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UNCLAS SECTION 01 OF 03 BUENOS AIRES 000284 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: ARGENTINA ECONOMIC AND FINANCIAL REVIEW, MARCH 
2-6, 2009 
 
¶1. (U) Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period March 2-6, 2009.  The 
unclassified email version of this report includes tables and 
charts tracking Argentine economic developments.  Contact 
Econoff Chris Landberg at landbergca@state.gov to be included 
on the email distribution list.  This document is sensitive 
but unclassified.  It should not be disseminated outside of 
USG channels or in any public forum without the written 
concurrence of the originator.  It should not be posted on 
the internet. 
 
---------- 
Highlights 
---------- 
-- GoA and Farmers Reach Tentative Agreement 
-- Nominal February Tax Collection up a disappointing 16% 
y-o-y 
-- BCRA hopes to free about $4 billion of excess lending 
capacity to boost export financing 
-- Moody,s: GoA should meet obligations in 2009, but beware 
2010 
-- Argentine trade plunges in January 2009 
-- U.S./Argentine bilateral trade leaps in 2008 
-- February Labor Demand Index stable, but near historical 
lows 
 
------------------------- 
CAMPO STRIKE 
------------------------- 
 
GoA and Farmers Reach Tentative Agreement 
--------------------------------------------- ------ 
¶1. (SBU) GoA officials and local farm group representatives 
met March 3 in a continuation of negotiations begun the 
previous week (February 24) aimed at avoiding another 
devastating campo crisis (Ref FAS cable).  The main 
participants in the talks were Minister of Production Debora 
Giorgi, Minister of Interior Randazzo, Secretary of 
Agriculture Cheppi, and the presidents of the Rural Society 
of Argentina, Confederation Rural Argentina, Agriculture 
Federation of Argentina, and Coninagro.  President Cristina 
Fernandez de Kirchner (CFK) surprised participants by showing 
up half-way through the discussions.  The two sides signed a 
MOU covering GoA measures to assist the farm sector agreed 
upon the previous week.  These include support measures for 
the wheat, dairy, and beef sectors, but exclude cuts in soy 
export taxes.  Several farm leaders and farm groups expressed 
disappointment with the result, as their key goal is to lower 
export taxes on soybeans.  CFK emphasized that export taxes 
on soybeans and sunflower were not going to be lowered due to 
social and fiscal reasons.  GOA reluctance to budge on the 
key soybean export tax issue places farm leaders in a 
difficult position, since many of their constituents believe 
this agreement falls short of resolving this long-lasting 
conflict.  The meeting was preceded by rumors that the GOA 
would create a national grain marketing agency, with the 
purported purpose of protecting farmers with small- to 
medium-sized holdings from large grain exporters.  However, 
farm groups suspect it would serve to pressure farmers to 
sell their crops.  The GOA alleges that farmers hold up to 
nine million tons of soybeans from the 2008 crop (private 
sources estimate 5 - 6 million tons) and exports of these 
soybeans would generate over US$ 1 billion in tax revenue. 
Although the two sides did not discuss this issue during the 
meeting, GoA sources told local press that it remains under 
consideration, though some think it is a bluff disguised to 
motivate farmers to sell their stocks. 
 
¶2. (SBU) On March 10, GOA officials and farm group 
representatives met for a third consecutive weekly meeting 
with Production Minister Debora Giorgi and Interior Minister 
Florencio Randazzo.  However, &little progress8 was made. 
The debate over export duties reportedly moves to Congress 
next week, as the farmers threaten to go back on the protest 
path. 
 
------------------------- 
FISCAL 
------------------------- 
 
Nominal February Tax Collection up a disappointing 16% y-o-y 
--------------------------------------------- ------ 
 
¶3. (SBU) On March 4, the GoA announced that February tax 
collection increased only 16% y-o-y to ARP 22.7 billion. 
 
