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TO RUEHC/SECSTATE WASHDC IMMEDIATE 2072
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RUEHFR/AMEMBASSY PARIS IMMEDIATE 1464
RUEHMD/AMEMBASSY MADRID IMMEDIATE 2127
RUEHRL/AMEMBASSY BERLIN IMMEDIATE 1140
RUEHRO/AMEMBASSY ROME IMMEDIATE 1443
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RUEKJCS/SECDEF WASHINGTON DC IMMEDIATE

UNCLAS SECTION 01 OF 02 BUENOS AIRES 001312 
 
SENSITIVE 
SIPDIS 
 
Ref: Buenos Aires 1303 AND PREVIOUS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PREL PGOV AR
SUBJECT: ARGENTINA: GOVERNMENT CLEARS LEGAL HURDLES TO PARIS CLUB 
PAYMENT 
 
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Summary 
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¶1. (SBU) With little fanfare, the GoA has moved to amend the 
Argentine Central Bank's (BCRA) Charter to allow for the legal use 
of BCRA reserves to pay Paris Club debts (see reftels for 
background).  The GoA added an article to this effect to the decree 
issued September 16 amending the 2008 budget law (septel), which it 
submitted to Congress September 18.  There are differing opinions 
over whether Congress must actively ratify the decree or whether it 
will automatically enter into force if Congress does not object. 
Regardless, Post's GoA and BCRA contacts agree that this amendment 
should clear the way for Argentina to pay arrears due Paris Club 
member countries.  GoA officials held their first conference call 
with the Paris Club Secretariat September 18 to begin reconciling 
debt figures, and are confident the process can be completed within 
one to two weeks.  BCRA officials caution that the process could 
take longer, but expect the GoA to complete the process this year. 
End Summary. 
 
--------------------------------------------- ---- 
New GoA Decree Includes Amendment to BCRA Charter 
--------------------------------------------- ---- 
 
¶2. (SBU) With no accompanying press statements or other fanfare, the 
GoA published special Decree 1472 (a Necessity and Urgency Decree -- 
DNU -- that is equivalent to law) in the Official Gazette on 
September 16, and then submitted it to Congress for review on 
September 18.  This decree amends the 2008 Budget Law to allow for a 
36 billion peso (roughly $12bn) increase in spending.  Decree 1472 
also includes a brief Article (Art. 16) amending the BCRA's Charter 
to allow the use of reserves to pay Paris Club (PC) debt.  (See 
Reftels for background on President Cristina Fernandez de Kirchner's 
September 2 announcement that the GoA would pay PC debt using BCRA 
reserves.) 
 
¶3. (SBU) Specifically, Article 16 of Decree 1472 establishes an 
exemption to the BCRA prohibition on long-term lending to the GoA. 
(Limited short-term lending has always been allowed.)  This 
exemption allows the BCRA to issue a loan to the GoA for the purpose 
of paying public debts as specified by Decree 1394, which the 
President signed September 2, declaring the GoA's intention to pay 
100% of debts owed to PC using reserves.  By including it as one 
minor article in an eighteen-article decree about the current year's 
budget, the GoA kept press attention to a minimum.  Those few in the 
media who picked up on it seem to have done it by accident when 
analyzing the 2008 budget increase.  This is also how Post 
discovered it.  (Comment:  This below-the-radar approach to change 
the BCRA Charter contrasts with the high-profile manner in which the 
GoA handled the January 2006 payment to the IMF using reserves, when 
it issued a DNU specifically for that purpose.  End Comment.) 
 
¶4. (SBU) Post has confirmed with both Economy Ministry and BCRA 
officials that this amendment eliminates any legal restrictions on 
the BCRA and thus clears the way for Argentina to pay arrears due PC 
member countries.  Nevertheless, there are differing opinions among 
Post's various GoA and BCRA interlocutors over whether Congress must 
actively ratify the decree or whether it will automatically enter 
into force absent Congressional objection. 
 
¶5. (SBU) Since Decree 1472 is a special DNU, it carries the force of 
law.  According to regulation, DNUs are sent to a special commission 
in Congress.  If that commission does not reject the decree, 
Congress' tacit approval is assumed.  Given that the GoA has a 
majority in Congress (and on this special commission), Post's 
contacts see Congressional approval as a done deal.  (Comment:  On 
occasion, particularly with high-profile DNUs, Congress has actively 
ratified them into law, and BCRA contacts expect that will be the 
case with Decree 1472.  Either way it should not affect the final 
outcome.  End Comment.) 
 
¶6. (SBU) Decree 1472 establishes that the Economy Ministry will 
issue a tradable bond to the BCRA for up to the total amount owed to 
PC creditors.  The decree does not provide the financial conditions 
of the bond, nor does it provide an exact figure for payment. 
(Comment:  As explained reftels, during the President's September 2 
speech, she cited the incorrect figure of $6.7 billion as the total 
 
BUENOS AIR 00001312  002 OF 002 
 
 
debt owed to official creditors.  However, Paris Club Chairman 
Xavier Musca subsequently clarified that the full amount due is $7.9 
billion, including roughly $6.7 billion principal and interest 
arrears and approximately $1.3 billion in outstanding principal. 
End Comment.) 
 
¶7. (SBU) Economy Ministry and PC Secretariat officials held their 
first conference call September 18 to start the process of 
reconciling the difference between these two figures.  (GoA 
officials tell Post that there are over 200 separate credit lines to 
17 separate PC creditor nations.)  A GoA official who participated 
on that call subsequently told Econoffs that the process should flow 
relatively easily.  He even speculated that the full reconciliation 
process should take not longer than two weeks to accomplish.  Post's 
BCRA contacts suspect the process may take longer, given that the 
Economy Ministry's own estimates are only about $7 billion (higher 
than the incorrect figure cited by the President but still 
significantly lower than the PC's estimate).  Nevertheless, BCRA 
contacts see no reason why the GoA should not be able to complete 
the process in 2008.