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UNCLAS BUENOS AIRES 001022 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT:  ARGENTINA ECONOMIC AND FINANCIAL REVIEW, SEPTEMBER 7-11, 
2009 
 
¶1. (U) Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period September 7-11, 2009.  The 
unclassified email version of this report includes tables and charts 
tracking Argentine economic developments.  Contact Econ OMS Megan 
Walton at WaltonM@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. 
 
--------------------------------------------- ---------- 
GOA ANNOUNCES A 76% PARTICIPATION RATE IN BOND EXCHANGE 
--------------------------------------------- ---------- 
 
¶2. (SBU) Minister of Economy Amado Boudou announced September 7 that 
the GoA achieved an average 76% participation rate in the two local 
bond swaps that closed the same day, which were designed to draw 
bonds linked to the controversial official inflation rate out of the 
market.  Cutting the supply of these bonds would reduce pressure on 
the GoA to manipulate inflation statistics, which the GoA is widely 
believed to have been doing since 2007.  According to information 
from the Ministry of Economy, the first part of the exchange the GoA 
achieved a 60% participation rate (out of ARP 8.3 billion in 
eligible bonds), and the second part (announced shortly after the 
first opened) an 86% participation rate (out of ARP 14.0 billion 
eligible for that exchange). 
 
Before the swaps, market analysts predicted that the main 
participation in the exchange would be by Argentine government 
entities holding the bonds, but actual participation by retail 
investors beat their expectations.  As a result of the exchange, the 
GoA will issue ARP 4.25 billion in Bonars 2014 and ARP 10.8 billion 
in Bonars 2015.  According to the GoA, this liability management 
transaction will reduce debt payments by ARP 7.2 billion over the 
next three years and generate a nominal debt reduction of ARP 2 
billion.  In contrast, former BCRA President and congressional 
Deputy-elect Alfonso Prat-Gay argued that the transaction will only 
reduce debt payments by ARP 4.5 million during the remaining 
two-plus years of the term of President Cristina Fernandez de 
Kirchner at the cost of increasing debt service by ARP 11 billion 
for the next President.  Besides alleviating near-term debt 
amortizations, this transaction will also reduce GoA exposure to 
inflation.  (Note: Prior to the exchange, about one-third of GoA 
debt stock was in inflation-adjusted bonds.) 
 
-------------------------------------------- 
ICSID RULES AGAINST ARGENTINA IN AZURIX CASE 
-------------------------------------------- 
¶3. (SBU) On September 1, 2009 the Annulment Committee of ICSID (the 
World Bank's International Court for the Settlement of International 
Disputes) dismissed an Argentine government request to annul a 2006 
award to U.S. firm Azurix in the amount of over $165 million. This 
is the second case in which Argentina has exhausted all ICSID 
procedures and is expected to implement an awarded payment.  The 
first was a case filed by CMS; while their annulment request was 
dismissed on September 25, 2007, the GoA has yet to make any payment 
in this case, arguing that the claimant did not follow to necessary 
proceedings to implement the awarded payment. 
Background: Azurix won a 30-year concession in 1999 to manage a 
significant share of Buenos Aires province's water and wastewater 
management facilities.  Many of its tariff rights under the 
concession contract were effectively repudiated by the Province when 
the water in one city turned sour in April 2000 because of algae in 
the local reservoir, which was under the Province's exclusive 
control.  According to Azurix, provincial officials blamed Azurix 
for the problems, refused to allow the company to bill for its 
services, required the company to provide bottled water to the town 
at the company's expense, and publicly announced that people should 
not pay their water bills.  The Province also allegedly repudiated 
Azurix's right to amortize its bid payment.  In January 2001, Azurix 
filed for ICSID arbitration.  While the arbitration case remained in 
process, Azurix filed for bankruptcy in December 2001 and returned 
operation of all its water and wastewater management facilities to 
provincial authorities in March 2002.  In June 2006, the Tribunal 
decided that the respondent had failed to accord full protection and 
security to the investment and that the respondent had breached the 
U.S.-Argentina Bilateral Investment Treaty by taking arbitrary 
measures that impaired the claimant's use and enjoyment of its 
investment.  Therefore, it awarded compensation of USD 165.2 million 
plus interest.  Argentina registered an ICSID annulment proceeding 
on December 11, 2006 in order to contest the award, and the 
September 1 ruling was a response to that proceeding. 
KELLY