VZCZCXRO0411
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHBU #1097/01 2751621
ZNR UUUUU ZZH
P 021621Z OCT 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 4428
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3963
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BUENOS AIRES 001097 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT:  ARGENTINA ECONOMIC AND FINANCIAL REVIEW, SEPTEMBER 
28-OCTOBER 1, 2009 
 
¶1. (U) Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period September 28-October 1, 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. 
CONFUSION OVER REPORTS THE GOA STARTING TO FILE DEBT TRANSACTION 
PAPERWORK WITH THE SEC 
2.(SBU) Over the last month, there have been many media reports 
indicating that the GoA is interested in engaging in a debt swap 
with the "holdouts" who did not participate in the 2005 debt 
exchange.  On September 29, a Bloomberg report stated that an 
unnamed GoA official said that the GoA had begun filing paperwork 
with the U.S. Security and Exchange Commission for the reopening of 
the 2005 debt restructuring.  On September 30, however, it was 
reported that Ministry of Economy officers denied that the GoA had 
done so.  Other reports suggested that a final agreement with 
holdouts was possible in 2010.  Post expects press and private 
sector speculation to continue in the coming weeks as GoA and 
holdout discussions continue. 
INDUSTRIAL PRODUCTION DECLINED 1.4% Y-O-Y IN AUGUST 
3.(SBU) INDEC surprised most analysts September 29, announcing that 
industrial production (the EMI) declined 1.4% y-o-y in August, 
compared to the BCRA consensus survey's decrease of 0.9%.  Note that 
the BCRA survey represents the private sector predictions of INDEC 
reports, not the "true" estimates provided to clients, which in fact 
were in line with INDEC's announcement.  On a seasonally adjusted 
basis the EMI advanced 0.6% m-o-m from July.  Within the index, the 
hardest hit sectors were: metal base industries (down 20% y-o-y), 
automobile (down 16% y-o-y), oil (down 11% y-o-y), and textiles 
(down 3% y-o-y).  The best performing sectors were: chemicals (up 9% 
y-o-y), rubber and plastics (up 9% y-o-y), paper and cardboard (up 
6% y-o-y), and food (up 5% y-o-y).  Most analysts expect the 
industrial sector to show signs of a mild rebound at the margins in 
the coming months as the inventory cycle stabilizes and growth 
begins to pick up in some of Argentina's main trading partners, 
particularly Brazil. 
4.(SBU) The industry-wide capacity utilization index reached 75% in 
August compared to 76% in August last year, recovering from its 
annual low of 67% in January, 2009.  The sectors showing highest 
capacity utilization were oil refining, printing and cardboard, 
chemicals, and textiles.  The sectors with the lowest capacity 
utilization were auto production, and the metal and tobacco 
industries. 
AUGUST MONTHLY ECONOMIC ACTIVITY INDEX DOWN 1.5% Y-O-Y, A LEVEL 
WEAKER THAN EXPECTED BY PRIVATE ANALYSTS AND AN ADDITIONAL POSSIBLE 
INDICATION OF A BID BY INDEC TO REGAIN CREDIBILITY. 
5.(SBU) The National Statistics Agency (INDEC) announced September 
25 that EMAE (the Monthly Economic activity index - a proxy for real 
GDP growth) decreased 1.5% y-o-y in July, a much weaker showing than 
the 0.4% drop private forecasters expected INDEC to announce.  Also, 
INDEC revised down the May and June y-o-y figures to negative 1.2% 
and negative 1.5%, respectively, from the earlier releases of 
negative 0.3% and negative 0.4%, respectively.  With this 
announcement, INDEC acknowledged the third consecutive monthly 
decrease and indicated to some analysts that it is gradually 
attempting to close the gap between official and private estimates. 
[Note: the last INDEC release of the August CPI also surprised as it 
announced a much higher increase than expected.] 
6.(SBU) In the first eight months of the year, EMAE increased a 
cumulative 0.2% y-o-y, which contradicts leading micro indicators 
and sector-level data that suggest a severe y-o-y contraction of 
activity to date.  Most independent private sector estimates and 
surveys show that the economy has clearly been contracting since the 
fourth quarter of 2008 and estimate that GDP will contract by 2-3% 
in 2009. 
CURRENT ACCOUNT SURPLUS IN THE SECOND QUARTER DUE TO TRADE 
PERFORMANCE 
7.(SBU) INDEC reported that the current account surplus was a large 
$ 0.5 billion in IIQ 2009.  This reflects a strong trade surplus of 
$ 6.7 billion in the same period.  In IIQ 2009, the dollar value of 
both exports and imports fell 11.9% and 40.3% y-o-y, respectively. 
Meanwhile, the service trade balance posted a small $ 68 million 
deficit.  The capital account posted a $ 4.7 billion deficit in IIQ 
2009, which was substantially higher than the $ 2.4 billion deficit 
in IIQ 2008. There have been sizable private sector outflows in the 
last five quarters; however, these appear to have eased in IIQ 2009, 
allowing the central bank to be a net buyer of dollars in the FX 
spot market, and to increase reserves.  The August trade data showed 
a sharp decline in both exports and imports.  Exports fell 40% y-o-y 
in dollar terms in August because of declines in both prices and 
volume (down 20% and 25%, respectively).  Note that the sharp drop 
 
