

Currently released so far... 12478 / 251,287
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
2011/02/12
2011/02/13
2011/02/14
2011/02/15
2011/02/16
2011/02/17
2011/02/18
2011/02/19
2011/02/20
2011/02/21
2011/02/22
2011/02/23
2011/02/24
2011/02/25
2011/02/26
2011/02/27
2011/02/28
2011/03/01
2011/03/02
2011/03/03
2011/03/04
2011/03/05
2011/03/06
2011/03/07
2011/03/08
2011/03/09
2011/03/10
2011/03/11
2011/03/13
2011/03/14
2011/03/15
2011/03/16
2011/03/17
2011/03/18
2011/03/19
2011/03/20
2011/03/21
2011/03/22
2011/03/23
2011/03/24
2011/03/25
2011/03/26
2011/03/27
2011/03/28
2011/03/29
2011/03/30
2011/03/31
2011/04/01
2011/04/02
2011/04/03
2011/04/04
2011/04/05
2011/04/06
2011/04/07
2011/04/08
2011/04/09
2011/04/10
2011/04/11
2011/04/12
2011/04/13
2011/04/14
2011/04/15
2011/04/16
2011/04/17
2011/04/18
2011/04/19
2011/04/20
2011/04/21
2011/04/22
2011/04/23
2011/04/24
2011/04/25
2011/04/26
2011/04/27
2011/04/28
2011/04/29
2011/04/30
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Apia
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Auckland
Consulate Amsterdam
Consulate Adana
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belmopan
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Ciudad Juarez
Consulate Chennai
Consulate Casablanca
Consulate Cape Town
Consulate Calgary
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dili
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Helsinki
Embassy Harare
Embassy Hanoi
Consulate Ho Chi Minh City
Consulate Hermosillo
Consulate Hamilton
Consulate Hamburg
Consulate Halifax
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kingston
Embassy Kigali
Embassy Khartoum
Embassy Kathmandu
Embassy Kampala
Embassy Kabul
Consulate Kolkata
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Ljubljana
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lahore
Consulate Lagos
Mission USOSCE
Mission USNATO
Mission UNESCO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Mbabane
Embassy Maputo
Embassy Manila
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Mumbai
Consulate Montreal
Consulate Monterrey
Consulate Milan
Consulate Melbourne
Embassy Nicosia
Embassy Niamey
Embassy New Delhi
Embassy Ndjamena
Embassy Nassau
Embassy Nairobi
Consulate Naples
Consulate Naha
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Of Spain
Embassy Port Louis
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Suva
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate St Petersburg
Consulate Shenyang
Consulate Shanghai
Consulate Sapporo
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
Consulate Toronto
Consulate Tijuana
