VZCZCXYZ0001
RR RUEHWEB

DE RUEHBU #0378/01 0911437
ZNR UUUUU ZZH
R 011437Z APR 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 3446
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000378 
 
SIPDIS 
SENSITIVE 
 
DEPT PLEASE PASS TO HUD SECRETARY SHAUN DONOVAN 
 
E.O. 12958:  N/A 
TAGS: ECON EIND EFIN PREL PGOV AR
SUBJECT: ARGENTINA: HUD SECRETARY DONOVAN DISCUSSES HOUSING SECTOR 
WITH PLANNING MINISTER DE VIDO 
 
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Summary 
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¶1. (SBU) HUD Secretary Donovan on March 27 learned about GoA housing 
initiatives for low- and middle-income families with Planning 
Minister Julio De Vido. The Minister called access to affordable 
shelter and the reactivation of the domestic housing construction 
industry a success of the two Kirchner administrations.  A total of 
125,000 new units have been constructed since 2003 under a federal 
housing agency (FONAVI) program funded by gasoline taxes and working 
through provincial housing institutes.  A plan to construct a 
further 300,000 middle- and low-income homes will be launched by the 
GoA in 2010.  Beyond public housing programs, a lack of long-term 
mortgage financing remains a constraint on the GoA's desire to 
encourage additional middle-class home ownership.  Federal programs 
to stimulate the thin domestic mortgage market include a 2008 
initiative by the (state-owned) National Bank of Argentina to offer 
subsidized mortgage credits and an as-yet-unannounced plan to 
mobilize national pension fund assets via the majority state-owned 
but privately managed Mortgage Bank (Banco Hipotecario). 
 
¶2. (SBU) Secretary Donovan described current USG public housing 
policy initiatives, including the use of public/private partnerships 
to improve project budget efficiencies.  He and De Vido agreed on 
the importance of clear land titles to ensure public housing project 
success. De Vido reviewed the GoA's "Better Lives" slum 
rehabilitation program, budgeted at US$ 320 million, which is 
concentrated in the greater Buenos Aires metropolitan area and seeks 
to urbanize/regularize informal slum dwellings without relocating 
occupants.  (Comment: A 2006 World Bank study of Argentina's housing 
sector criticized GoA public housing efforts as inefficient, with 
inadequate oversight of provincial authorities that administer 
programs.  The study suggests that Argentina's housing deficit would 
be more effectively served by moving from direct GoA construction to 
demand-subsidy programs that leverage the skills and capital of 
private developers and lenders.)  End Summary. 
 
¶3. (SBU) In a March 27 meeting, Secretary of Housing and Urban 
Development Shaun Donovan reviewed GoA housing initiatives for low- 
and middle-income families, the general scarcity of mortgage 
financing, and GoA slum clean-up efforts with Argentine Planning 
Minister Julio De Vido.  The Ambassador, GOA Undersecretary for 
Urban Development and Housing Luis Alberto Bontempo, and EconCouns 
(notetaker) also participated. 
 
------------------------------------------ 
Argentine Focus on Reviving Housing Sector 
------------------------------------------ 
 
¶4. (SBU) De Vido called access to affordable shelter a key Kirchner 
administration priority.  He highlighted successful GoA initiatives 
begun in 2003 by then-president Nestor Kirchner (NK) to address 
substantial housing shortfalls for Argentina's middle-income and 
poorer classes.  Prior to the Kirchners' arrival, he said, the GoA 
Housing Secretariat "practically didn't exist," with NK immediately 
pouring some ARP 50 million (roughly US$ 15 million) into a program 
to construct 10,000 new low-income housing units.  The goal, De Vido 
said, was to simultaneously tackle a nationwide housing shortage and 
a post-2001/2 economic crisis unemployment rate topping 25%. Since 
then, De Vido said, a total of 125,000 new units have been 
constructed under the "First Federal Housing Plan."  A "Second 
Federal Housing Plan," to be launched in 2010, will target the 
construction of 300,000 new middle- and low-income homes, he said. 
 
