Message-ID: <17980907.1075863428302.JavaMail.evans@thyme> Date: Tue, 26 Jun 2001 09:39:48 -0700 (PDT) From: j.kaminski@enron.com To: vkaminski@aol.com Subject: FW: Argentina FX and CPI curves, dated 6/20/01 Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Kaminski, Vince J X-To: 'vkaminski@aol.com' X-cc: X-bcc: X-Folder: \VKAMINS (Non-Privileged)\Kaminski, Vince J\Sent Items X-Origin: Kaminski-V X-FileName: VKAMINS (Non-Privileged).pst -----Original Message----- From: =09Koepke, Gwyn =20 Sent:=09Tuesday, June 26, 2001 12:32 AM To:=09Kaminski, Vince J Subject:=09FW: Argentina FX and CPI curves, dated 6/20/01 Vince, FYI. We will provide updates to the Argentine situation in the GMM, on whi= ch RAC is copied each week. Also, we wrote the attached report for our int= ernal purposes along with the forecast below. =20 Gwyn =20 -----Original Message----- From: =09Koepke, Gwyn =20 Sent:=09Wednesday, June 20, 2001 7:45 PM To:=09Hudler, Cindy; Shahi, Pushkar; Stuart III, William; Mujica, Mitra; Ra= ymond, Maureen Subject:=09Argentina FX and CPI curves, dated 6/20/01 Cindy, Please find attached the Argentine peso and CPI forecast. It should be noted that a vote is pending in the Argentine Congress (had be= en expected today) to adjust the convertibility law in Argentina to allow a= basket of euros and U.S. dollars in equal weights (once parity is reached = for euro-dollar) that would replace the existing one-for-one peso to US dol= lar currency board. The economy ministry took a first step toward this new= basket regime by introducing this week a dual-exchange rate system for the= traded sector that allows Argentine exporters to benefit from the weaker e= uro by receiving export earnings in line with a mixed basket of 50% euros a= nd 50% US dollars. At today's spot rates, this implies an 8% depreciation = of the peso vis-a-vis the basket. An 8% devaluation at this juncture does = not gain the kind of competitiveness needed by Argentine exporters to help = boost economy when a major trading partner, Brazil, has depreciated 21% vis= -a-vis the USD since the beginning of this year. Initial reports indicate = that consumer and corporate borrowers, however, would still pay debt servic= e at the dollar peg exchange rate (one-for-one). =20 With such a change in currency regime as being contemplated in the Argentin= e Congress, investor confidence could wane if the plan is approved and as t= he implications of the new plan are interpreted by the market and as the su= stainability of the existing currency board arrangement outside the export = sector is analyzed. A loss of investor confidence will put additional pres= sure on the peso, pressure which has not existed previous to this new annou= ncement by economy chief Cavallo, especially now that the government's debt= swap (exchanging short-term goverment paper for longer-term bonds) has bee= n successfully executed. As a consequence, although our forecast attached = below assumes a one-for-one peso peg to the US dollar at this point to allo= w the quarterly revaluations to be completed in a timely fashion, this curv= e is subject to change upon knowledge of the Congressional vote and an anal= ysis of the details announced with the vote as to the mechanics of this new= basket regime for exporters and for the economy as a whole. Gwyn Koepke and Maureen Raymond-Castaneda =20