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Cablegate: Argentina: Scenesetter for Codel Sanchez

VZCZCXYZ0000
OO RUEHWEB

DE RUEHBU #2229/01 3202012
ZNR UUUUU ZZH
O 162012Z NOV 07
FM AMEMBASSY BUENOS AIRES
TO RUEHSO/AMCONSUL SAO PAULO IMMEDIATE 3583
RUEHC/SECSTATE WASHDC IMMEDIATE 9725

UNCLAS BUENOS AIRES 002229

SIPDIS

CODEL
SENSITIVE
SIPDIS

DEPARTMENT FOR H AND RM/F/DFS/FO/AA/CAA
SAO PAULO PLEASE PASS TO CODEL SANCHEZ

E.O. 12958: N/A
TAGS: PGOV PHUM PREL PTER SNAR AR
SUBJECT: ARGENTINA: SCENESETTER FOR CODEL SANCHEZ


1. (SBU) INTRODUCTION: On behalf of Embassy Buenos Aires, I
warmly welcome your visit to Argentina November 20-21. Your
visit occurs during a period of heightened political interest
following the October 28 election victory of Cristina
Fernandez de Kirchner and her November 14 announcement of her
Cabinet makeup. Many of her Cabinet members are holdovers
from her husband's administration, indicating a policy of
continuity over change. She will be sworn in on December 10,
and the Ministers currently in charge of Defense and homeland
security (Interior) will stay on. The advent of a new
Argentine administration provides the U.S. an opportunity to
build on an already-stong and positive bilateral
relationship. During your meetings, you will have the
opportunity to discuss a range of bilateral and regional
issues and reinforce our positive agenda in the region. End
Introduction.

Background
----------

2. (SBU) Argentina was once one of the richest countries of
the hemisphere, achieving a GNP per capita that was among the
highest in the world in the early 20th century. However, the
history of Argentina over the last 70 years has been one of
economic decline and political instability. Many Argentines
are at a loss to explain how their country, blessed with rich
natural resources, a fertile land and manageable population
numbers, could have fallen so far. Some blame the military
dictatorships, which predominated between 1930-1983; others
blame Peron and "Peronism;" and a significant number blame
external factors: the IMF, the U.S., and, to a lesser extent,
Europe, especially following the 2001-2002 economic crisis,
the worst in Argentine history. The election of
left-of-center Peronist Nestor Kirchner in 2003 marked a
significant shift in Argentine foreign policy, aligning the
country more closely with its MERCOSUR partners and less
closely to the U.S. That said, Kirchner has cooperated
closely with the U.S. on a number of issues, including
counter-terrorism and narcotics, and regional problems like
Haiti.

Political Landscape
-------------------

3. (SBU) Kirchner is completing his four year term as the
most popular Argentine President since the return to
democracy in 1983, having overseen the country's Phoenix-like
recovery from its 2001-2002 economic crisis, an event
equivalent to our Great Depression. With this steady popular
support at 60-70 percent, Kirchner obtained a majority in
both houses of Congress and enjoys the support of more than
two-thirds of the provincial governors. Rather than
President Kirchner seeking a second term, his wife, Senator
Cristina Fernandez de Kirchner ran as the official candidate,
winning handily with 45 percent of the vote over a divided
and largely ineffective opposition. Her inauguration takes
place on December 10, and it is widely anticipated that she
will continue current government policies, making changes
only gradually. Major policy challenge for the new President
will be to contain inflation, attract and boost investment --
particularly in Argentina's energy sector -- and to restore a
sense of law and order to an electorate increasingly
concerned about crime and security.

Bilateral Relations and Strategic Goals
---------------------------------------

4. (SBU) Argentina maintains positive political relations
with the U.S., but one of the major tasks facing the Embassy
is forging relationships of trust with a government that, to
date, has been largely inward focused and intent on
maintaining an image as independent from the U.S. As part of
his efforts to find international financing, Nestor Kirchner
has also developed a close relationship with Hugo Chavez.
The largest overall challenge we face in Argentina is the
high level of anti-Americanism in the Argentine public.
Argentina consistently registers the highest levels of
anti-Americanism in the hemisphere in public opinion polls.
Working to change these perceptions is the Embassy's highest
priority.

5. (SBU) Argentina is, nevertheless, a Major Non-Nato Ally
and cooperates in regional security, counterterrorism, drug
interdiction, and in contributing troops to U.N. peacekeeping
missions. The GOA has been a strong international voice on
arms control and nonproliferation issues. On Iran, the GOA
voted to refer Iran's noncompliance to the UNSC at the
September 24, 2006 IAEA Board of Governors meeting. The GOA
has also endorsed the Proliferation Security Initiative (PSI).