BUENOS AIR 00000284  002 OF 003 
 
 
While this was in line with the BCRA consensus survey 
esimate of ARP 22.6 billion, the increase was negative in 
real terms after taking into account an annual rate of 
inflation that most private analysts estimate in the range of 
18-20%.  February revenues include about ARP 1.1 billion 
resulting from the nationalization of the private pension 
funds (AFJPs).  (Following the nationalization, all 
retirement contributions from formal-sector employees who 
previously belonged to AFJPs are now directed to the 
Argentine social security administration, ANSES, and counted 
as GoA revenue.)  Excluding this amount (which provides a 
better comparison with February 2008), tax collection would 
have increased only 11% y-o-y in nominal terms.  The main 
drivers of February tax collection were labor contributions 
(paid by employers), which increased 30% y-o-y to ARP 3 
billion, and VAT, which increased 14% y-o-y to ARP 6.7 
billion.  Income tax revenue declined 1% y-o-y to ARP 3.7 
billion and export tax revenue fell 6% y-o-y to ARP 2.4 
billion.  The weak February growth rate (compared to February 
2008,s y-o-y growth rate of 47%) reflects the rapid 
deceleration of economic activity, lower international prices 
for Argentina,s exports, and reduced agricultural 
production. 
 
------------------------- 
FINANCE 
------------------------- 
 
BCRA hopes to free about $4 billion in excess lending 
capacity to boost export financing 
--------------------------------------------- ------ 
¶4. (SBU) The BCRA issued March 5 circular (N 4920) announcing 
that it will auction options to have access to 
repurchase-agreement contracts in dollars in order to 
encourage banks to use their foreign-currency deposits for 
export financing.  With this move, the BCRA hopes to mobilize 
about $4 billion for export financing.  (This is roughly the 
amount of dollars available for lending in the financial 
system, including what banks keep on deposit at the BCRA). 
The BCRA seems to be reacting to GoA desire to improve export 
flows following a poor performance in January (see trade item 
below) and expectations that trade flows will decline even 
further in coming months.  Under the BCRA plan, banks will 
buy options to borrow dollars from the BCRA for one-year at a 
fixed rate.  When a bank decides to exercise the option, it 
can borrow from the BCRA as long as it shows an increase in 
dollar lending and a decline in its dollar deposits between 
the date the option was acquired and the date the option is 
exercised.  Thus, the bank that acquires those options can 
safely increase dollar lending and exercise the option to 
recover dollar liquidity if necessary to respond to dollar 
deposit outflows. According to the BCRA, this option will 
help bridge the maturity gap between (medium-term) dollar 
loans and (short-term) dollar deposits. 
 
Moody,s: GoA should meet obligations in 2009, but beware 2010 
--------------------------------------------- ------ 
¶5. (SBU) Moody,s rating agency issued a press release March 
2 stating that the GoA should be able to meet its debt 
obligations in 2009.  However, it warned that if the global 
crisis continues to dampen revenues and weaken the GoA,s 
fiscal position, the risk of default increases in 2010. 
Moody's noted that the GoA,s real tax intake so far in 2009 
has dropped dramatically from last year,s levels (see above 
item) due to the sharp economic downturn.  (Many private 
analysts expect the Argentine economy will contract in 2009.) 
 On top of the fragile domestic economic environment, Moody's 
highlighted that the international crisis is resulting in 
lower demand and lower prices for Argentina,s exports.  It 
warned that significantly increasing expenditures ahead of 
October Congressional elections would further weaken GoA 
fiscal accounts. 
 
------------------------- 
TRADE 
------------------------- 
 
Argentine trade plunges in January 2009 
--------------------------------------------- ------ 
¶6. (SBU) Argentine exports and imports both fell sharply in 
January, down 36% and 38% respectively compared to January 
¶2008.  The January trade surplus of $971 million was down 27% 
y-o-y.  The 12-month rolling surplus through January was also 
down, at $12.8bn compared to $13.2bn in December.  The lower 
value of exports was principally due to lower volume, down 
 
BUENOS AIR 00000284  003 OF 003 
 
 
25% y-o-y, but also due to a 14% drop in prices. 
Agricultural exports were down 56% by value and 40% by volume 
(27% by price) y-o-y; in particular, cereal exports fell 72% 
y-o-y, led by a 78% plunge in wheat exports.  Exports of 
processed agricultural goods dropped 25% y-o-y, with soy oil 
exports declining 43% y-o-y.  Raw soybean exports, however, 
were down only 6% and soy meal exports fell 15%.  Industrial 
exports declined 29% y-o-y, despite an average price increase 
of 9%, as volume fell 35%. 
 