USUN New York
USEU Brussels
US Office Almaty
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Embassy Vilnius
Embassy Vienna
Embassy Vatican
Embassy Valletta
Consulate Vladivostok
Consulate Vancouver
Browse by tag
AU
ASEC
AE
AF
AORC
AEMR
AMGT
ABUD
AFFAIRS
APER
AS
AMED
AY
AG
AR
AJ
AL
AID
AM
AODE
ABLD
AMG
AFIN
ATRN
AGAO
AFU
AN
AA
ALOW
APECO
ADM
ARF
ASEAN
APEC
AMBASSADOR
AO
ASUP
AZ
AADP
ACOA
ANET
AMCHAMS
ACABQ
ASECKFRDCVISKIRFPHUMSMIGEG
APCS
AGMT
AINF
AIT
AORL
ACS
AFSI
AFSN
ACBAQ
AFGHANISTAN
ADANA
ADPM
AX
ADCO
AECL
AMEX
ACAO
ASCH
AORG
AGR
AROC
ASIG
AND
ARM
AQ
ATFN
AC
AUC
ASEX
AER
AVERY
AGRICULTURE
BL
BR
BO
BA
BD
BM
BK
BG
BU
BB
BH
BTIO
BY
BEXP
BP
BE
BRUSSELS
BF
BIDEN
BT
BX
BC
BILAT
BN
BBSR
BTIU
BWC
BMGT
CA
CASC
CVIS
CM
CH
CO
CU
CD
CWC
CI
CS
CY
CMGT
CF
CG
CR
CB
CV
CW
CE
CBW
CT
CPAS
COUNTERTERRORISM
CJAN
CODEL
CIDA
CDG
CDC
CIA
CTR
CNARC
CSW
CN
CONS
CLINTON
COE
CROS
CARICOM
CONDOLEEZZA
COUNTER
CL
COM
CICTE
CIS
CFED
COUNTRY
CJUS
CBSA
CEUDA
CLMT
CAC
COPUOS
CIC
CBE
CHR
CTM
CVR
CITEL
CLEARANCE
CACS
CAN
CITT
CARSON
CACM
CDB
CAPC
CKGR
CBC
EC
EG
EPET
ECON
ETRD
EFIN
EIND
EMIN
ENRG
EAID
EAGR
EUN
ETTC
EAIR
ENIV
ES
EU
EINV
ELAB
ECIN
EFIS
ELTN
EWWT
ECPS
ECONOMIC
ENGR
EN
EINT
EPA
ELN
ESA
EZ
ER
ET
EFTA
EINVECONSENVCSJA
EUMEM
ETRA
EXTERNAL
EI
EUR
EK
ERNG
ENGY
ETRDEINVECINPGOVCS
ENERG
EINVEFIN
ENVR
ECA
ELECTIONS
ETC
EUREM
ENNP
EFINECONCS
EURN
ECINECONCS
EEPET
EXIM
ERD
ENVI
ETRC
ETRDEINVTINTCS
ETRO
EDU
ETRN
EAIG
ECONCS
ECONOMICS
EAP
ECONOMY
EINN
EIAR
EXBS
ECUN
EINDETRD
EREL
EUC
ESENV
ECONEFIN
ECIP
EFIM
EAIDS
ETRDECONWTOCS
EUNCH
EINVETC
IZ
IT
IR
IS
IN
IC
IAEA
IO
ICAO
IWC
ID
IV
ISRAEL
IAHRC
IQ
ICTR
IMF
IRS
IDP
IGAD
ICRC
ICTY
IMO
IL
INRA
INRO
ICJ
ITU
IBRD
INMARSAT
IIP
ITALY
IEFIN
IACI
ILO
INTELSAT
ILC
ITRA
IDA
INRB
IRC
INTERPOL
IA
IPR
IRAQI
ISRAELI
INTERNAL
ISLAMISTS
INDO
ITPHUM
ITPGOV
ITALIAN
IBET
INR
IEA
IZPREL
IRAJ
ITF
IF
KDEM
KU
KPAL
KNNP
KCRM
KZ
KN
KS
KJUS
KTFN
KSCA
KV
KISL
KPAO
KPKO
KIRF
KTIA
KIPR
KFLO
KFRD
KTIP
KAWC
KSUM
KCOM
KAID
KE
KTDB
KMDR
KOMC
KWBG
KDRG
KVPR
KTEX
KGIC
KWMN
KSCI
KCOR
KACT
KDDG
KHLS
KSAF
KFLU
KSEO
KMRS
KSPR
KOLY
KSEP
KVIR
KGHG
KIRC
KUNR
KIFR
KCIP
KMCA
KMPI
KBCT
KHSA
KICC
KIDE
KCRS
KMFO
KRVC
KRGY
KR
KAWK
KG
KFIN
KHIV
KBIO
KOCI
KBTR
KNEI
KPOA
KCFE
KPLS
KSTC
KHDP
KPRP
KCRCM
KLIG
KCFC
KTER
KREC
KTBT
KPRV
KSTH
KRIM
KRAD
KWAC
KWMM
KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG
KOMS
KX
KMIG
KRCM
KVRP
KBTS
KPAONZ
KNUC
KNAR
KPWR
KNPP
KDEMAF
KNUP
KNNPMNUC
KERG
KGIT
KPAI
KTLA
KFSC
KCSY
KSAC
KTRD
KID
KOM
KMOC
KJUST
KGCC
KREL
KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG
KFTFN
KO
KNSD
KHUM
KSEC
KCMR
KCHG
KICA
KPIN
KESS
KDEV
KCGC
KWWMN
KPAK
KWNM
KWMNCS
