VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1514/01 2151936
ZNR UUUUU ZZH
R 031936Z AUG 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 8819
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6416
RUEHMN/AMEMBASSY MONTEVIDEO 6626
RUEHSG/AMEMBASSY SANTIAGO 0636
RUEHBR/AMEMBASSY BRASILIA 6274
RUEHSG/AMEMBASSY SANTIAGO 0637
RUEHLP/AMEMBASSY LA PAZ AUG SAO PAULO 3453
RUEHRI/AMCONSUL RIO DE JANEIRO 2294

UNCLAS BUENOS AIRES 001514 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
EB/OMA FOR ASIROTIC, IDETWEILER 
EB/ESC/IEC/EPC FOR MMCMANUS, JIZZO 
WHA/EPSC FOR PMEIER 
E FOR THOMAS PIERCE 
PASS NSC FOR DPRICE, MSMART 
PASS USTR FOR KATHERINE DUCKWORTH AND MARY SULLIVAN 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
TREASURY FOR NLEE AND LTRAN 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: EINV ECON ENRG EPET PREL AR
SUBJECT: PRESIDENT CHAVEZ'S AUGUST 6 VISIT TO ARGENTINA: BONDS, 
ENERGY, BOLIVARIAN FRATERNITY 
 
Ref: (a) Buenos Aires 1415 
     (b) Buenos Aires 311 
     (c) Caracas 1518 
     (d) Buenos Aires 55 
     (e) 06 Buenos Aires 2240 
 
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Summary 
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¶1. (SBU) President Chavez arrives in Buenos Aires August 6 for a 
meeting with President Kirchner en route to Bolivia.  The agenda 
will be principally economic:  the issuance of a third tranche of 
the joint GoA/GoV "Bono del Sur" valued at up to US$1 billion will 
be announced.  Other likely announcements will include the proposed 
joint construction of an LNG de-gasification plant in Argentina, the 
sale of Venezuelan diesel fuel to Argentina to address current 
shortages, and Argentine technical assistance in the construction of 
new industrial good factories in Venezuela.  Our GoA contacts 
continue to emphasize that Argentina's relationship with Caracas 
remains pragmatic and principally driven by economic considerations, 
and that they share neither Chavez's social ideology nor his 
Bolivarian ambitions. 
END SUMMARY 
 
¶2. (U) President Chavez arrives the afternoon of Monday, August 6 in 
Buenos Aires for a dinner meeting with President Kirchner and first 
lady Cristina Kirchner, following which agreements on a new tranche 
of GoV-supported financing and agreements in the energy sector are 
to be announced.  Chavez is scheduled to depart Buenos Aires for 
Bolivia early Tuesday morning. 
 
------------------------------------------- 
Argentina Seeks Additional GoV Bond Support 
------------------------------------------- 
 
¶3. (SBU) Argentine and Venezuelan media are reporting Presidents 
Chavez and Kirchner will announce the issuance of a third tranche of 
the "Bono del Sur" during Chavez' visit.  Although the press reports 
that GoA Finance Secretary Sergio Chodos recently returned from Bono 
del Sur negotiations in Caracas, Post's contacts at the GoA Economy 
Ministry cannot (or will not) confirm that the two governments have 
concluded an agreement on the issuance.  Nevertheless, media reports 
speculate that it will consist of US$500 million from each country, 
or US$1 billion total, possibly followed up later in the year with 
two more issuances of $500 million (or $250 million each). 
 
¶4. (SBU) Local analysts have questioned why the GoA would want to 
move forward with this issuance now, given recent increases in 
Argentina's country risk premium and GoA public statements that it 
currently has sufficient funds to cover expected expenditures for 
the remainder of 2007.  If the GoA were to sell dollar-denominated 
Boden 2015 (7-year) bonds to the GoV at current market prices, it 
would pay a yield of about 10.4%, 240 basis points higher than rates 
for equivalent maturity bonds paid in February.  It would seem more 
prudent to give the markets time to settle, and issue after country 
risk spreads have fallen (as most analysts expect will happen over 
the next few months). 
 
