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DE RUEHBU #1304/01 3351316
ZNR UUUUU ZZH
R 011315Z DEC 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0120
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSO/AMCONSUL SAO PAULO

UNCLAS BUENOS AIRES 001304 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: Argentina Economic and Financial Review, November 20-25 2009 
 
REF: 09 BUENOS AIRES 1175 
 
¶1. (U)  Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period November 20-25, 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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Rating Agencies unlikely to upgrade Argentina from speculative 
grade after debt restructuring 
 
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¶2. (SBU)  Fitch rating agency reported November 19 that Argentina 
could be moved out of the current Restricted Default (RD) credit 
rating in the near term if the likely offer to holdouts, who did 
not participate in the 2005 debt restructuring, is successfully 
carried out.  However, Argentina's ratings are likely to remain 
well into speculative grade territory, not only due to enduring 
macro and financial pressures, but because public debt ratios are 
still higher that the debt ratios of single B-rated sovereigns. 
Fitch believes that limited financing flexibility and concerns 
about the transparency of official data are impairing the 
creditworthiness of Argentina. 
 
 
 
¶3. (SBU)  In tandem, Moody's senior analyst Gabriel Torres stated 
November 19 at a conference in Buenos Aires that contentious 
politics and a lack of political stability are the principal 
negative factors weighing on the outlook for Argentina's credit 
ratings.  However, he noted that the overall outlook for the 
country is trending more toward positive than negative ground. 
Torres said that a successful agreement with the remaining holdouts 
of Argentine defaulted debt would factor positively in a future 
review of the country's ratings status.  [Note: Moody's rates 
Argentine sovereign debt B3, one of the lowest among 
emerging-market countries.] 
 
 
 
¶4. (SBU)  Similarly, Joydeep Mukherji, a sovereign ratings analyst 
at Standard& Poor's rating agency, stated in an interview November 
18 that Argentina's effort to restructure its defaulted bonds is 
not a driving factor in S&P's outlook on the credit rating.   He 
recognized that dealing with holdouts would be positive but, when 
asked whether Argentina's rating would be raised, he added that are 
other things to look at.  [Note: S&P's rates Argentine debt B-, 
which is six notches below investment grade.] 
 
 
 
¶5. (SBU)  Meanwhile, on November 24 local dailies reported that 
even though the GoA is working to launch the debt restructuring 
with holdouts this year (by December 15 before the holiday season 
begins), the approval of the SEC and other foreign regulators would 
likely be later and delay the launching until January 2010. 
 
 
 
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A Stocking Full of Coal 
 
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¶6. (SBU)  Just one month before Christmas, the Argentine Domestic 
Trade Secretariat suspended Brazilian safety certificates for toy 
imports.   On November 23, the official gazette carried resolution 
 
894, which suspended recognition of safety certificates issued by 
the Brazilian National Institute of Weights and Measures, Standards 
and Industrial Quality.   This came on the heels of a tense 
exchange between the Argentine and Brazilian presidents over trade 
restrictions at last week's summit meeting in Brasilia.   According 
to Argentine press reports, the measure merely aligns the Argentine 
policy with existing Brazilian practices which have not recognized 
Argentine or any other foreign safety certificates on toys since 
¶2007.  Brazil exports three times more toys to Argentina than the 
southern trading partner sends north. In 2008, Argentina reportedly 
sold $US 1 million worth of toys while Brazil sent over $US 3 
million south.  As of September this year, the gap was even 
greater: Brazil exported $US 1.9 million in toys to Argentina, with 
Argentina exporting $US 400,000 in toys to Brazil. 
 
 
 
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October primary fiscal surplus better than expected due to a 
deceleration of primary spending:  The beginning of a trend? 
 