KRFD
MOPS
MCAP
MPOS
MARR
MO
MNUC
MX
MASS
MG
MY
MU
ML
MR
MILITARY
MTCRE
MT
MEPP
MA
MDC
MP
MAR
MASSMNUC
MARAD
MAPP
MZ
MD
MI
MEETINGS
MK
MCC
MEPN
MRCRE
MAS
MIL
MASC
MC
MV
MTCR
MIK
MUCN
MEDIA
MERCOSUR
MW
MOPPS
MTS
MLS
MILI
MTRE
MEPI
MQADHAFI
MAPS
NO
NATO
NL
NP
NZ
NSF
NI
NH
NG
NAFTA
NU
NASA
NR
NATOPREL
NSSP
NSG
NA
NT
NW
NK
NPT
NPA
NATIONAL
NPG
NSFO
NS
NSC
NE
NGO
NDP
NIPP
NRR
NEW
NZUS
NC
NAR
NV
NORAD
OTRA
OPCW
OVIP
OAS
OREP
OPIC
OIIP
OPRC
ODIP
OEXC
OPDC
OSCE
OIC
OSCI
OECD
OFDP
OFDA
OMIG
OPAD
OFFICIALS
OVP
OIE
OHUM
OCS
OBSP
OTR
OSAC
ON
OCII
OES
PGOV
PREL
PHUM
PTER
PINS
PINR
PREF
PK
PROP
PA
PARM
PBTS
PMAR
PM
PGIV
PE
PRAM
PHUH
PHSA
PL
PNAT
PO
PLN
PAO
PSA
PHUMPGOV
PF
PEL
PBIO
POLITICS
PHUMBA
PAS
POL
PREO
PAHO
PMIL
POGOV
POV
PAK
PNR
PRL
PG
PREFA
PSI
PINL
PU
PARMS
PRGOV
PALESTINIAN
PAIGH
POLITICAL
PARTIES
POSTS
PROG
PORG
PTBS
PUNE
POLICY
PDOV
PCI
PGOVSMIGKCRMKWMNPHUMCVISKFRDCA
PBT
PP
PS
PY
PTERE
PGOF
PKFK
PSOE
PEPR
PPA
PINT
PRELP
PSEPC
PGOVE
PINF
PNG
PGOC
PFOR
PCUL
POLINT
PGGV
PHALANAGE
PARTY
PGOVLO
PHUS
PDEM
PECON
PROV
PHUMPREL
RS
RU
RELATIONS
RW
RO
RM
RP
ROOD
RICE
RUPREL
RSO
RCMP
REACTION
REPORT
REGION
RIGHTS
RF
RFE
RSP
RIGHTSPOLMIL
ROBERT
SU
SCUL
SNAR
SOCI
SF
SA
SHUM
SENV
SP
SR
SY
SANC
SC
SMIG
SZ
SARS
SW
SEVN
SO
SEN
SL
SNARCS
SNARN
SI
SG
SN
SH
SYR
SAARC
SPCE
SHI
SCRS
SENVKGHG
SYRIA
SWE
STEINBERG
SIPRS
ST
SNARIZ
SSA
SK
SPCVIS
SOFA
SIPDIS
SAN
TC
TI
TBIO
TH
TSPL
TRGY
TSPA
TPHY
TU
TW
TS
TAGS
TK
TX
TNGD
TZ
TF
TL
TV
TN
TD
TIP
TR
TP
TO
TT
TFIN
THPY
TERRORISM
TINT
TRSY
TURKEY
TBID
US
UK
UNGA
UP
UZ
UNMIK
USTR
UNO
UNSC
UN
UNESCO
UNAUS
UNHRC
UY
UG
UNHCR
UNCND
USOAS
USEU
UNICEF
UNEP
UV
UNPUOS
UNCSD
USUN
UNCHR
UNDC
USNC
UE
UNDP
UNC
USPS
USAID
UNVIE
UAE
UNFICYP
UNODC
UNCHS
UNIDROIT
UNDESCO
UNCHC
Browse by classification
Community resources
courage is contagious
Viewing cable 08BUENOSAIRES1708, Argentina: World Bank Country Director Cautions on Economy
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #08BUENOSAIRES1708.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
08BUENOSAIRES1708 | 2008-12-18 12:11 | 2011-04-19 06:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Buenos Aires |
VZCZCXYZ0002
OO RUEHWEB
DE RUEHBU #1708/01 3531211
ZNR UUUUU ZZH
O 181211Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2707
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE
UNCLAS BUENOS AIRES 001708
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV AR
SUBJECT: Argentina: World Bank Country Director Cautions on Economy
Ref: (A) Buenos Aires 1703
(B) Buenos Aires 1696
(C) Buenos Aires 1685
(D) Buenos Aires 1682
This cable contains sensitive information - not for internet
distribution.