BUENOS AIR 00001097  002 OF 002 
 
 
in exports partly reflects a high base of comparison (exports soared 
in July and August 2008, after the farmers lifted their strike).  In 
August, fuel exports fell 65% y-o-y in dollar terms, while non-fuel 
commodities exports were down 52% y-o-y.  Agribusiness exports were 
down 35% y-o-y in dollar terms (note - all percentages to follow in 
this paragraph are in dollar terms), and exports of industrial 
manufactures fell 27% y-o-y. On the other hand, imports fell 37% 
y-o-y in August, reflecting both weaker domestic demand and lower 
prices (on average, import prices were down 16% y-o-y). All import 
categories fell on a year-on-year basis in dollar terms in August. 
Intermediate goods imports were down 46% y-o-y, while capital goods 
imports fell 36% y-o-y.  Imports of consumption goods also fell 28% 
in August.  The trade surplus in August was $1.16 billion.  The 
12-month rolling trade surplus was $16.4 billion in August, down 
from $ 17.5 billion in July. 
THE GOA APPOINTS NEW MINISTER OF AGRICULTURE, FISHING AND LIVESTOCK 
 
 
8.(SBU) On October 1, Julian Dominguez was sworn in as Ministry of 
Agriculture, Fishing and Livestock.  Until now, these issues were 
handled by a Secretary in the Ministry of Production.  This upgrade 
from Secretary to Minister level has been long-sought by the Ag 
sector and it comes after more than a year of tense relations and 
conflict between the GoA and the Ag sector, mainly over export trade 
taxes.  Argentina last had a ministry of Agriculture in 1981, making 
it one of the only countries in Latin America to lack an 
agricultural ministry, despite the country's status as one of the 
world's preeminent agricultural producers. 
 
9.(SBU) Since 2007, Dominguez has been a Deputy in the Buenos Aires 
provincial legislature.  Previously, he was mayor of Chacabuco (a 
city of 45,000 residents located in northern Buenos Aires province) 
from 1995 to 1999.   After that, he was the Minister of Public Works 
in the province of Buenos Aires (1999- 2002), presidential Cabinet 
secretary (2003), and Military Affairs Secretary (2003). 
 
BAHIA BLANCA PORT STRIKE 
10.(SBU) A strike - and a lockout - temporarily shut down port 
operations at Bahia Blanca, in the province of Buenos Aires.  The 
actions by unions and port owners were both in protest of new fees 
proposed by the Buenos Aires provincial government on loading and 
unloading of cargo in local ports.  Protestors argued that the new 
fees would make the post uncompetitive, forcing some cargo 
operations elsewhere.  The Bahia Blanca port, which handles 
primarily bulk cargo such as crude oil, petroleum products, and 
agricultural goods, was shut down over the weekend of September 
25-27 before allowing one ship (a tanker with crude oil, belonging 
to Esso) to unload on September 28.  By September 29, the parties 
had agreed to suspend their protests for 10 days pending discussions 
with the provincial government, and normal operations had resumed. 
However, a potential strike by the Argentine union of ship captains 
seeking a raise (unrelated to the other strikes) remains possible, 
and could prevent or slow down ship movements regardless of the 
talks over port fees. 
 
MARTINEZ