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G. Breuer's Newsletter
March 2010
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter where you will find an update on:
Political News
Economic News
Legal News
G. Breuer's News

Please do not hesitate to contact partners Jorge Otamendi and Diego Fissore for any specific question you may have after reading it or for any other issue you may need advise on.
Best regards,


G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar
Political News
After the intense political battles that March started with and that we described in our last report, during the rest of the month of March there was a definition of the Central Bank (BCRA) reserves issue in Courts and plenty of negotiations to make Congress work that arrived nowhere. And, as a result, Congress is paralyzed. This is the distinctive news of this monthly report.
The first issue to which we will make reference would be the news regarding the legal conflict created by this Administration’s intention to use Central Bank reserves to pay the private debt of the State. The emergency decree providing for the use of Central Bank reserves (DNU 298) had been suspended by a Federal Judge. We mention that such Emergency Decree had been passed the same day that DNU 2010 -the one creating the Bicentennial Fund- had been abrogated by this Administration, according to many, to avoid the legal actions that had obtained a suspension of the implementation of the questioned fund that also intended to use Central Bank’s reserves to pay private State Debt and debt with multilateral organizations.
The suspension of DNU 298 had been based on the fact that, in practice, it was very similar to DNU 2010, and thus the stay applied to the latter decree would have to be extended to the former. The decision to extend the stay to DNU 298 was appealed by this Administration and on March 30, two Federal Courts of Appeals (there were two cases) granted the appeal based on procedural matters, which made reference to the fact that a specific study of the nature of the new DNU 298 was necessary, and an extension of the precedent suspension was not appropriate.
Also of importance is that the Federal Courts noted that the stays granted during Congress recess, in a way, based such suspension on the fact that Congress was not working -it was its recess and the Executive Power had not called for special sessions-, a fact that may not be used anymore, since Congress sessions have started and the opposition could -in theory- make the House or the Senate work to deal with this matter. Thus, Courts returned this hot issue to the politicians for them to solve this difficult problem and certainly Congress will have the last word.
Opposition claimants did not appeal these decisions. Thus, this Administration could use the BCRA reserves to pay private debt. And it did that on April 5, when it paid US$ 203 in debt services for Boden 2015. Central Bank reserves were used to pay the debt of the State with private holders of securities for the first time after the BCRA saga began. And, as we said before, from now on the decision as to whether this Administration can use BCRA reserves to pay debt will have to be taken by Congress, which is paralyzed. We will come back to this later on.
As said, then, the legal battle for the use of Central Bank reserves is almost finished and in favor of the current Administration.
And now all eyes are on Congress. In the House, the opposition has a clear majority and could open sessions without the help of the official party. But the opposition in the House is not a monolithic block, and there are many internal disputes that have made that still the session to reject DNU 298 could not be held. Initially, there were many internal bickering that delayed the session, but now the positions are clear and the biggest opposition parties -UCR, Civic Coalition, Dissident Peronists, PRO and left wing parties- have agreed to reject DNU 298.
We will have to wait and see if that happens. The opposition would need to be very careful because the official party is using regulatory advantages to delay the session to the extreme. For instance, in the first week of April a session had been called to deal with DNU 298 and it failed since the president of the House, a staunch supporter of the official party, lifted the session when after 45 minutes of the call there were not enough representatives seated for a session to be held (i.e. quorum). Then, the official party is said to be resorting to all means to avoid Congress approving pieces of legislations that are not convenient for this Administration. There may be news on this front in the coming weeks, since the opposition is claiming that it is learning the lessons.
In the Senate the situation is similar, although there the numbers are more complicated for the opposition. The official party has a 36-member monolithic block and the opposition is said to have 37, but some defections would have taken place recently. At this point, it is not possible to say that the opposition controls the Senate. The numbers of the opposition and the official party are counted in each case, since they may vary. But the official party is a solid block and does not attend sessions unless there is a need for that, so in practice the Senate has not been able to hold sessions in the last couple of weeks.
These are the issues that the Senate would have to deal with and that are very important for the country. First, the rejection or approval of DNU 298. In this case the official party would not have the required votes and it would be one of the main reasons for which it is not helping the opposition to obtain the numbers for a session to be held. Again, this is yet to be seen.
Then, another key issue to be dealt with by the Senate is the amendments to the tax on financial transactions. In this respect, the opposition is seeking that this tax, which provides important amount of resources, is shared between the national government and the provinces in equal amounts. If this law were passed, then this Administration would suffer an important defeat, since it needs any possible amount of funds to face an increasing public spending.
