US embassy cable - 04ROME403

UNCLAS  ROME 000403 
 
SIPDIS 
 
 
STATE FOR EB/IFD - DAS GREENWOOD AND FRISBIE 
STATE FOR WHA/BSC 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, IT 
SUBJECT: ARGENTINE BONDS - ITALIAN BANKERS TAKE A TOUGH 
STANCE 
 
REF: A. ROME 184 
 
     B. 03 PARIS 09233 
 
1. (SBU) Summary and Comment: All we want is for Argentina to 
agree to fair and equitable negotiations with foreign 
bondholders, Nicola Stock (please protect), president of the 
Global Committee of Argentina Bondholders (GCAB), told 
econoffs February 3.  However, the GCAB seriously doubts 
Argentina's willingness to proceed in good faith on 
negotiations and is disappointed by Argentine Finance 
Minister Lavagna's reported vitriolic (though implicit) 
attacks on the GCAB's integrity.  Stock stated that Italian 
Banking Association (ABI) and its German, U.K., Japanese, and 
Austrian counterparts, individually and as members of the 
GCAB, will continue to press their respective governments to 
oppose - as Italy has done -- approval of the IMF's 
first-stage review of Argentina. Comment: The GOI is facing 
some tough decisions about the treatment of private 
individual Italian investors in light of Argentina and the 
Parmalat case. End Comment. Stock and his American GCAB 
co-chair are seeking appointments with U.S. Treasury 
officials to explain the GCAB's position.  End Summary and 
Comment. 
 
WHAT IS THE GLOBAL COMMITTEE OF ARGENTINA BONDHOLDERS (GCAB)? 
--------------------------------------------- ---------------- 
 
2. (U) Established on January 12, 2004, the GCAB is open to 
all financial institutions that represent a significant 
number of bondholders of paper issued by either the GOA or 
Argentine municipalities, and that have neither a conflict of 
interest nor pending litigation involving GOA or Argentine 
municipal bonds. The GCAB is comprised of the Italian Banking 
Association's Task Force Argentina, which represents 450,000 
Italian retail (i.e., individual) investors holding USD 14.5 
billion in Argentine bonds; the Argentina Bondholders 
Committee (ABC), which represents institutional investors, 
including some in the U.S., who hold USD 7.5 billion in 
bonds; the Argentine Bond Restructuring Agency (ABRA), which 
represent German, Austrian, and Luxembourg retail holdings of 
USD 1.2 billion; and the Bank of Tokyo-Mitsubshi and Shinsei 
Bank, which represents Japanese investors holding USD 1.8 
billion in Argentine bonds.  The Swiss Bankers' Association, 
Deutsche Bank and DZ Bank support GCAB as observers, Stock 
said. In sum, GBAC claims to represent investors holding USD 
37.5 billion in Argentine bonds, equal to about 65 percent of 
Argentina's overall foreign debt. Stock and an ABC 
representative head the GCAB's steering committee. 
 
3. (U) According to Argentine press accounts, Argentine 
Finance Minister Lavagna has raised questions about this "new 
entity" that claims to represent private creditors, and 
reportedly in harsh language, also questions about the 
integrity and motivation of its members.  While Stock took 
umbrage at these remarks, he said the GCAB is taking the 
moral high ground and not responding to these attacks. 
 
ARGENTINA OFFERS A QUARTER. 
--------------------------- 
 
4. (U) Argentina has offered 25 cents to the dollar of debt 
held by private creditors - a 75 percent discount from the 
bonds' face value, but more than 90 percent discount in terms 
of net present net, according to Stock. In recent public 
statements, Argentina's Finance Minister reportedly has 
stated that Argentina will not budge from this line. 
 
5. (SBU) The GCAB argues that by drawing a line in the sand, 
Argentina is not demonstrating its good faith in negotiating 
with private creditors.  Stock stated that 25 cents on the 
dollar is an "insult" to the tens of thousands of individual 
investors who trusted in the economic policy of the Argentine 
government. The GCAB has no fixed offer for creditors in 
mind: the 25 cents figure could be a starting point, but 
absolutely not the end point, Stock remarked.  He underscored 
that the GCAB is willing to negotiate in good faith; and for 
this reason, the GCAB has not started court proceedings 
against Argentina. 
 
ITALY SUPPORTS BONDHOLDERS AT THE PARIS CLUB AND THE IMF. 
--------------------------------------------- ------------ 
 
6. (SBU) As reported ref b, the GOI did not join the Paris 
 
 
Club consensus in the December  meeting to invite Argentina 
for official debt negotiations in March. The GOI insisted 
that individual investors receive better repayment treatment 
before it would join consensus. 
 
7. (SBU) Stock also met with Italian Foreign Minister 
Frattini on January 23 to explain the GCAB's position. The 
Ministry of Foreign Affairs issued a press statement 
following this meeting to say that "Frattini confirmed the 
Italian Government's commitment to encourage an equitable 
solution to the question both on the bilateral level as well 
as in the context of international financial institutions. 
The Government intends to safeguard Italian investors, and to 
that end, will promote all the necessary diplomatic 
initiatives in the spirit of the tradition of friendship 
between Argentina and Italy."  On January 28, Italy was one 
of eight IMF board members to vote against the IMF's first 
review of Argentina's performance under its Stand-by 
Agreement, Stock noted.  Some governments, such as the U.K, 
reversed its previous decision to support. 
 
8. (SBU) Stock expressed puzzlement at the IMF's treatment of 
Argentina.  He said that the draft IMF conditions for 
Argentina are far more lenient than those imposed on Brazil 
and Turkey in their recent IMF agreements.  Argentina was 
given a "primary surplus" target of three percent of GDP in 
2004, while targets of 4.5 percent and 6 percent were 
imposed, respectively, on Brazil and Turkey.  (Note: Italy 
defines primary surplus as current account deficit minus 
interest payments as a percentage of GDP. End Note.) 
 
SEEKING SUPPORT FROM THE U.S. 
----------------------------- 
 
9. (SBU) Stock and his counterpart from the Argentine 
Bondholders Committee, Managing Director of Van Eck Capital 
Hans Humes, sent a letter two weeks ago to Treasury Secretary 
Snow requesting an appointment this month to seek U.S. 
agreement to: 
-- recognize the GCAB as a legitimate representation of 
creditors; 
-- press the GOA to negotiate with the GCAB in good faith; 
and 
-- lobby the GOA against any unilateral Argentine agreement 
in favor of Argentine domestic bondholders over its foreign 
bondholders. 
 
10. (SBU) Comment: The issue of repayment of privately-held 
debt is a sticky one for the Italian Government. More than 
100,000 Italian investors had their investments wiped out by 
Parmalat's fraud, and are watching carefully how the 
Government will address their rights (ref a).  Another 
investor test for the government, and perhaps even more 
important, is how it addresses shareholder grievances 
regarding Argentina.  End Comment. 
SEMBLER 
 
 
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 2004ROME00403 - Classification: UNCLASSIFIED