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R 212016Z JAN 10
FM AMEMBASSY BUENOS AIRES
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INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSO/AMCONSUL SAO PAULO

UNCLAS SECTION 01 OF 03 BUENOS AIRES 000048 
 
SENSITIVE 
SIPDIS 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAIR AR
SUBJECT: Argentina Economic and Financial Review, January 18-21, 2010 
 
REF: 09 BUENOS AIRES 1175 
 
¶1. (U)  Provided below is Embassy Buenos Aires' Economic and 
Financial Review covering the period January 18-21, 2010.  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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GoA Says Debt Swap Moving Forward 
 
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¶2. (SBU)  In a radio interview January 19, Minister of Economy 
Amado Boudou denied that the debt restructuring is facing any 
obstacles from the US Securities and Exchange Commission (SEC), 
adding that the swap is moving forward as scheduled and the GoA 
anticipates a 60% participation rate.  His statement came in 
response to local press articles over the weekend reporting that 
additional information requests by the SEC regarding the debt swap 
signaled problems for moving it forward.  According to the press 
reports, the SEC requested that the GOA provide details on the 
integrity of the National Statistical Agency and its method to 
calculate inflation, inquired about the risk of attachment of 
official funds by holders of defaulted Argentine debt, and asked 
for clarification regarding purpose and operation of the debt 
repayment fund (the so-called Bicentennial Fund) that the GoA is 
trying to establish with central bank reserves to pay (or 
guarantee) 2010 debt payments.  The Minister said that the GoA had 
expected and received on January 15 SEC requests for additional 
information that is the norm for debt swaps and that the GoA is 
preparing to response by January 22.  Boudou noted that the GoA and 
the SEC had three information exchanges for the 2005 debt exchange. 
 
 
 
¶3. (SBU)  Meanwhile, Secretary of Finance Lorenzino, who is on a 
road show to the UK, Italy, and Germany to promote the swap with 
holdouts there, stated in a press interview that the GoA is on 
track to launch the debt restructuring with the remaining holdouts 
in late January/early February and expects to complete the process 
by the end of February. 
 
 
 
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Congress Bicameral Commission to issue its view on Central Bank 
President removal 
 
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¶4. (SBU)  In a press conference on January 19, President Cristina 
Fernandez de Kirchner announced that she has asked Congress 
(currently in summer recess until March) to set up as soon as 
possible the Bicameral Budget and the Finance Commissions to issue 
a view on her intent to remove Central Bank (BCRA) President Martin 
Redrado.  [Background: On January 8, the President issued a DNU 
(necessity and urgency decree, N 18) removing Redrado without 
Congressional recommendation (arguing that it was in summer recess) 
after Redrado refused to resign at CFK's request for failing to 
implement a previous GoA decree to set up a $ 6.57 billion fund 
(the "Bicentennial Fund") with Central Bank reserves to pay 2010 
debt payments.  [See previous Embassy reporting on this issue] 
 
 
 
¶5. (SBU)  The Bicameral commission to review Redrado's removal is 
composed of five members: the Presidents of the Lower House Budget 
and Finance Commissions, the Presidents of the Senate Budget and 
Finance Commissions and the vice-President.  The President of the 
 
BUENOS AIR 00000048  002 OF 003 
 
 
Lower House, Eduardo Fellner requested January 20 that the two 
commissions meet on January 21 to elect their Presidents. 
Reportedly, pro-Kirchner Deputy Gustavo Marconato will head the 
Budget Commission, while opposition Deputy (from the Coalicion 
Civica) Alfonso Prat-Gay will lead the Treasury Committee.  While 
the Senate has not yet set up its commissions, the GoA is pushing 
for the commission to issue its recommendation with just three 
members as it meets the required quorum.  The GoA has stressed that 
the commission's recommendation is nonbinding and that CFK can 
legally dismiss Redrado once the commission has released its 
findings. 
 
 
 
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Primary fiscal surplus declining; GoA spending up 
 
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¶6. (SBU)  In a press conference January 19, Minister of Economy 
Amado Boudou announced that the primary fiscal surplus reached ARP 
5.1 billion in December, compared to a deficit of ARP 3.5 billion 
in 2008.  He also noted that the full-year 2009 primary fiscal 
surplus declined 47% y-o-y to ARP 17.3 billion, equivalent to 1.5% 
of GDP -- well below the 3.1% level of  2008, but higher than the 
GoA revised 2009 budgeted figure of 0.5%.  However, the primary 
fiscal surplus figure is mainly the result of two accounting 
gimmicks that inflate the surplus: (1) accounting as revenues US$ 
2.5 billion (ARP 9.6 billion) received in 2009 from the IMF Special 
Drawing Rights (SDRs) allocation to the BCRA (this amount is 
determined by the member country shareholder stake); and (2) 
accounting as earnings ARP 8.3 billion from the ANSES (Social 
Security Agency) investment portfolio.  In addition, total revenues 
were augmented with the unorthodox addition ARP 5 billion from the 
nationalized pension funds  and the BCRA transfer of extraordinary 
profits (from unrealized profits due to the peso depreciation) of 
US$1.2 billion in 2009.  Absent the unorthodox accounting, the GoA 
would have posted a primary fiscal deficit in 2009. 
 
 
 
¶7. (SBU)  During the year, revenues totaled ARP 260.2 billion (up 
19%), while primary expenditure reached ARP 242.9 billion (up 30%), 
raising concerns regarding the GoA's ability to rein in spending in 
¶2010.  Taking into account interest payments on debt, the overall 
fiscal balance shows a deficit of ARP 7.1 billion, (equivalent to 
0.6% of GDP), compared to a 2008 overall fiscal surplus of ARP 14.6 
billion (1% of GDP).  In its press release, the GoA noted that in 
the middle of an international economic crisis, Argentina 
maintained its three economic pillars: the two twin surpluses 
(fiscal and trade) and a high level of international reserves, 
which allowed the country to weather the crisis without economic 
disruptions or fiscal adjustments. 
 
 
 
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Inflation UP 
 
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¶8. (SBU)  National statistics agency INDEC announced January 15 
that December 2009 inflation increased 0.9% m-o-m, in line with 
market expectations of INDEC announced figures, but well below 
private estimates of an actual increase in inflation of about 2% 
m-o-m.  The highest price increases were in food and beverage 
(1.6%), entertainment (2.2%) and clothing (1.6%).  For the year, 
INDEC estimated that inflation increased only 7.7%., in sharp 
contrast with private estimates of 15-17% y-o-y. 
 
 
 
¶9. (SBU)  Most private analysts expect inflation to accelerate 
slightly in 2010 to between 18-20%, due to higher commodity prices, 
 
BUENOS AIR 00000048  003 OF 003 
 
 
the recovery of domestic demand, the expected elimination of energy 
and transport subsidies, unanchored inflation expectations (see 
item below), and a loose fiscal policy coupled with a high salary 
inertia. 
 
 
 
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Inflation expectations dropped to 20% 
 
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¶10. (SBU)  On January 18, the Finance Research Center of Di Tella 
University reported that inflation expectations for the next twelve 
months dropped to 20% in January, from 25% in December.  Inflation 
expectations have kept steady during the whole year, hovering 
around 20%, except in the months of February, August and December 
when they jumped to 25%.  As part of the end-of the year survey, Di 
Tella also surveyed people's perceived inflation during the last 
year.  Surprisingly, people estimated that 2009 inflation was 30%, 
much higher than true inflation estimates of approximately 17%, 
demonstrating the downside of a lack of public confidence in INDEC. 
KELLY