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RR RUEHWEB

DE RUEHBU #1407/01 2881317
ZNR UUUUU ZZH
R 141317Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2231
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS BUENOS AIRES 001407 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV AR
SUBJECT: Argentina: GoA Pressures IDB for New Financing 
 
Refs: Buenos Aires 1396, 1395, 1374, 1220 
 
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Summary 
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¶1. (SBU) IDB President Luis Moreno noted growing GoA fears that 
global financial turmoil will exacerbate Argentina's already 
restricted access to international credit.  Following his meeting in 
New York with President Christina Fernandez de Kirchner (CFK), the 
GoA has requested that the IDB increase loan approval to US$2 
billion/year with accelerated disbursements.  IDB local ResRep 
Daniel Oliveira reports "informal" IDB guidance to limit new credit 
approvals to $1.5 billion per year due to strained IDB capacity. 
According to Moreno, the IDB Board is reluctant to change current 
lending policy toward Argentina. Olivera noted GoA pressure on the 
IDB to re-initiate budget (vs. project) financing, but said that any 
new IDB Policy-Based Lending would require an extensive 
macro-economic review of the GoA economic policy framework that will 
likely not be positive.  Instead, the local IDB office is focusing 
its energies on working with the GoA Ministries of Social 
Development and of Labor to develop a $1.6 billion two-year project 
to revamp Argentina's social safety net programs.  On recent GoA 
initiatives to normalize relations with bond holdouts, Moreno said 
that Economy Minister Carlos Fernandez told him that holdouts 
representing more than half of outstandings were "on board" with the 
Barclays/Citi/Deutsche bank proposals.  Moreno commented on a 
growing consensus that Argentina's falling commodity prices augur 
difficult economic challenges for Argentina, a topic that will 
doubtless be on the minds of GoA participants in October 12-14 Bank 
/Fund annual meeting in Washington.  End Summary. 
 
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GoA Requests Accelerated IEB Disbursements 
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¶2. (SBU) IDB President Luis Moreno met with Ambassador October 7 
during a brief visit to Buenos Aires on his way to Paraguay to 
participate in the hemispheric "Vital Voices" conference here 
(septel).  Moreno noted growing GoA fears that global financial 
turmoil will exacerbate Argentina's already restricted access to 
international credit, and he speculated that the IDB will play a 
more prominent role in the broader WHA region as the international 
financial crisis unfolds and private sector credit availability 
tightens.  He said that, following his late September UNGA-margin 
meeting in New York with President Christina Fernandez de Kirchner 
(CFK), the GoA has requested the IDB increase loan approval to US$2 
billion/year with accelerated disbursements. According to Moreno, 
the IDB Board is reluctant to change current lending policy toward 
Argentina. 
 
¶3. (SBU) In a September meeting with EconCouns, IDB ResRep Daniel 
Olivera (protect) noted that, while $2.5 billion in new project 
loans were approved by the IDB Board in 2007, his Argentine IDB 
mission is under "informal" guidance from its Washington 
headquarters to limit new approvals to $1.5 billion per year for the 
next few years, largely because increased demand for IDB funding 
throughout the hemisphere is straining Bank capacity.  Oliveira said 
that IDB disbursements to Argentina in 2008 to date total $1.1 
billion while GoA re-payments in 2007 totaled some $1 billion in 
principal and $500 million in interest.  With a total current IDB 
exposure to Argentina in the $6 billion range, the IDB, Oliveira 
said, has an informal agreement with the GoA to keep new 
disbursements and payment roughly cash neutral. 
 
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Re-Vamping Argentina's Social Safely Net 
---------------------------------------- 
 
¶4. (SBU)  Olivera noted to EconCouns continuing GoA pressure on the 
IDB to reinitiate budget (vs. project) financing, but said that new 
IDB Policy-Based Lending (PBL) programs are unlikely, since they 
would require an extensive macroeconomic review of the GoA economic 
policy framework that would not be positive.  Instead, the local IDB 
office is focusing its energies on working with the Ministries of 
Social Development and of Labor to develop a wholesale revamp of the 
nation's social safety net programs: this would involve the IDB 
 
funding a $1.6 billion, two-year program (to be presented to the IDB 
Board in 2009) to reorganize and rationalize "Family Plans" 
currently funded through the Social Development Ministry; phase out 
the "Head of Household" programs currently funded by the World Bank 
(and considered a vehicle for political patronage to provincial 
mayors  and union groups);, and rework both unemployment insurance 
(under the Ministry of Labor) and the part of public pension 
dedicated to the poor (currently under social security 
administration ANSES). 
 
--------------------------------------------- ---- 
Moreno on GoA Bond Holdout Normalization & Crisis 
--------------------------------------------- ---- 
 
¶4. (SBU) On recent GoA initiatives to reenter the international 
credit markets by paying down Paris Club arrears (Ref A) and 
normalize relations with bond holdouts (Refs B,C), Moreno said that 
Minister Carlos Fernandez had told him that holdouts representing 
more than half of outstandings (roughly $10 billion of $20 billion 
in original principal) were "on board" with the 
Barclays/Citi/Deutsche bank proposals. (This accords with 
information Post has received independently from local bankers.) 
 
¶5. (SBU) Moreno commented on growing signs of private sector 
antagonism towards the GoA based on populist economic policies 
driving inflation, bad regulation, and strong and combative labor 
unions.  Ambassador noted that new Chief of Cabinet Sergio Massa is 
seen here as an advocate steering GOA policy-making towards more 
productive interaction with Argentina's private sector.  Moreno 
commented on a growing consensus that Argentina falling commodity 
prices augur difficult economic challenges for Argentina, a topic 
that will doubtless be on the minds of GoA participants in October 
12-14 Bank/Fund annual meeting in Washington.  Moreno noted that, on 
his recent trip to Europe to meet with Nordic shareholders, there 
was a growing consensus on the need for governments to take quick, 
coordinated action is essential to stabilize markets and build 
confidence.  Similar   coordination and consensus building will be 
needed in Latin America, he concluded. 
 
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Comment 
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¶6. (SBU) The GoA sees additional multilateral development bank 
resources for Argentina, including direct budget lending, as an 
important component of a funding package to see the nation through 
2009/2010 spikes in debt maturities (Reftels).  But Argentina 
already represents the IDB's second largest exposure after Brazil, 
and the global financial crisis will doubtless expand calls for 
limited IDB funding resources by other hemispheric members. 
Moreno's statement that the IDB Board is reluctant to change current 
lending policy toward Argentina is telling.  It appears unlikely 
that the large quantities of new front-loaded disbursements the GoA 
is seeking will be forthcoming. 
 
WAYNE