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The statistics are "infected", says U.S.
La Nacion
September 02, 2008

In the Bush government they believe it can be "destructive"

by Jorge Oviedo
Special report

WASHINGTON.- Argentina has its statistics "infected" by the bad inflation index measures, which could be "destructive" for an economy that needs investments, and the fiscal situation could be a bit precarious in light of the drop in exportable raw material prices. These opinions are held by sources at the State Department, who say also they view with great concern that the government has not paid any of the adverse rulings that until now have been handed out by the international arbitration tribunal called ICSID, where they were sued by foreign companies for the lack of compliance for its contracts.

The sources referred in particular to the case of the energy company CMS and explained that the country seems to be seeking another route, while it has demanded a nullification of the process. "They are looking for another round, but it doesn't exist; the contract that they signed said that the tribunal would have the final word, and the tribunal said that they have to pay. Therefore they have to pay. If what they want is another go, then they should have made a different contract," they explained.

At the U.S. foreign ministry they believe that the problem is that this behavior generates problems in confidence and impedes the creation of a business climate that is necessary for increasing investments. "The country needs investments in the energy sector, but in that business class it's necessary always to make accords with the government. But who will want to make them if the government can then not recognize its contractual obligations?" asked the sources.

Foreign tailwinds

The drop in international prices also is seen in the State Department as a potential problem for Argentina, also in the Agriculture department, as reported on Friday by LA NACION.

"The loss in value in raw materials that Argentina exports shows that, if there is a bubble, something is exiting; slowly, but it's deflating, and that could have fiscal implications for Argentina," they say at George Bush's foreign ministry, since the country gets a very important portion of its fiscal resources from export taxes, whose amoung is a percentage of prices sold abroad. "The situation could be a but precarious, it's true that the country has big international reserves, but we have already seen big reserves rapidly disappear when governments don't have money," the officials said.

The solution, they say, is to re-establish confidence and generate an investment climate, but to start on this path "the problem of the ICSID rulings is enormous," they said. "Argentina has to create confidence," they said, and added that it must include "fixing the inflation statistics, which are necessary for all of the other statistics, like growth, investment, poverty, which all are made from that base." And they explain that the disappearance of a good measure of the cost of living is "infecting" the rest of the statistics.

"When there is an inflationary process whose magnitude is not precisely known, businessmen stop planning and live day by day, and that's not good. The lack of confidence for not complying with the arbitration rulings or not having good statistics not only wipes out the confidence of foreign investors, but local ones, too," it was heard to be said at State.

The sources said also that those issues weren't the goal of the recent visit by Tom Shannon to Argentina. The assistant secretary of state for Western Hemisphere issues, according to them, was only for the meeting of the Council of the Americas and offered a meeting to President Cristina Kirchner "if she wanted to have one." The rumor indicates that he didn't want to pass through Buenos Aires without offering a meeting, that happened because the Casa Rosada accepted the proposal. That rumor appears to contrast with the fact that Shannon, in his brief stay, spent 50 minutes with the President, but also met with Foreign Minister Jorge Taiana and Cabinet Chief Sergio Massa.

Despite the criticism, the State Department said that the bilateral relationship remains on a friendship track, and that there are very good relations in the areas of the fight against terrorism and human rights, and many areas of possible cooperation in issues of biotechnology and biosciences. And they spoke of the improvements, for example, in questions of security in the Triple Border region. "Now there is a lot of money flowing there, which has to do with money laundering operations, but now it's just a matter of money. In the past there were much more grave issues; there the situation clearly improved thanks to the cooperation of the governments and the joint work," the sources said.

Ties with Ch vez

They also didn't show concern over the relations between the Casa Rosada and Venezuela's Hugo Ch vez. "You all are more worried about what we think in Washington of your relationship with Venezuela than we could be ourselves," one official joked. "Argentina is a very sovereign country, which such sovereign price that they will never be under Chavez's management," he argued.

They also very much distanced themselves from the supposed weakness of the current government soon after the defeat suffered in the fight with the farm sector over export taxes and the rumors of changes.

"With Argentina we have the same goal, which is to have prosperous countries in the region with democratic governments. We believe that the changes in government must be done in a constitutional manner," they said. And when asked if the visit by Shannon to the country or any other gesture were part of some special help over the supposed political weakness of the administration, the response was quick: "That would be interference."

Other issues don't appear on the list simply for questions of spreading the responsibilities of the U.S. government. Like the unpaid debt with the Paris Club. "That is something for the Treasury Department," they said.

And about the holdouts, the bondholders that didn't accept the swap of 2005 and continue demanding payment for their bonds in default: "They are permanently complaining and seeking a dialogue with the Argentine government, until now without much success," they explain. And they recalled a phrase from an ex-minister of Brazil: "If not paying the bankers were a good idea, nobody would pay them." When there is an inflationary process whose magnitude is not precisely known, businessmen stop planning and live day to day, which is not good; it only wipes out investor confidence."