¶5. (SBU) NOTE: Although both the GoA and GoV trumpet the Bono del 
Sur as a vehicle for Venezuela to help Argentina, the benefit to 
Argentina is limited at best.  The instrument appears more of a 
political creation than a financial instrument, since the the Bono 
is simply a packaging of normal Argentine and Venezuelan bonds that 
money center market players strip out upon purchase.  From the GoA's 
perspective, there is no/no difference between issuing bonds in a 
private placement to Venezuela or just selling them via local 
auction, since the end buyers are the same (international banks, 
hedge funds) and they are both issued at market rates.  On the other 
 
 
 
 
hand, Venezuela -- or at least the GoV and connected Venezuelan 
banks -- does derive some benefit from the transaction, by using the 
sale of the Argentine bonds to manipulate the difference in official 
and parallel exchange rates.  END NOTE. 
 
¶6. (SBU) Although the GoA does not appear to benefit economically 
from the Bono del Sur, it has benefited from overall GoV purchases 
of Argentine bonds, particularly the first GoV purchases in 2005. 
AT that time there was less interest in Argentine bonds and the 
Venezuela placements helped widen the market (given Argentina's 
inability to issue debt under international law).  Since May 2005, 
the GoA has issued $5.5 billion in debt to the GoV, of which 23% or 
$1.2 billion has been included in Bono del Sur issuances.  For the 
first tranche, in November 2006, the GoA issued $500 million of 
dollar-denominated Boden 2012s (5-year) and Boden 2015s (7-year). 
The GoA issued $750 million of Boden 2015s for the second tranche in 
February 2007. 
 
---------------------------- 
Likely Energy Sector Accords 
---------------------------- 
 
¶7. (SBU) Local media is reporting that Chavez/Kirchner will announce 
the launch of a $400 million LNG re-gasification plant for 
Argentina, jointly owned by the GoV's PdVSA and Argentina's new 
state-owned energy company ENARSA.  Further accords may be announced 
on the Argentine purchase of Venezuelan diesel fuel, given recent 
diesel shortfalls in Argentina exacerbated by the increased private 
sector demand to fuel private generators during the energy crisis 
(Ref A). 
 
¶8. (SBU) NOTE:  The announcement of a possible LNG project talks 
comes as a surprise to most local energy analysts, who question the 
project timing, and its lowball US$400 million price tag.  They say 
that $1.2 billion is more realistic budget for an LNG receiving port 
degasification train.  Analysts speculate that the LNG project 
announcement is designed to blunt the public relations fallout from 
the poor reception Chavez's proposal to build a natural gas pipeline 
across the continent has received from Mercosur countries, including 
Brazil.  Local media reports that, in a recent televised speech, 
Chavez complained the plans for a 5,600-mile pipeline "was frozen," 
adding he proposed building it for political rather than economic 
reasons.  Experts say the pipeline, which would be one of the 
world's longest, would be a huge technical challenge that could cost 
as much as $40 billion.  "I'm sure these difficulties are the 
product of the empire's actions," Chavez is quoted as saying, an 
apparent allusion to supposed U.S. interference.  He also is 
reported to have accused U.S. officials of "buying" and 
"blackmailing" government officials within Mercosur to prevent 
Venezuela's entry, saying, "They are on a strong offensive." END 
NOTE 
 
¶9. (SBU) Local energy analysts also speculate there may be further 
discussion of the February 2007 agreement to have GoA national oil 
company ENARSA work jointly with PdVSA to explore and develop 
Ayacucho upstream exploration block in Venezuela's Orinoco region. 
 
--------------------------------------------- --- 
GoV Industrialization: Argentine Tech Assistance 
--------------------------------------------- --- 
 
¶10. (SBU) Local media is reporting that Enrique Martinez, President 
of the Argentinean National Institute of Technology (INTA), met last 
week in Caracas with President Chavez to discuss Argentine technical 
assistance in the construction of new industrial good factories in 
Venezuela.  A total of 56 projects of industrial development were 
discussed during the meeting, according to the president of INTA, 
including 12 companies to be dedicated to the production of home 
furniture and appliances for the Venezuelan market. 
 
 
 
 
 
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Comment 
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¶11. (SBU) Chief of Cabinet Alberto Fernandez previewed the Chavez 
visit in an August 2 radio interview, saying "They've always been 
there when we needed them - Argentines should keep that in mind." 
The announcement of another round of Venezuelan debt funding appears 
to be the key GoV deliverable President Kirchner hopes to take away 
from this visit.  Our Foreign Ministry contacts continue to tell us 
that the relationship with Caracas remains principally commercial, 
and that they don't share Chavez's ideology or put much stock in his 
Bolivarian ambitions.  The GoA will continue to exploit what they 
see as an important economic relationship with Venezuela while 
downplaying, at least to the U.S., its political significance. 
 
WAYNE