¶5. (SBU) Both these GoA efforts and an economic recovery which saw 
GDP growth average 8+% from 2003-2008 contributed to the recovery 
and boom of Argentina's construction sector.  In 2003, De Vido said, 
only 80,000 workers were employed in Argentina's construction 
industry.  Today, he said, that number has risen to 500,000. 
Reactivating the national construction and housing industries has 
helped put post-crisis idle industrial capacity back to productive 
work and created add-on employment in the white goods sector. 
(Note: A 2006 World Bank study notes that direct construction 
expenditure accounted for 11% of Argentine GDP in 2005 and housing 
for half of that total.  When indirect expenditures on building 
materials and other related sectors are included, the contribution 
of construction and of housing to GDP doubled to 22%.  This spending 
also generates considerable jobs in both unskilled and skilled 
employment.) 
 
--------------------------------------------- 
GoA Public Housing: Partnering with Provinces 
--------------------------------------------- 
 
¶6. (SBU) The primary GoA vehicle to support new middle- and 
low-income public housing construction, U/S Bontempo explained, is 
federal housing agency FONAVI which channels GoA monies through 
Provincial Housing Institutes (IPVs). These IPVs typically provide 
land and then extend credit for the construction and sale of their 
units from FONAVI resources.  An earmarked federal gasoline tax 
largely funds the FONAVI/IPV system, which Bontempo said was created 
in 1976.  He noted that, when GoA regulations were changed in the 
1990s by then-Economy Minister Cavallo to allow provinces more 
flexibility in the use of FONAVI funds, only three provinces (La 
Pampa, San Luis and Santa Cruz) chose to continue to dedicate all 
FONAVI funds to housing sector development. A percentage of all 
FONAVI-funded public housing is reserved for the handicapped, De 
Vido noted, and the federal program also leverages the efforts of 
Argentine NGOs including the Catholic Church's Caritas. 
 
¶7. (SBU) Creating a viable nationwide housing program, Bontempo 
explained, required his Under-Secretariat to work closely with a 
variety of interested actors, including architects, the private 
construction sector, labor unions, and provincial authorities with 
narrowly focused priorities.  Provincial authorities do all the 
public housing development project inspections while federal 
authorities retain overall procurement and audit control. 
FONAVI-funded middle and low income housing is sold at cost to 
occupants who then repay the GoA via extended "quotas."  Currently, 
these quota payments are flowed to the federal Social Security 
entity ANSE to leverage additional public housing funding in what De 
Vido called a "virtuous cycle" of GoA-supported development. 
 
---------------------------- 
Financing the Housing Market 
---------------------------- 
 
¶8. (SBU) Beyond the FONAVI program, De Vido explained that the GoA 
is seeking to encourage renters to become homeowners.  He lamented 
that, while Argentina's GDP has grown by over 50% in the six years 
following the 2001/2 economic crisis, bank lending - and 
particularly long-term bank lending for mortgages - has not 
recovered to levels seen in the 1990s.  Federal programs to 
stimulate the thin domestic mortgage market include a 2008 
initiative by the (state-owned) National Bank of Argentina to offer 
subsidized mortgage credits.  A follow-on step, he said, will be to 
involve province-owned banks in this initiative as well as to 
mobilize national pension fund (ANESES) assets to boost the domestic 
mortgage market.  (There has been considerable media attention paid 
to efforts by the GoA to retake management control of majority 
GoA-owned Banco Hipotecario as a vehicle to expand mortgage lending 
in the run-up to 2009 mid-term elections.) 
 
¶9. (SBU) Secretary Donovan asked whether the GoA had experimented 
with insurance programs to attract additional private capital to the 
mortgage market.  He noted that, in the current challenging market 
in the U.S., some 95% of mortgages are insured through Fannie Mae, 
Freddie Mac, or the Federal Housing Authority.  De Vido replied that 
no such programs were available to banks or other private sector 
lenders in Argentina today. 
 
--------------------------------------------- - 
Public Housing: Fort Apache And Titling Issues 
--------------------------------------------- - 
 
¶10. (SBU) When Bontempo mentioned efforts to improve a dangerous 
public housing development in greater Buenos Aires nicknamed "Fort 
Apache" (after the 1981 Paul Newman police thriller set in a Bronx 
public housing development), Secretary Donovan described 
public/private partnership initiatives undertaken by the New York 
City and the federal government to rescue failed housing.  Donovan 
invited Bontempo to visit New York as well as to meet with his 
counterpart officials in Washington.  De Vido encouraged Bontempo to 
go. 
 
