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UNCLAS SECTION 01 OF 03 BUENOS AIRES 001207 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT:  ARGENTINA ECONOMIC AND FINANCIAL REVIEW, OCTOBER 
30-NOVEMBER 5, 2009 
 
¶1. (U)  Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period October 30-November 5, 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. 
 
--------------------------------------------- ---- 
DEPUTIES APPROVE THE SUSPENSION OF THE "BOLT LAW" 
--------------------------------------------- ---- 
 
¶2. (SBU)  On November 4, the Chamber of Deputies approved a bill to 
suspend the so-called "Bolt Law" (Ley Cerrojo), approved in 2005 as 
part of the original debt restructuring.  The bill passed handily, 
with widespread support from the Frente para La Victoria party, the 
radical party (UCR), the PRO, and the Union Peronista.  165 Deputies 
supported, 28 opposed, and five abstained.  The bill has moved to 
the Senate, where approval is expected within the next two weeks. 
[Background: The law prevents the GoA from making additional offers 
to holdouts who did not participate in the 2005 debt restructuring 
without prior authorization from the Congress.  For additional 
background, see October 29 Argentina Economic and Financial 
Report.] 
 
--------------------------------------------- - 
WEAK OCTOBER TAX COLLECTION UP ONLY 8.8% Y-O-Y 
--------------------------------------------- - 
 
¶3. (SBU)  The GoA announced November 3 that October tax collection 
increased a disappointing 8.8% y-o-y to ARP 26.4 billion, in line 
with the BCRA consensus survey estimate of ARP 26.5 billion.  This 
was the second lowest increase this year.  Considered in real terms, 
with annual inflation of 15-17% according to most private analysts, 
the result appears even worse.  Furthermore when excluding social 
security administration revenues, which have jumped 52% y-o-y due to 
the nationalization of pension funds in October 2008, tax collection 
would have declined 0.7% y-o-y.  In a press release, the Secretary 
of the Treasury Juan Carlos Pezoa and the Director of AFIP 
(equivalent to the IRS) Ricardo Echegaray praised the result as 
better than expected, explaining that strong domestic consumption 
and the positive effect of the measures enacted by the GoA to 
counter the impact of the international financial crisis have 
generated higher-than-expected tax revenues.  The main drivers of 
the October collections were social security administration 
revenues, VAT, and fuel taxes.  Income tax and Financial Transaction 
Tax revenues have decelerated strongly (up only 5% and 1% y-o-y, 
respectively), while export tax revenues dropped 21% y-o-y due 
mainly to the fall of international commodity prices as well as a 
reduction in export volume.  In addition, import duties fall 13% 
y-o-y.  Year-to-date, total GoA tax collection increased 12% y-o-y 
to ARP 251 billion. 
 
---------------------------------- 
CONGRESS APPROVES "TECHNOLOGY TAX" 
---------------------------------- 
 
¶4. (SBU)  The Argentine Congress passed a law on November 4, 
establishing value-added tax rates up to 21% on cell phones, 
televisions, digital cameras and other electronic items not produced 
in the southern Tierra del Fuego foreign trade zone.  Laptops and 
certain types of air-conditioners were excluded from the text of the 
bill.  The Lower House, on November 4, approved several changes made 
by the Senate to the original legislation, passing it with 126 
supporting, seven opposing, and 54 abstaining.  According to the 
government, the bill aims to increase government revenue through 
higher tax collection, and encourage investment in Tierra del Fuego 
to promote local manufacturing and job growth.  Additionally, the 
law taxes electronic products with a new "internal tax" of between 
20.5% and 26%, which, according to Presidential decree number 
252/2009, will be reduced by two-thirds for electronics produced in 
Tierra del Fuego. 
 