-------
Summary
-------
¶1. (SBU) The local World Bank (WB) Country Director (protect) sees
the GoA ""walking a tightrope"" in terms of its capacity to maintain
market confidence, stem capital flight, and sustain twin fiscal and
current account surpluses in a context of economic slowdown,
continued high rates of GoA public infrastructure spending, high
inflation, and lower commodity prices. While GoA authorities have
responded to constraints in accessing international financial
markets by buying back debt, announcing their intention to pay down
Paris Club debt and by re-opening talks with holdout creditors, the
impact of these efforts on market confidence has been limited by
investor concern on macroeconomic policy drift and by heavy GoA
spending in the run-up to 2009 mid term elections.
¶2. (SBU) WB Country Director Pedro Alba told Ambassador December 12
he had personally cautioned Chief of Cabinet Sergio Massa on
Argentina's precarious condition. He advised Massa on the need to
build confidence by announcing -- and following -- a hard fiscal
rule to maintain the primary fiscal surplus; cleaning up GoA
statistics agency INDEC; and addressing concerns on how the GoA will
manage nationalized pension fund resources and equity holdings.
Should capital flight overwhelm the GoA's ability to sustain
confidence in the currency, the WB has developed a contingency
crisis plan that would allocate additional Bank resources to social
safety net programs. Any restructuring of the roughly US$5 billion
in Bank exposure would only come in the context of an IMF program.
Alba estimated that, in a crisis scenario, the GoA would need some
$30 - $35 billion, including to rebuild reserve levels. End
Summary.
--------------------------------------
GoA Walking a Capital Flight Tightrope
--------------------------------------
¶3. (SBU) In a December 12 meeting with Ambassador, World Bank (WB)
Country Director Pedro Alba briefed the Embassy on the Bank's
country assistance strategy (Ref A) and on its views on GoA economic
management. Alba's main concern was that the GoA is ""walking a
tightrope"" in terms of its capacity to maintain market confidence
and stem capital flight. While there are sufficient local currency
funds available to the GoA to cover 2009 debt obligations, Alba
said, the question is whether Argentina will be able to attract and
retain sufficient dollar reserves. Roughly US$16 billion of capital
left Argentina's financial system in the first three quarters of
2008 and, if another US$ 8-12 billion of Argentine capital flees,
the GoA will be ""all alone - out on a limb"" in terms of its ability
to sustain needed hard-currency reserve levels. Comment: Former
Economy Minister Roberto Lavagna also flagged the implications of
capital flight to Ambassador and Econ Counselor (Ref B). End
Comment.
¶4. (SBU) Alba said he had personally cautioned Chief of Cabinet
Sergio Massa on Argentina's precarious condition, but that Massa had
argued that Argentina will muddle through 2009/10. Alba said he
advised Masa that important confidence-building measures are needed
and could include: (1) cleaning up GoA statistics agency INDEC; (2)
announcing and following a hard fiscal rule to maintain the primary
fiscal surplus; and (3) setting out clear and monitorable guidelines
on how recently nationalized private pension fund (AFJP) resources
will be managed and, as importantly, how the GoA will manage the
board seats on a broad range or Argentine and foreign companies that
it inherited as a consequence of the private pension fund
nationalization exercise. Whether and how GoA-appointed company
directors will vote GoA shares needs to be clarified as soon as
possible to regain investor confidence, Alba said.
----------------------------------------
World Bank's Crisis Contingency Planning
----------------------------------------
¶5. (SBU) Alba joked that he'd congratulated Massa on the GoA's
impressive ability to keep generating economic and economic policy
surprises. He told Ambassador that, should capital flight overwhelm
the GoA's ability to sustain confidence in the currency, the WB has
developed a contingency crisis plan that would allocate additional
Bank resources to social safety net programs. Any restructuring of
the roughly US$5 billion in Bank exposure, however, would only come
in the context of an IMF program. Alba estimated that, in a crisis
scenario, the GoA would need some $30 - $35 billion, including to
rebuild reserve levels.
----------------------------------------
International Crisis Impact on Argentina
----------------------------------------
¶6. (SBU) Alba expanded on World Bank views on the Argentine economy
in a subsequent discussion with EconCouns. Alba summarized the
short-term impact of the financial crisis:
-- An uncertain domestic policy environment that has eroded market
confidence has led to a decline in domestic credit and a linked
buildup of liquidity cushions by private local banks. Alba noted
significant deposit outflows and sharp increases in interest rates
and demand for U.S. dollars following the announcement of the
nationalization of pension funds in October.