¶11. (SBU) Ambassador noted Peruvian economist Hernando De Soto's 
pioneering work on the role that clear title to land and tenure 
security play in consolidating developing market economies and asked 
how much of a problem this is in Argentina.  In response to 
Donovan's questions on land titling issues in Argentine public 
housing, Bontempo explained that public housing titles are fully 
transferred to tenants after only two quota payments.  He described 
uncertain title claims on earlier GoA public housing initiatives, 
particularly in the province of Buenos Aries (where over one-third 
of Argentina's 40 million population lives), a contributing factor 
to the failure of some earlier GoA public housing efforts.  However, 
De Vido said in Fort Apache, people transferred ownership and titles 
illegally and this contributed to its decline into a notorious drug 
and crime haven. 
 
 
¶12. (SBU) Donovan discussed the evolution in U.S. public housing 
policy solutions along with current efforts to address the 
shortcomings of earlier urban public housing developments that had 
become drug and crime havens.  Specifically, he noted that direct 
government construction of housing for the poor had been largely 
replaced by demand-subsidy programs that use private developers and 
lenders to build new units for mixed use low- and middle-income 
households. 
 
---------------------------------- 
"Better Lives" Slum Rehabilitation 
---------------------------------- 
 
¶13. (SBU) In response to the Ambassador's questions about slums 
rising up on unused urban land, De Vido and Bontempo admitted this 
was a very big problem.  The GoA's "Mejor Vivir" (Better Lives) slum 
clearance program is now in its second phase, De Vido said, with a 
budget of US$ 320 million and $250 million spent last year.  The 
program is concentrated in the greater Buenos Aires metropolitan 
area, where it targets an expanding number of "villas miseria" 
(slums) where poor and rural migrants (including Bolivian and 
Paraguayan informal immigrants) are concentrated.  The GoA's 
objective is to urbanize/regularize informal slum dwellings without 
relocating occupants.  De Vido noted recent renovation program work 
inaugurated by President Cristina Fernandez de Kirchner in the 
notorious "La Cava" slum in the wealthy northern Buenos Aires suburb 
of San Isidro.  Additional projects include efforts to regularize 
habitation and sewer infrastructure for some 10,000 primarily 
migrant workers living on the banks of the contaminated Riachuelo 
River in greater Buenos Aires.  De Vido also highlighted the 
excellent results in the (oil-rich) province of Chubut.  De Vido 
clarified that the Mejor Vivir program is not working in (the 
opposition-controlled) city of Buenos Aires, even though some of the 
city's slums (including the notorious Villa 31 near Retiro train 
station) occupies federally controlled land.  He said that 
differences between the current and previous city governments and 
the Federal Government have prevented progress. 
 
--------------------------------------------- -- 
Comment: World Bank Critique of GoA Methodology 
--------------------------------------------- -- 
 
¶14. (SBU) While De Vido and Bontempo were clearly proud of the GoA's 
public housing efforts, a 2006 World Bank/IFC review of Argentina's 
housing sector raises some cautionary flags: it notes that, while 
the GoA's FONAVI program has provided funding to construct an 
average of 42,000 units per year over each of the last 15 years, it 
overwhelmingly produces new units for sale to moderate and 
middle-income households, rather than offering low-cost housing 
solutions suited to low-income families.  Provincial IPVs neither 
require that households make a down payment nor that they get 
market-rate loans, failing to leverage public subsidies with 
household savings or private-sector credits.  Further, the report 
notes that provincial IPVs have virtually unrestricted control over 
the use of FONAVI funds, unguided by national policy, program 
parameters, and performance incentives. 
 
¶15. (SBU) The GoA's FONAVI program targets housing development 
programs for lower-middle income and the poor via government 
development, consistent with the Kirchner administration's penchant 
for direct government economic interventions.  In contrast, the 
World Bank study notes that much of the rest of Latin America has 
replaced such turnkey government production with demand-subsidy 
programs that use private developers and lenders to build new units 
for moderate-income households much more effectively and 
efficiently.  The study suggests that addressing Argentina's housing 
shortage will require improvements in the nation's financial 
management of mortgage lending which, in turn, depend more on an 
appropriate macro-economic policy mix than on housing policy. 
Embassy contacts in the financial sector agree that a stable and 
predictable macro-economic policy environment is a prerequisite for 
the development of a stable private sector long-term deposit base 
for banks that can provide resources for expanded mortgage 
financing. 
 
¶16. (SBU) This cable has been cleared by Secretary Donovan. 
 
WAYNE