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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
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 -----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

   