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INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
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UNCLAS SECTION 01 OF 03 BUENOS AIRES 001268 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: Argentina Economic and Financial Review, November 13-19, 
2009 
 
REF: 09 BUENOS AIRES 1175 
 
¶1. (U)  Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period November 13-19, 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. 
 
 
 
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Congress approves the suspension of the "Bolt Law" (Ley Cerrojo), a 
first and necessary step towards presenting a formal offer to 
holdouts 
 
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¶2. (SBU)  On November 18, the Senate approved the bill to suspend 
the so-called "Bolt Law" -- Ley Cerrojo -- (45 positive vs. 10 
negative votes), a key legal domestic prerequisite before 
presenting a formal offer to holdouts.  The Chamber of Deputies had 
already approved the bill November 4.  The Bolt law, originally 
approved in 2005, prevented 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. 
Reportedly, the GoA is working as quickly as possible to get the 
necessary regulatory approval for the offer that will enable it to 
launch the new offer before December 15.  Most analysts believe 
that an offer after that date will have to wait until January 2010. 
 
 
 
Meanwhile, local newspapers report and speculate on details of the 
GoA planned offer.  According to some accounts, the GoA will offer 
retail investors a three-year bond for past due interest (PDI) from 
2004 to 2009, while institutional investors will receive a 
seven-year bond.  Also, unlike institutional investors, retail 
investors will not have to pay 10 cents for each dollar of 
defaulted debt they present for the bond exchange.  Reportedly, the 
GoA has already received participation commitments for about $10 
billion from institutional investors (about 50% of the remaining 
holdout debt). 
 
 
 
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Brazilian and Argentine Trade Summit:  Lots of Smiles, Little 
Progress 
 
--------------------------------------------- -- 
 
 
 
¶3. (SBU)  Argentine President Cristina Fern????ndez de Kirchner (CFK) 
and Brazilian President Luiz Ignacio Lula da Silva (Lula) held a 
Summit meeting in the Brazilian capital on November 18 amid 
simmering trade tensions where the two agreed only to live up to 
existing obligations.  Brazilian industrialists and trade officials 
have been fuming for some months over the delayed issuance of 
non-automatic import licenses for certain economic sectors.  As 
Argentina's largest trading partner, Brazil has taken an especially 
hard hit from what many observers see as an officially sanctioned 
back-door restriction on imports.  Tensions mounted toward the end 
of October when the Brazilian government retaliated, after enduring 
a full year of non-automatic licenses on products such as textiles, 
and adopted non-automatic licenses on the importation of several 
important Argentine products, including olive oil, wine, and flour. 
This created tensions on the border where Brazil-bound trucks from 
Argentina with perishable cargoes were halted by Brazilian customs 
officials awaiting issuance of the non-automatic licenses. 
Argentine Minister of Economy Amado Boudou and Minister of Industry 
Debora Giorgi responded that Argentina would "not tolerate" the 
restrictive measures taken by Brazil against perishable Argentine 
merchandise in transit.  Giorgi also denied official Brazilian 
 
BUENOS AIR 00001268  002 OF 003 
 
 
statements that it took Argentina 150 days to issue non-automatic 
licenses.  On November 11 Brazil escalated the conflict when it 
retaliated in the crucial automobile sector. According to news 
reports, the Brazilian government required non-automatic licenses 
for some automobile parts from Argentina.   The automobile sector 
is especially sensitive because it is the largest area of trade 
between the two countries. 
 
 
 
In the November 18 Summit meeting, the Argentine press reported 
that Lula exhorted CFK to lift the protectionist measures.  He said 
that "protectionism is not a solution.  It creates distortions that 
are difficult to reverse."  CFK responded that Lula must keep in 
mind that in the trade relationship between their countries there 
is a "major partner and a minor partner" and that it is necessary 
to "look at the big picture."  At the last moment, the two leaders 
agreed to a statement where Argentina promised to comply with 
existing WTO requirements to issue non-automatic licenses within 60 
days.  Brazil promised to provide warnings before denying entry to 
Argentine products, but Lula reportedly refused to agree to a 
21-day advance notice.   The two leaders also agreed to more 
frequent ministerial-level meetings (every 45 days) to review 
bilateral trade issues. 
 
