VZCZCXRO9481
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0414/01 1170800
ZNR UUUUU ZZH
R 270800Z APR 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0550
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3962
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000414 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/CIP/BA 
TREASURY FOR OIA/OEE/T.O'KEEFFE,D.WRIGHT 
COMMERCE FOR 4212/D.CALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB SP
SUBJECT: MADRID ECONOMIC WEEKLY, APRIL 20-24 
 
REF: A. MADRID 397 
     ¶B. MADRID 336 
 
MADRID 00000414  001.2 OF 002 
 
 
Contents: 
 
ELAB: Unemployment Above 17% 
ECON: IMF Predicts 3% GDP Decline in 2009 
ECON: IMF Questions GOS Room for More Spending 
EFIN: Cajas Continue to be a Concern 
EFIN: Fitch Lowers Caja Madrid, Other Ratings 
EFIN: Valuation Complicates Cajas' Real Estate Assets Plan 
 
 
Unemployment Above 17% 
 
1.(U) The unemployment rate rose to 17.3% in the first 
quarter of the year, up more than 3% from the fourth-quarter 
2008 rate.  This is the highest rate since 1998.  More than 4 
million Spaniards are now unemployed, 84% more than were 
unemployed a year ago. (National Statistics Institute, 4/24) 
 
IMF Predicts 3% GDP Decline in 2009 
 
2.(U) The IMF predicted that Spain,s GDP will contract by 3% 
this year and 0.7% next year.  The 2009 prediction is a 1.3% 
deterioration from the IMF,s previous prediction for the 
same year, released in January.  The Bank of Spain recently 
predicted similar contractions of 3% this year and 1% next 
year.  These forecasts are significantly more pessimistic 
than the most recent GOS predictions, made somewhat earlier, 
of a 1.6% contraction this year and 1.2% growth in 2010. 
Equally troubling is that the IMF expects a slow recovery, 
with growth only reaching 2% in 2014. (El Pais, 4/23-24) 
 
IMF Questions GOS Room for More Spending 
 
3.(U) In presenting the IMF's report on Spain, the IMF's 
country economist warned that the GOS had little room for 
additional spending.  New Second Vice President and 
Economy/Finance Minister Elena Salgado emphasized that the 
GOS continues to have room for additional spending.  She did, 
however, warn that the GOS would have to be "more selective" 
in choosing projects.  Press reports speculate that Salgado 
was named because she would be more aggressive about 
increasing spending than was her predecessor, Pedro Solbes. 
(Comment: Most analysts now expect this year's GOS budget 
deficit will be over 6% of GDP, and this does not include 
deficits of regional and municipal governments.)  (El Pais, 
4/23-4/24) 
 
Cajas Continue to be a Concern 
 
4.(U) Although the GOS has only had to intervene in one 
financial institution so far (Ref B), there is a widespread 
expectation that others, primarily savings banks ("cajas"), 
will face difficulties as the newly unemployed have trouble 
making their mortgage payments.  According to one report, 
central bank Governor Fernandez Ordonez told legislators the 
names of seven cajas that are in such bad shape that the 
central bank is requiring daily deposit reports.  The GOS is 
reported to be finishing plans for a financial sector rescue 
fund aimed at cajas.  The fund would contain about 40 billion 
euros, some 30 billion of which would come from remaining 
funds in the GOS' financial asset acquisition fund (FAAF) 
created last year.  (The GOS has reportedly decided to stop 
FAAF purchases after buying almost 20 billion euros of 
assets, as institutions are said to have covered their most 
urgent liquidity needs and no longer find the terms 
attractive.)  The rest of the financing for the financial 
sector rescue fund would come from the existing deposit 
guarantee funds for cajas, banks, and cooperatives, and from 
banks and cajas themselves.  The cajas welcome reports of 
creation of the fund, while the banking association appears 
to object to the use of public funds to support individual 
cajas.  Separately, there are conflicting reports as to 
whether a revision to the regulatory framework for cajas will 
be ready in a month or so or has been shelved because of 
political party opposition to reducing political control over 
the cajas.  (El Confidencial, 4/21-22-23; ABC, 4/23; El Pais 
4/21-23-24) 
 
Fitch Lowers Caja Madrid, Other Ratings 
 
5.(U) The Fitch credit rating agency lowered its long-term 
rating on Caja Madrid from AA-minus to A-plus, citing its 
exposure to construction companies.  Caja Madrid, Spain's 
 
MADRID 00000414  002.2 OF 002 
 
 
fourth largest financial institution, reported earnings of 
357 million euros in the first quarter of 2009, up 1 percent 
from its first-quarter 2008 figure.  However, its loan 
delinquency rate reached 5.6%, four times its level of a year 
earlier and higher than the 4.6% figure for cajas as a whole. 
 Fitch also lowered its rating for CajaSur to BB-plus, giving 
it junk bond status, and its rating for Caja Granada from 
A-minus to BBB-plus.  CajaSur's delinquency rate is 6.4%. 
Unlike most cajas, the Cordoba-based CajaSur is not 
controlled by a regional or local government, but by the 
Catholic Church.  (El Pais, 4/22-23) 
 
Valuation Complicates Cajas' Real Estate Assets Plan 
 
6.(U) According to one report, plans to collect troubled real 
estate assets of 23 or more cajas in a separate vehicle, 
Ahorro Corporation (ACSI), are foundering over disagreements 
over asset valuation.  ACSI would issue stock to 
participating cajas in return for their real estate assets, 
providing tax and regulatory advantages.  Initially 
interested cajas are now said to be reluctant after ACSI's 
assessor indicated that it would require valuations that 
would force the cajas to recognize significant losses.  (El 
Confidencial, 4/21) 
 
 
 
CHACON