Message-ID: <32767285.1075846390129.JavaMail.evans@thyme> Date: Sun, 8 Oct 2000 12:13:00 -0700 (PDT) From: james.bannantine@enron.com To: joseph.sutton@enron.com Subject: Argentina Political Analysis Cc: don.black@enron.com, michael.guerriero@enron.com, jose.bestard@enron.com, diomedes.christodoulou@enron.com, peter.weidler@enron.com, joe.kishkill@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable Bcc: don.black@enron.com, michael.guerriero@enron.com, jose.bestard@enron.com, diomedes.christodoulou@enron.com, peter.weidler@enron.com, joe.kishkill@enron.com X-From: James M Bannantine X-To: Joseph W Sutton, Kenneth Lay@ENRON, Jeff Skilling@ENRON, Steven J Kean@EES, Rick Buy@ECT X-cc: Don Black, Michael Guerriero, Jose Bestard, Diomedes Christodoulou, Peter E Weidler, Joe Kishkill X-bcc: X-Folder: \Steven_Kean_Dec2000_1\Notes Folders\Southern cone X-Origin: KEAN-S X-FileName: skean.nsf In case this becomes big news in the United States, attached is a summary= =20 from the Argentina team of the political situation in Argentina. It is not= a=20 political meltdown but it is a significant change in the executive branch a= nd=20 potential realignment of the political parties in Argentina. The cabinet= =20 shuffle and resignation of the vice president are in the wake of the senate= =20 bribery scandal in Argentina where the opposition was supposedly bribed to= =20 vote for the governments changes in law (actually in favor of economic=20 reform). The cabinet shuffle was economics oriented with the economic team= =20 being strengthened, but potentially at the expense of the alliance that hol= ds=20 the government and a majority in Congress over Menem's party, the peronists= . =20 The vice president was the senior member of the second party in the allianc= e=20 (President De La Rua is senior member of the first party in the alliance). = =20 Financial markets reacted slightly negatively to the shakeup with bond=20 spreads widening slightly and Argentine stock prices down slightly. As a= =20 minimum we will keep a close eye on the political and financial situation a= nd=20 be prepared for any more significant reaction by the financial markets. =20 ---------------------- Forwarded by James M Bannantine/ENRON_DEVELOPMENT on= =20 10/08/2000 07:04 PM --------------------------- Don Black@ENRON 10/07/2000 08:16 AM To: James M Bannantine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Joe Kishkill/SA/Enron@Enron, Diomedes Christodoulou/SA/Enron@Enron, Pet= er=20 E Weidler/NA/Enron@Enron, Michael Guerriero/SA/Enron@Enron=20 Subject: Argentina Political Analysis Mike, Thanks for the quick turnaround on this from you and your team. Jim, This is as far as this distribution went. Please edit as needed and forwar= d=20 to whomever you feel necessary. ---------------------- Forwarded by Don Black/SA/Enron on 10/07/2000 11:07 = AM=20 --------------------------- From: Michael Guerriero on 10/07/2000 10:13 AM To: Don Black/SA/Enron@Enron cc: Guillermo Canovas/SA/Enron@Enron, Cristian Folgar/SA/Enron@Enron, Maria= =20 Belen Salvador/SA/Enron@Enron=20 Subject: Argentina Political Analysis As reported Carlos Chacho Alvarez resigned his position Friday as Vice=20 president of Argentina.=20 The main reason of this resignation was a political disagreement with Cabin= et=20 changes announced on Thursday 5th by President De la Rua. Alvarez publicly noted he could no longer tolerate the political differences with t= he=20 President over the senate bribery scandal. Particularly Alvarez disagreed= =20 with De la Rua's decision to promote Alberto Flamarique from Minister of=20 Labor to General Secretary and to keep Fernando de Santiba=0Fez as Chief of= the=20 Intelligence Department. Both Flamarique and Santiba=0Fez are suspected of= =20 paying bribes to Senators to vote for a new Labor Law. Alvarez has=20 emotionally championed the fight against the senate scandal and has been=20 strongly advocating for the resignation of Flamarique, Santiba=0Fez and all= =20 Senators involved in the affair.=20 It was considered that the decision of De la R?a was intended to demonstrat= e=20 that he, and not Alvarez, holds the power and that De la R?a wanted to=20 demonstrate that the changes were focused on improving the economic situati= on=20 and to move beyond the Senate scandal. The main changes in the cabinet, announced on Thursday 5th, are the followi= ng: Chistian Colombo (economist, in good relationship with Machinea) will repla= ce=20 Terragno as Chief of Cabinet. Machinea (Minister of Economy) will also be responsible of the Ministry of= =20 Infrastructure.=20 Jorge De la R?a (former General Secretary of the President and President's= =20 brother) will be Minister of Justice.=20 Patricia Bullrich (peronist) will be Minister of Labor.=20 As a consequence of Alvarez' resignation, Flamarique resigned to his positi= on=20 of General Secretary of the President. Regarding the preliminary impact of the political changes to the economic= =20 situation it could be considered the following: Before Alvarez resignation, the cabinet changes were considered positive=20 intending to increase the power of the Minister of Economy and reduce the= =20 internal disagreements in the Administration. Although Alvarez (the leader of the Frepaso party) said he will be still pa= rt=20 of the "Alianza" (the Radical and Frepaso party alliance) in Office, Alvare= z'=20 resignation could lead to the division of the Alianza and reduce the abilit= y=20 of De la Rua to pass new laws in the Congress. A breakup of the coalition= =20 would make the Peronist the largest party in both houses of Congress only= =20 compounding the potential for government gridlock =20 This situation will weaken De la Rua and probably foster new re-alignments = in=20 the political field. All the situation will increase economic uncertainty and will delay economi= c=20 recovery. The market will wait to see if a conflict develops in the Alianza= . De la Rua and his team will probably be forced to take "strong" decisions t= o=20 retain the political initiative, strength and control. Machinea will probably try to gain the market confidence, announcing that D= e=20 la Rua's Administration will not change the macro foundations of the econom= ic=20 agenda and even increase its commitment toward monetary and fiscal=20 equilibrium, exchange rate policy, respect for vested rights, etc. Financial analysts have viewed the situation as "an institutional crisis wi= th=20 unknown effects on the economy". The insecurity of the Argentina's politica= l=20 future caused Argentine debt paper to fall. The Argentine JP Morgan Emergin= g=20 Market Bond Index widened 23 basis points to 685 over US Treasuries.=20 Argentina's 17 year global bond fell only slightly. There does not appear t= o=20 be a market panic as noted by the trading of Argentine ADR's in New York. = =20 They were down cents rather than dollars and a number of them closing=20 unchanged. We will continue to monitor the situation and update as warranted. =20