¶5. (SBU)  According to the El Cronista financial daily, Minister of 
Production Debora Giorgi said that "importers (of electronics) are 
reaping extraordinary profits. They purchase goods from places like 
southeastern parts of Asia and Manaus (Brazil) that have different 
tax schemes."  Argentine IT industry executives and analysts have 
noted, however, that the tax increase will reduce technology use and 
create an insurmountable handicap for multinationals and IT firms 
based outside of Tierra del Fuego.  Dow Jones reported that 
opposition leader Francisco de Narvaez said to the press that "(this 
law) will increase the digital divide for millions of Argentines," 
 
BUENOS AIR 00001207  002 OF 003 
 
 
and "it will strongly benefit the assembly industry in Tierra del 
Fuego, to the detriment of industries in provinces like Cordoba, 
Buenos Aires, San Luis, and Santa Fe."  The Chamber of Information 
Technology and Communication, representing multinational telecom 
firms in Argentina, estimates that the higher taxes could boost 
prices for products like computer monitors and cell phones by as 
much as 34%, which could reduce sales and result in much lower 
value-added tax revenue from this sector.  Argentina's San Andres 
University analyzed the sector, and found that Argentine-based 
manufacturers as a whole account for only about $300 million of 
Argentina's approximately $4 billion market in telecommunications 
and computer goods, indicating that a policy measure to promote 
local production will affect all, but benefit only a few. 
 
--------------------------------------------- ----- 
THE GOA ANNOUNCES MONTHLY CHILD SUBSIDY OF ARP 180 
--------------------------------------------- ----- 
 
¶6. (SBU)  President Cristina Fernandez announced October 29 the 
creation of a new child benefit. The plan, implemented by 
Presidential decree, targets every Argentine child under 18 years 
old whose parents are unemployed, work "informally," or receive less 
than the minimum wage of ARP 1,500 per month.  It will pay a monthly 
benefit of ARP 180 to parents for every child, up to five children. 
In a move to improve health and education, the GoA plan conditions 
these payments on the submission of certain academic and healthcare 
certificates.  The President explained that this program will cost 
the social security system about ARP 10 billion a year, which will 
be financed by the social security system.  The sources of financing 
are not clear. 
 
------------------------------------------ 
BCRA PRESIDENT CALLS FOR G-20 COORDINATION 
------------------------------------------ 
 
¶7. (SBU)  Ahead of his trip to Scotland for the gathering of G-20 
Finance Chiefs, Argentine Central Bank President Martin Redrado 
stated November 4 that G-20 members should coordinate their 
responses to the potentially adverse consequences of a widespread 
reversal in stimulus policies, once the global economy rebounds.  He 
also recommended that the G-20 agree on how to deal with the 
consequences of a potential tightening in monetary policies by 
developed countries.  He expressed concern that a rapid reversal of 
low interest rates policies could lead to financial outflows from 
emerging markets, including Argentina. 
 
--------------------- 
WAGES KEEP INCREASING 
--------------------- 
 
¶8. (SBU)  The National Bureau of Statistics (INDEC) announced 
November 2 that the wage index increased 1.77% m-o-m in September, 
above expectations of 1.40%, as measured by the BCRA survey. 
September's increase is the second highest of the year, after July's 
increase of 2.21%.  This index defines wages as a price, without 
considering hours worked or special payments for productivity gains. 
 It surveys the private and public sectors, where salaries rose 
1.47% and 1.19%, respectively.  The cumulative increase of the index 
in the first nine months of the year was 13%.  The BCRA consensus 
survey forecasts an overall 15% increase in the wage index for 2009, 
and 13% for 2010. 
 
------------------------------------------ 
OCTOBER LABOR DEMAND INDEX DOWN 1.3% M-O-M 
------------------------------------------ 
 
¶9. (SBU)  The October labor demand index calculated by Di Tella 
University decreased 1.3% m-o-m to 49 points, far below the 110 
level it reached in February 2008.   The index is currently close to 
its level of 57 at the end of 2002, during Argentina's deep economic 
contraction.  The historic average for the index is 85.  The 
decrease is largely due to a fall in the demand for professionals 
and technical personnel (down 22% and 20%, respectively), followed 
by a fall in the demand for services (down 11%), as well as for 
administrative and commercial personnel (down 4% and 3%, 
respectively).  The index has decreased a cumulative 29% so far this 
year.  According to Di Tella University, the outlook for the last 
two months of 2009 continues to be negative.  The expectation is 
that there will not be an increase in demand for labor, and that 
unemployment will increase.  As of the end of the second quarter of 
2009, INDEC reported an unemployment rate 8.8% - significantly below 
the estimates of various private analysts.  [The Di Tella index is 
based on comparisons of job vacancy announcements printed in the two 
largest newspapers of the country.] 
 
 
BUENOS AIR 00001207  003 OF 003 
 
 
MARTINEZ