6. (SBU) Terrorism: Argentina was itself a victim of
international terrorist attacks in the 1990s and has been a
cooperative partner in countering terrorism, especially in
the Tri-border Area. On November 7, Interpol's General
Assembly voted to issue international capture notices for
five current and former Iranian officials and one Lebanese
Hizballah member wanted in connection with the 1994 terrorist
bombing of the Buenos Aires Jewish Community Center (AMIA).
The Embassy and USG agencies worked with the GOA to pass
comprehensive antiterrorism, money laundering, and terrorism
finance legislation to strengthen local enforcement efforts.
We assist the GOA in capacity building in the Financial
Intelligence Unit, within the restraints created by Brooke
Amendment penalties, and work closely with the Argentine
military on modernization, increasing interoperability, and
training and education focused on civilian control, respect
for human rights, defense resource management, strategic
planning, and science and technology.

7. (SBU) International Crime and Drugs: Argentina is a
trans-shipment point for narcotics emanating largely from
Colombia, Peru and Bolivia. Argentine law enforcement
agencies cooperate closely with their USG counterparts on
drug interdiction efforts, fugitive arrests and information
sharing, which has resulted in increased enforcement. This
Mission is focused on institutional capacity building and
expanding training opportunities for law enforcement
officials, prosecutors and judges in order to improve
internal security and decrease international drug and
criminal activity in Argentina.

8. (SBU) Democracy and Rule of Law: This Mission works with
the GOA, media and civil society to strengthen democratic
institutions, fight corruption and reinforce civilian control
of the military. We promote key reform efforts such as
ending the election of representatives by party slate lists,
increasing governmental transparency, and limiting public
corruption and strengthening the political independence of
the judicial branch. While it does not side with us on every
issue, we continue to cultivate the GOA as a cooperative
partner in multilateral fora, and seek Argentina's
cooperation in the defense of democracy and the observance of
human rights in countries like Cuba, Venezuela and Bolivia.

9. (SBU) Human Rights: The Government of Argentina generally
respects the human rights and fundamental freedoms of its
citizens. The Kirchner government's human rights policy
focuses on seeking justice for the human rights violations
committed during the 1976-83 military dictatorship, which
resulted in the disappearance of 11,000-30,000 political
dissidents. It does not, however, focus on bringing to
justice armed guerrilla groups who also committed human
rights abuses during the same period, known as "the Dirty
War", albeit on a much smaller scale. To date, the courts
have convicted three former officials of the military regime,
including a military chaplain.

10. (SBU) Human Trafficking: Argentina is on G/TIP's Tier-2
Watchlist for lack of progress in providing greater
assistance to victims and curbing official complicity in
trafficking at the provincial level. Argentina is a source,
transit, and destination country for men, women, and children
trafficked for the purposes of commercial sexual exploitation
and forced labor. According to the International
Organization for Migration, 80 percent of trafficking victims
in Argentina are Argentine, most of whom are trafficked for
the purpose of sexual exploitation. Bolivians and Peruvians
are trafficked into the country for forced labor in
sweatshops and agriculture. Argentine efforts to combat
trafficking have focused on prevention and training of
security and government officials. Draft anti-trafficking
legislation is currently being considered by the Argentine
Congress, with the debate focused on the issue of victim's
consent. The Senate version of the bill makes trafficking in
minors a federal crime, but considers a victim's consent
relevant in the case of adult trafficking victims. The
Embassy has worked with NGOs, lawmakers, and government
officials in an effort to push for comprehensive
anti-trafficking legislation.

Economic and Commercial Situation
---------------------------------

11. (SBU) Argentina's economy has sustained a robust recovery
following the severe 2001/2002 economic crisis, with 4
consecutive years of over 8% growth in real gross domestic
product (GDP). Argentine GDP reached U.S. $213 billion in
2006, approximately U.S. $5,460 per capita, with real
investment up 18.7%. Economic expansion is creating jobs,
with unemployment down from a post-crisis high over 20% to
8.5% in the second quarter of 2007. Poverty levels have also
fallen from a post-crisis high of over 50% to the
still-worrisome 25% range.
12. (SBU) Argentina benefits from rich natural resources, a
highly literate population, an export-oriented agricultural
sector, and a diversified industrial base. Its post-crisis
move to a flexible exchange rate regime and favorable
international commodity and interest rate trends were
catalytic factors in supporting renewed growth, allowing the
government to accumulate a reserve cushion (over $43 billion
as of November 2007) to help insulate the economy from
external shocks. A higher tax burden and the recovery's
strong impact on revenues allowed the government to achieve a
primary fiscal surplus in 2006 equivalent to 3.5% of GDP.
However, the primary surplus for 2007 is estimated to fall to
about 2-2.5% of GDP due to the strong increase in primary
expenditure during this year's pre-election period.
Argentina should continue to perform well in 2007 with GDP
growth projected in the 8% range. Challenges to sustaining
high levels of economic growth in the future include capacity
constraints; the need for substantial new investment in
primary infrastructure; potential energy shortages in the
face of high growth and energy prices below international
market levels; and inflation (9.8% in 2006) and the
government's heterodox policies to contain it, including
price controls, export taxes, pressure on the private sector
to limit price increases and the alleged manipulation of
economic statistics. The consumer price index (CPI) is
independently estimated to be increasing in the 14-18% range
in 2007, about twice the level measured by the government's
official CPI.