¶7. (SBU) The drop in import value was driven by a 38% y-o-y 
volume decrease, with just a 1% price decrease, reflecting a 
severe slowdown in domestic demand.  Imports of capital goods 
declined 47% y-o-y.  Imports of consumer goods dropped 37% 
y-o-y, including auto imports, which were down 60% y-o-y. 
Imports of all other consumption goods fell 24%.  Trade with 
leading partner Brazil was down even more sharply than 
overall trade, with exports falling 51% and imports down 54%. 
 On exports, a 69% decrease in primary product exports led 
the way, driven by a 73% fall in cereal export.  The 
reduction in imports was spread evenly across all categories. 
 
U.S./Argentine bilateral trade leaps in 2008 
--------------------------------------------- ------ 
¶8. (SBU) The United States International Trade Commission,s 
recently published 2008 trade data revealed a surprising 29% 
annual increase in bilateral U.S./Argentine trade.  U.S. 
exports to Argentina were up 28.8% y-o-y to $7.5 billion in 
2008, making the U.S. Argentina,s third most important 
source of imports.  U.S. imports from Argentina were up 29.5% 
y-o-y to $5.8 billion, making the U.S. the third largest 
Argentine export market.  The U.S. ran a surplus of roughly 
$1.7 billion with Argentina, 26% higher than in 2007.  This 
performance may be hard to sustain in 2009, not only because 
of the global crisis -- which has hit Argentina particularly 
hard on the export side, because of both decreased demand and 
the significant drop in the prices of its key export 
commodities, such as soy -- but also because one particular 
product contributed an outsize share of 2008 growth in 
exports to the U.S.  That product was biodiesel, with exports 
increasing from $34 million in 2007 to $772 million in 2008. 
This growth was at least partially driven by the U.S. imports 
of biodiesel for subsequent export to Europe.  Utilizing a 
practice known as "splash-and-dash," U.S. importers were 
allowed to mix a small amount of domestic diesel fuel with 
imported biodiesel to receive a tax credit from the USG, with 
no restriction on subsequent export of the product.  The 
legislative provision that allowed this practice was repealed 
in October 2008.  Also, high U.S. fertilizer exports to 
Argentina in 2008 may have been encouraged by the temporary 
elimination of the Argentine import tariff imposed on these 
products, which had been 6%; imports of that product were 
roughly $160 million in 2008 after being zero in 2007. 
 
------------------------- 
Labor 
------------------------- 
 
February Labor Demand Index stable. 
--------------------------------------------- ------ 
¶9. (SBU) The February Labor Demand Index calculated by 
Torcuato Di Tella University declined a negligible 0.35% 
m-o-m in February to 63.1 points.  The index is down 43% 
y-o-y and is well below the 88.2 point historical average, 
further evidence of the sharp economic slowdown.  The index 
has been declining since early 2008 and is currently at 
roughly the same level as in December 2001 (albeit still 
about 34 points above its lowest-ever level in March 2002). 
According to Di Tella University, prospects for the labor 
market are negative for 2009, with expected declines in labor 
demand from companies, which would generate lower employment 
and a rise in unemployment rate.  Argentine National 
Statistics Agency INDEC recently announced that the 
unemployment rate reached 7.3% during the last quarter of 
2008, a level widely questioned by private analysts, who 
estimate that the "true" unemployment rate will reach as high 
as 11% in 2009.  (Note: Di Tella bases the index on 
comparisons of job vacancy announcements printed in the two 
largest newspapers of the country.) 
WAYNE