And then, the issue of the confirmation of the new Central Bank’s president Ms. Marco del Pont also needs to be dealt with. In this sense, the official party would have gathered the required votes to approve her appointment. But in order to have her appointment confirmed, the official party would need to allow a session to be held, and if that happens, it risks that the two issues mentioned before be decided against its interest. Thus, so far no session is being facilitated.
As a result of these political battles, in practice Congress is gridlocked. This implies that important legislation in Argentina is being delayed, which can be proven by reading the Official Gazette: no laws are being published these days, just appointments and acceptance of resignations.
Vice President Cobos decided that salary discounts may be applied to Senators not attending to sessions and others talk about sending the police to look for Senators. It is yet to be seen whether this gridlock is ended soon..
In the middle of these political battles that make newspapers front-pages almost everyday, the offer to end Argentina’s 2001 default is said to be launched these coming days. That news prompted that the markets had very good times, since it is said that the offer will be very convenient to holdouts. And on April 7, a new attachment order issued by Judge Griesa in the US became known and raised some doubts as to that order affecting the feasibility of the exchange. But this Administration said that the decision would be appealed, and so far the markets have not shown worries about that new attachment. Certainly next in the course of this month there will be news about the exchange that we will report.
As we usually say, let’s all hope for the best.
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Economic News
There is very relevant economy news this month.
The Security and Exchange Commission (SEC) approved the prospectus (Form 18-K) presented by Argentina in order to begin the process of restructuring Argentine securities defaulted in 2001. The final approval is still pending and Argentina presented all responses that the SEC requested. It is said that the final approval is imminent and that the exchange will be launched on April 14 or 15.
Argentina also requested the approval by Italian regulatory authorities. And the same process was undertaken in Luxemburg and Japan.
With the economical terms of the offer known as of today, the exchange offer is expected to obtain the acceptance of at least 60% holdouts. But the final terms of the offer are not known and are said to be completed in these days. An important matter would be the inclusion of the payments done under GDP linked coupons in that offer. If those payments are included, the offer is said to be particularly generous, since the Argentine grew importantly in 2007 and 2008.
The main hope of Argentina if the offer to holdouts is successful is said to come back to the international financial markets at one-digit rates. Actually, fresh funds would be sought in an almost simultaneous transaction with the offer for an amount of 1 billion US dollars, at a nominal rate that would be 9.5% and with a real rate not specified yet. Good part of these new securities would be taken by the Citi, Deutsche and Barclays Banks, which are the intervening banks in the current offer to holdouts.
Government sources also said that once the exchange is completed, the Ministry of Economy would begin negotiations with the Paris Club (for 6.7 billion US dollars), trusting that the G 20 countries will help Argentina in its negotiations.
Needless to say, the market is seeing very positively the advances of the exchange.
In relation to state debt payments, as we commented before, after two favorable judgments issued by the Federal Court of Appeals, this Administration could use Central Bank reserves to pay private state debt. In that respect, services under Boden 2015 for an amount of 203.6 million US dollars were paid with such assets. The State would use also those reserves to pay 155 million US dollars in Bonar X on April 19, 2010 and then 225 US dollars in services under Boden 2013 and 2014, which are in pesos and with a substantial State holding.
As to the course of the economy, we mention that INDEC (Government’s statistics office) reported that Argentina’s monthly economic activity rose a higher-than-expected 4.9% in January from a year earlier. Economic activity rose 0.4% in seasonally adjusted terms as compared with December.
INDEC reported that the inflation rate for February was 1.2%, due to increasing food prices. The data released by INDEC is compared with a rate of 1.0% in January 2010 and 9.1% with February 2009. Private estimations contest those indexes and say that inflation in February was 2.9%.
While government still denies inflation, private forecasters said that it is expected to rise to more than 20% this year, and even higher. Inflation is said to be the coming economic subject in Argentina.
INDEC also reported that economic activity rose a higher-than-expected 4.9% in January from a year earlier. According to INDEC, Argentina’s industrial production grew 11.0% in February compared with the same month a year earlier and 3.4% as compared with January. The median forecast was from a 6.7% increase in output year-on-year.
According to INDEC, Argentina’s GDP growth for 2009 was 0.9% as compared with the 6.8% expansion in calendar 2008. This figure is highly questioned, and private measurements tell that Argentina’s economy actually contracted during 2009.
The upcoming, 2009-2010 soybean harvest would yield a record 53.5 million tons due to excellent weather conditions. The US Dollars of that excellent harvest may be very helpful to face the coming times.
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Legal News
You may read the March edition of our Boletín Informativo, G. Breuer’s monthly publication focused on general legal information sent to our Argentine clients & friends.
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G. Breuer's News
For more information on local legislation, you may read the March edition of our Boletín Informativo sent to our Argentine clients & friends.
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G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar


Please note that the information given in this bulletin is for general purposes only and does not intend to provide comprehensive legal advice on any issue.
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© G. Breuer, 2010.