13. (SBU) Argentina's exchange rate policy is based on a
managed float that appears to be targeting a nominal exchange
rate in the 3.15-3.20 Argentine pesos (ARP) per U.S. dollar
range. Market analysts consider the peso's real exchange
rate broadly undervalued. This, along with historically high
global commodity prices, has helped lift export volumes and
value to record levels, resulting in a $12 billion trade
surplus in 2006, but estimated to fall to $9.5 billion in
2007 due to the strong increase in imports. Foreign trade
equaled approximately 38% of GDP in 2006 (up from only 11% in
1990) and plays an increasingly important role in Argentina's
economic development. Exports totaled approximately 22% of
GDP in 2006 (up from 14% in 2002), and key export markets
included MERCOSUR (21% of exports), the EU (18%), and NAFTA
countries (13%). Total two-way trade with the U.S. in 2006
totaled almost $9 billion. The production of grains, cattle,
and other agricultural goods continues to be the backbone of
Argentina's export economy. Energy products, high technology
goods, and services are emerging as significant export
sectors.

Trade and Commercial Debt Issues
--------------------------------

14. (SBU) Over 450 U.S. companies are currently operating in
Argentina and employ over 150,000 Argentine workers. U.S.
investment in Argentina is concentrated in the manufacturing,
information, and financial sectors. Other major sources of
investment include Spain, Chile, Italy, France, Canada, and
Japan. Continuing Argentine arrears to international
creditors (including over $20 billion in default claims by
international bondholders, including U.S. citizens, and over
$6 billion owed to official creditors, including the U.S.
Government) and a large number of arbitration claims filed by
foreign companies, including U.S. companies, are legacies of
the 2001/2002 economic crisis that remain to be resolved and
adversely impact Argentina's investment climate. We hope to
work with the new government to resolve these problems.
Regarding ongoing WTO trade negotiations, Argentina has
staked out a surprisingly strident position in order to
protect its domestic manufacturing industries. We have been
urging them to adopt a more constructive approach.
Agriculture
-----------

15. (U) The agricultural sector is a mainstay of the
Argentine economy (e.g., over 50 percent of total Argentine
exports are represented by agricultural, livestock, and food
shipments), but it has been negatively affected by GOA
policies to contain inflation. The two principal policy
initiatives which the GOA has chosen to curb inflation have
been through price and export controls. The chief
agricultural and livestock products that have been affected
by this policy are grains (wheat and corn), dairy, and meat.
The GOA has watched, with great concern, as the international
price of wheat has sharply increased. Argentina is the
number 5 exporter of wheat in the world. To control domestic
prices, the GOA suspended export registrations for much of
this year and recently increased the export tax from 20
percent to 28 percent.

16. (U) Corn prices have also caught the attention of the
GOA. The GOA has frozen export registrations for much of the
year, hoping to ensure sufficient corn for domestic use (the
corn is used, in the main, as a feed for livestock and
poultry, and for food) without putting upward pressure on
prices. The export tax was also recently increased to 25
percent.

17. (U) Since Argentina has the highest per capita beef
consumption in the world (about 63 kilograms per capita), the
GOA has been extremely concerned about the price of this
commodity. In the face of rising domestic prices, the GOA
increased the export tax on fresh beef from 5 to 15 percent
in late 2005, and the minimum slaughter weight to 240
kilograms. In 2006, it banned almost all fresh beef exports
for 3 months. The government currently has an informal
policy in place to limit beef exports to around 500,000 tons
per year.

18. (U) The biofuels industry in Argentina, particularly
biodiesel production, is rapidly growing due to the large
availability of feedstock and a tremendous potential for
exports. For 2007, biodiesel production is estimated at 200
million liters. Production in 2008 is forecast to surpass
800 million liters as many plants now being constructed will
be operational. Currently, there are over 20 announced
biodiesel projects in Argentina. Many of them are large
capacity plants (over 200,000 tons/year output) situated
around Rosario. To comply with the current mandated mixing
ratios for biodiesel set for 2010, Argentina will only have
to produce and use about 700 million liters of biodiesel
(about 10 percent of current soybean oil output). As such,
the output of those plants is focused on the export market.

19. (U) Currently, ethanol production capacity is almost 400
million liters per year due to a large ethanol distillery
inaugurated in the province of Tucuman in 2006 with the
objective of producing ethanol for fuel use, and a sugar mill
in Salta Province that is expanding its capacity for non-fuel
usage. There are currently very few plants being built for
ethanol production using corn or sorghum feedstock. Most
analysts believe, however, that ethanol production in
Argentina will grow significantly, but with a primary focus
on the export market. Potential collaboration between the
U.S. and Argentina on biofuels development is strong due to
keen interest by both parties and potential synergies given
that the U.S. and Argentina have opposite growing seasons.

20. (U) To help build a large fiscal surplus for Christina
Kirchner,s first year in office, the GOA on November 7
increased export taxes on many agricultural commodities.
Soybean export taxes were raised from 27.5 percent to 35
percent; soybean oil and derivatives from 24 percent to 32
percent; corn from 20 percent to 25 percent; and wheat from
20 percent to 25 percent.
WAYNE

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