VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1673/01 3442039
ZNR UUUUU ZZH
R 092039Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2651
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001673 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV AR
SUBJECT: Argentina: U.S. Private Sector Players Downbeat on 
Economic/Political Reality 
 
------- 
Summary 
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¶1. (SBU) U.S. private sector players in the finance, accounting, and 
energy fields are downbeat on Argentina's medium-term economic 
prospects.  In a November 25 lunch hosted by Ambassador for visiting 
State Department CFO Brad Higgins, they predicted the Kirchner 
administration's political base will weaken in line with declining 
growth and agreed that the GoA's private pension fund 
nationalization had exacerbated the impact of the global financial 
crisis on Argentina's economy by spooking capital market players and 
diminishing already low investor confidence.  The majority also 
predicted that really serious problems would likely not hit the 
Argentine economy until after 2009.  Notwithstanding the economic 
downturn, U.S. company reps noted broad profitability through the 
second half of 2008 and agreed that Argentina still offers U.S. 
companies some of the best human capital in the region.  All 
participants agreed that foreign capital investment in primary 
infrastructure had dried up, particularly in the energy sector. 
Established U.S. companies who face slow growth and regulatory/tax 
uncertainties won't leave Argentina, but company reps felt that few 
new U.S. companies will seek to enter the challenging Argentine 
market in the near term.  End Summary. 
¶2. (U) Ambassador hosted a November 25 lunch for Assistant Secretary 
Assistant Secretary of State for Resource Management and Chief 
Financial Officer Brad Higgins. Attendees included Jose Maria Zas, 
President of American Express Argentina; Lorna Martin, Managing 
Director, Fitch-Ibca Credit Rating Argentina; Guillermo Fiad, 
President, Duke Energy International Southern Cone; Facundo Gomez 
Minujin, Managing Director JP Morgan Chase Argentina; Jorge Bacher, 
Managing Partner Price Waterhouse Coopers Argentina; and Econcouns 
(notetaker). 
--------------------------------------------- ---- 
Economic Decline Impact on CFK Political Fortunes 
--------------------------------------------- ---- 
 
¶3. (SBU) Chase saw the Cristina Fernandez de Kirchner (CFK) 
administration's ability to push the private pension fund 
nationalization through Congress with relative ease making the CFK 
administration politically stronger, calling it now better placed to 
win Congressional support of the annual renewal of its controversial 
Emergency Law/Superpowers authority.  Fitch disagreed, arguing that 
CFK's political base will evaporate when economic growth stops. 
Fitch believed that Argentina had reached an economic tipping point 
in late November, with consumers pulling back and stores and 
restaurants empty.  Duke agreed that Argentina's economic prospects 
"would get worse before they get better" and predicted a rough 
October 2009 mid-term election for the CFK administration as a 
consequence.  Duke argued that a cowed Argentine private sector was 
responsible for CFK administration policy excesses. "We're to blame 
- who would have thought we'd let them take the pension funds," Duke 
said. 
 
¶4. (SBU) All U.S. company participants agreed that the CFK 
administration's strong-arming of the private pension fund 
nationalization had exacerbated the impact of the global slowdown on 
Argentina's economy by spooking capital market players and 
diminishing already low investor confidence.  Chase noted the loss 
of the private pension funds as key institutional investor capital 
providers had been extremely disruptive to local financial markets. 
Chase ascribed the "outsized" losses on Buenos Aires equity markets 
to fears in financial circles that the GoA would use its newly 
acquired holdings in private banks and companies (via the pension 
fund nationalization) to expand state controls on the private 
sector.  Chase cited the Central Bank's placement of "observers" in 
bank foreign exchange trading floors as an object-lesson case in 
point.  Chase projected possible stagflation in the run-up to 2009 
elections, with inflation high due to union pushes in a pre-election 
year to make up for prior year wage increase shortfalls.  However, 
led by Price Waterhouse Coopers (PWC), the majority of company reps 
present said that it was most likely the government will not face 
major economic problems until 2010 and that it will prime the 
electoral pump for 2009 with public works spending. 
 
----------------------- 
Economic Downturn Bites 
----------------------- 
 
¶5. (SBU) PWC noted that earnings of U.S. companies operating in 
Argentina had remained strong through the second quarter of 2008 and 
that, slowdown notwithstanding, Argentina still offered some of the 
best human capital in the region to U.S. companies.  PWC said it is 
building up its local employee base to service other PWC affiliates 
in the region, and noted Exxon's recent move to increase the size of 
 
its back office engineering service center by 20%.  Chase noted they 
had recently moved a financial analysis hub from Mumbai, India to 
Buenos Aires to take advantage of Argentina's more attractive time 
zone and lower junior analyst turnover rates. 
 
¶6. (SBU) All participants agreed that foreign capital investment in 
primary infrastructure had dried up, particularly in the energy 
sector.  Duke Energy noted that an uncertain Argentine investment 
climate mandated a short three-year timeframe for a full return on 
any new capital invested, versus a 7-10 year norm for the 
electricity generating industry worldwide.  Chase opined that 
established U.S. companies won't leave Argentina in light of the 
economic downturn and regulatory/tax uncertainties, but that very 
few new U.S. companies will seek to enter the challenging Argentine 
market in the near term, especially if they need to count on more 
than a three year return on investment.  PWC lamented that, in the 
100 years since Argentina had reached its democratic and economic 
highpoint in 1916, there had been an almost continuous downtrend of 
wealth destruction. 
 
--------------------------------------------- - 
American Companies Best Employers in Argentina 
--------------------------------------------- - 
 
¶7. In discussion of A/S Higgins resource management responsibilities 
at the State Department, American Express (Amex), named one of 
Argentina's best companies to work for in a recent employee survey 
by leading daily Clarin, credited the company's open management and 
flex-time polices for the satisfaction of its union-free labor 
force, whose average age is 30.  Compensation is not a major job 
satisfaction issue, according to Amex, since financial service 
sector salaries are union-driven and standardized across the banks 
and non-bank financial institutions.  Amex noted that, economic 
downturn notwithstanding, its operations in consumer credit-starved 
Argentina are growing faster than those in the United States or in 
Europe. 
 
WAYNE