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¶7. (SBU)  The GoA announced November 19 that the October primary 
fiscal surplus declined 73% y-o-y to ARP 700 million from ARP 2.5 
billion a year ago but was better than private analysts' estimate 
of ARP 500 million.  The better-than-expected result was due to a 
strong deceleration of primary expenditure, whose growth rate 
decreased from 28% in the first nine months of the year to 17% in 
October.  This decline in primary expenditure is due to a reduction 
in subsidies to both provinces and the private sector.  However, it 
is still unclear whether this reduction in expenditures is 
temporary or the beginning of a trend.  In October, revenues 
reached ARP 21.1 billion (driven mainly by VAT, fuel taxes and 
social security contributions) and primary expenditure totaled ARP 
20.4 billion (mainly social security payments and capital transfers 
to provinces to improve infrastructure, transportation and 
housing).  Taking interest payments into account, the overall 
fiscal balance for October is a deficit of ARP 1.8 billion. 
Year-to-date the primary surplus is at ARP 9.4 billion.  Private 
analysts estimate that the primary fiscal surplus will reach only 
0.7%-0.8% of GDP in 2009, compared to 1.4% included in the 2009 
Budget and 3.1% achieved in 2008. 
 
 
 
¶8. (SBU)  In a press conference, the Minister of Economy Amado 
Boudou and Secretary of the Treasury Juan Carlos Pezoa highlighted 
that the October results mark the end of a downward trend of the 
primary fiscal surplus after reaching the lowest level of the year 
in September at ARP 223 million.  In previous months, GoA officials 
attributed the weak fiscal results to the international financial 
crisis and the implementation of a counter-cyclical fiscal policy 
to alleviate the effects of the global crisis. 
 
 
 
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GDP recovery on the way:  September monthly economic activity index 
up 0.6% y-o-y, second increase in a row 
 
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¶9. (SBU)  INDEC announced November 20 that EMAE (the Monthly 
Economic activity index - an indicator of real GDP growth) 
increased 0.6% y-o-y in September, after increasing only  0.1% 
y-o-y in August and following a -1.5% y-o-y fall both in June and 
July.  This increase was also stronger than the 0.2% increase 
private forecasters expected INDEC to announce.  In the first nine 
months of the year, EMAE increased a cumulative 0.3% y-o-y, which 
contradicts many 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.  However, 
 
after depressed domestic demand conditions in the first half of the 
year, there are signs that the economy has stabilized and is 
moderately recovering, leading most analysts to revise upwards 
their estimates for 2010.  GDP private estimates range from a mild 
2-3% recovery to an optimistic 5-6% growth, especially under a 
scenario of very supportive external factors. 
 
 
 
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Industrial production index up 1.5% y-o-y in October 
 
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¶10. (SBU)  INDEC announced November 20 that industrial production 
increased 1.5% y-o-y in October, better than the market's forecast 
of a 0.5% increase.  According to INDEC, during the first ten 
months of the year, industrial production declined 1.0% y-o-y.  In 
October, the fastest growing industries were textiles (+9% y-o-y), 
paper and cardboard (+9% y-o-y), and chemicals (+8% y-o-y), while 
the oil refining and basic metals industries sub-indices decreased 
18% and 8% y-o-y, respectively.  Most analysts expect that the 
industrial sector will continue to show signs of recovery in the 
near future as the inventory cycle stabilizes and foreign demand 
strengthens. Growth is resuming in some of the country's main 
trading partners, especially Brazil, which is the destination of 
about 20% of Argentine exports. 
 
 
 
¶11. (SBU)  The industry-wide capacity utilization index reached 76% 
in October compared to 77% in October last year, recovering from 
its low of 67% in January, 2009.  The sectors showing highest 
capacity utilization are textiles, printing and cardboard, and 
basic metal industries.  The sectors with the lowest capacity 
utilization are auto production, and metal-mechanic and plastics 
industries. 
 
 
 
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Official unemployment rate increases to 9.1% in the third quarter 
of 2009, about 2 percentage points lower than private estimates 
 
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¶12. (SBU)  INDEC (National statistical agency) announced November 
23 that Argentina's unemployment rate increased to 9.1% in the 
third quarter of 2009 (about 1.5 million people are unemployed), 
compared to 8.8% in the second quarter of 2009 and 7.8% in the 
third quarter of 2008.  In sharp contrast to INDEC's statistics, 
non-government figures suggest that the actual unemployment rate is 
at least 2 percentage points above the official figures.  This 
deterioration in the labor market is consistent with a decline of 
real activity between the fourth quarter of 2008 and the second 
quarter of 2009 (while the INDEC figures show just a mild 
deceleration of the economy). 
MARTINEZ