-- Capital outflows are complicating monetary management. Following
third quarter 2008 capital outflows of roughly US$6 billion (and
roughly US$16 billion for the first three quarters of 2008),
stability is gradually returning to domestic capital markets
following significant late November and early December intervention
by the central bank and GoA regulatory agencies.
-- As gross international reserves have declined, the GoA has moved
to shelter the economy from further financial shocks. In response
to increased financial volatility, the central bank has intervened
frequently in foreign exchange markets to preserve currency
stability. As a result, gross international reserves have declined
from over $50 billion in early 2008 to about $45 billion (nine
months of imports). However, net international reserves (net of
central bank obligations with the BIS and other international
financial institutions) are down to roughly $35 billion.
-- The exchange rate will continue to depreciate gradually following
the sharp 7.8% depreciation in October. According to Alba, the
GoA's primary monetary policy objective is to preserve exchange rate
stability and confidence in the currency. In light of increased
financial volatility, the central bank will continue to allow the
exchange rate to depreciate in an orderly and gradual manner. In
addition to intervening in foreign exchange markets, the central
bank has also tightened capital controls. Comment: Central Bank
President Redrado confirmed these points to Ambassador December 17,
adding that the key in his view is managing an orderly depreciation
without panic in the markets. End Comment
-- The value of Argentine financial assets has been hurt by
increased global risk aversion and eroded market confidence. Bond
and stock prices have fallen sharply since mid-2008, with equity
values down almost 50% year to date. Argentine equity values have
been particularly hard hit as market confidence has been shaken by
the farm crisis and more recently by the GoA takeover of private
pension funds.
-- Argentine country risk premiums remain among the highest and most
volatile in the Latin America. Argentine EMBI and credit default
swap spreads have been in a constant upward trend throughout 2008,
with EMBI spreads peaking at 1965 basis points on November 14, an
increase of roughly 1,290 bps since August 2008. Argentine EMBI
spreads are currently around 1,900 basis points, second only to
Ecuador and among the most volatile in the region.
----------------------------
Medium Term Economic Outlook
----------------------------
¶7. (SBU) Alba was concerned that the GoA has yet to implement an
adequate mix of monetary and fiscal policies that would allow it to
address inflationary pressures and report credible inflation
figures. It will be increasingly difficult to sustain twin fiscal
and current account surpluses in a context of economic slowdown,
continued high rates of GoA public infrastructure spending, high
inflation, and lower commodity prices. While Alba believes the
primary fiscal surplus should hold at 3.4% for calendar 2008, even
with real GDP growth decelerating to the 6% range by the end of
2008, fiscal accounts will remain vulnerable to lower commodity
prices, declining growth, and GoA expenditure rigidities. The WB is
projecting GDP growth in 2009 at the 2.5% level. The Bank is
particularly concerned at the fiscal situation in many provinces
that remain highly dependent on the federal government for resource
transfers.
¶8. (SBU) Argentina's current account surplus is falling and Alba
expects it to end 2008 at about 1.8% of GDP (compared to the Central
Bank's consensus estimate of 2.2%). Any further decrease in
commodity prices coupled with a decrease in global demand will
further reduce Argentine exports, and Alba predicted that the
current account is likely to shift into deficit in 2009. He said
that, if this happens, it will set off alarms in Argentina and
internationally. With a capital account deficit also likely in 2008
and 2009, there will be further declines in international reserves.
(Comment: Estimating the direction of the balance of payments is
difficult, given that a significant depreciation of the peso --
which appears likely -- would result in stronger exports and
increasing reserves, along with increasing capital outflows, with
the net effect uncertain.)
¶9. (SBU) Alba's principal concern is that an increasingly
unfavorable external environment, coupled with uncertainty over the
course of GoA macro policies, will continue to depress market
confidence. On the positive side, GoA authorities have responded to
constraints in accessing international financial markets by buying
back debt and announcing their intention to pay down Paris Club debt
and re-open talks with holdout creditors. These announcements have
been interpreted by markets as signs of the GoA's willingness to
pay. But their impact on market confidence has been limited by
investor concern on policy drift and the GoA's unabashed
determination to use funds to shore up its electoral prospects in
the 2009 mid-term elections. The GoA could better manage the
situation, Alba said, by improving the credibility of inflation
figures and by putting together a stronger and more predictable
program to maintain the primary fiscal surplus.
WAYNE
=======================CABLE ENDS============================