 
 
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Apache receives approval to sell gas at higher than normal rates 
 
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¶4. (SBU)  Apache Corporation, a U.S. energy company, has again 
received GoA approval to sell natural gas at higher-than-normal 
rates under the Argentine government's "Gas Plus" program.  Under 
the plan, Apache will start selling 10 million cubic feet per day 
of natural gas from new sources of production to Cammessa, 
Argentina's government-owned wholesale power-market regulator.  The 
approval is Apache's second under Argentina's Gas Plus program, 
which aims to give companies a financial incentive to explore for 
gas by allowing them to charge higher rates for gas from new 
discoveries.  So far, Apache is the only company with Gas Plus 
projects approved for gas marketing, and Apache reports in a 
statement that it has three more projects pending approval. 
 
 
 
Starting in January, Apache will sell the gas for $4.10 per million 
British thermal units for one year, after which the price will rise 
to $5.  The gas will come from the Guanaco and Ranquil-Co fields in 
Neuquen province.  Apache previously received approval to sell 50 
million cubic feet per day of gas from two fields in the provinces 
of Neuquen and Rio Negro.  That gas will sell for $5 per million 
BTU beginning in 2011.  The prices are significantly more than what 
Apache and other companies have been getting per million BTU for 
other projects; Apache produced 184 million cubic meters of gas per 
day 3Q09 in Argentina at an average price of $1.89 per thousand 
cubic feet, the company said.  The new prices for Apache are still 
well below the roughly $6 Argentina pays to import natural gas from 
Bolivia or what it pays to import liquefied natural gas from 
Trinidad and Tobago. 
 
 
 
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INDEC announced a 0.8% m-o-m CPI headline, higher than expected and 
building analysts' hopes of a gradual GoA process to normalize 
INDEC 
 
--------------------------------------------- ------------------- 
 
 
 
¶5. (SBU)  National statistics agency INDEC announced November 12 
that the October CPI increased 0.8% m-o-m, higher than the 0.6-0.7% 
m-o-m most private analysts expected, but still well below private 
forecasts of 1.0-1.2% m-o-m inflation.  Inflationary pressures in 
October were quite widespread, with the highest increases in the 
prices of: education (1.4%), other goods and services (1.3%), 
 
BUENOS AIR 00001268  003 OF 003 
 
 
clothing (1.3%), and equipment and house maintenance (1.1%). 
Lowest price increases were in health, transportation, and 
communications, both of which increased 0.3%.  According to INDEC, 
the  accumulated CPI increase for the first ten months of the year 
was 5.8%, compared to private estimates of more than twice that 
level (about 13-15%, well entrenched in double digits).  According 
to some analysts, INDEC's higher than expected inflation numbers 
may indicate that the GoA will continue to gradually improve the 
accuracy of its reporting. 
 
 
 
The outlook for inflation appears to be negative,  accelerating to 
15%-20% in the short-term from current level (of 13-15%) based on 
the following factors: a) recovery of real activity and domestic 
demand (activity already touched bottom sometime during the third 
quarter of 2009 and is already showing a mild recovery); b) the 
favorable external environment (higher commodity prices) and the 
normalization of agriculture production after the 2009 drought; c) 
the lagging effect of a peso depreciation; d) the expected 
dismantling (at least partially) of the subsidies web; e) 
unanchored inflation expectations; f) continued wage pressures from 
unions; g) expansive fiscal and monetary policies and h) political 
uncertainty ahead of the 2011 elections. 
 
 
 
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Consumer Confidence up 
 
--------------------------------------------- ----- 
 
 
 
¶6. (SBU)  The consumer confidence index, measured by Torcuato Di 
Tella University, increased 3.7% m-o-m in November.  All three 
index components increased: 1) consumer willingness to purchase 
durable goods and real estate (5.8% m-o-m); 2) improvement in 
personal situations (3.5% m-o-m); and 3) consumer sentiment toward 
the macroeconomic environment (2.8% m-o-m).  The index increased 
9.3% in the first eleven months of 2009.  However, the index is 34% 
below its maximum level, which was reached in January 2007.  The 
index is based on surveys of individuals and consumers' willingness 
to purchase durable goods, houses and cars. 
 
 
 
Also, the Gallup-Universidad Cat????lica Argentina (UCA) index 
tracking consumers' expectations about the economy rose to 84 in 
October from 79 in September. The headline index has remained in 
the 76 to 86 range for the past twelve months, well below the highs 
seen between 2006 and the early 2008, reaching 120 in late 2007. 
In October, all sub-indices increased, with the sub-index on 
consumers' perceptions about the current economic situation rising 
the most, up to 88 from 82 in September, which may be related to 
the improvement in consumers' perceptions about employment. The 
Gallup-UCA survey showed a decrease in the share of consumers 
perceiving that there are few job openings (down from 68% in 
September to 63% in October) while the share of consumers who think 
that there will be fewer jobs over the next six months declined 
from 42% in September  to 38% in October. 
MARTINEZ