effort to accumulate adequate reserves 
to protect against external shocks.  Redrado retorted that, 
"no, Tony, it could be much worse than that."  Asking EconOff 
to stop taking notes, Redrado (STRICTLY PROTECT) said he had 
taken steps to warn President Kirchner that the appearance of 
the GoA using the Central Bank's reserves to fund special 
projects, including the Banco del Sur, could undermine the 
GoA's New York court cases against holdouts from the 2005 
debt exchange. 
 
¶4. (C) Redrado noted that Judge Thomas Griesa, from the U.S. 
District Court for the Southern District of New York 
(supported by a January 5 ruling by the U.S. Court of Appeals 
for the Second Circuit in New York), had so far accepted the 
GoA's argument that the BCRA was a separate entity from the 
GoA, and that BCRA payments to the IMF did not constitute 
"commercial activity," and were therefore protected by the 
Foreign Sovereign Immunities Act of 1976.  Griesa had, 
therefore, denied holdouts attempts to attach $105 million of 
BCRA funds held at the Federal Reserve Bank of New York (or 
any other BCRA reserves destined to pay IFI debt).  Redrado 
was warning the Casa Rosada that the GoA would undermine its 
own position if it came across as directing official reserves 
where and when it wanted.  (Note:  indeed, recent local press 
reports -- in connection with discussions of the Banco del 
Sur -- have stated that the so-called "vulture funds" had 
become more active in recent weeks, and were renewing their 
focus on possibilities for attaching Central Bank assets. 
End Note). 
 
¶5. (C) Comment:  While GoA officials would likely brush off 
arguments that using reserves to capitalize the Banco del Sur 
would cause a rift with Paris Club creditors, arguing that it 
is legitimate for the BCRA to diversify its investments to 
 
 
 
seek a higher overall return.  However, Redrado's argument 
will be harder to refute, as it might be tough to convince 
New York courts that using reserves to fund commercial 
investments in the hemisphere is not "commercial activity." 
Therefore, Redrado's warning may well result in the GoA 
finding other means to capitalize the bank -- possibly using 
the Treasury's own reserves, which local press have reported 
are in the $2 billion range.  End Comment. 
WAYNE