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Cablegate: Argentina: Scenesetter for Codel Engel

VZCZCXYZ0002
OO RUEHWEB

DE RUEHBU #0176/01 0451627
ZNR UUUUU ZZH
O 141627Z FEB 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0247
INFO RUEHQT/AMEMBASSY QUITO 1045
RUEHLP/AMEMBASSY LA PAZ 5097

UNCLAS BUENOS AIRES 000176

SIPDIS

SENSITIVE
SIPDIS

FOR REPRESENTATIVE ELIOT ENGEL FROM AMBASSADOR TONY WAYNE

DEPARTMENT FOR H AND RM/F/DFS/FO/AA/CAA

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

1. (SBU) Introduction: On behalf of Embassy Buenos Aires, I warmly
welcome your visit to Argentina February 20-23. The Government of
Argentina is billing your visit as a major indicator of U.S.
goodwill, firming up the recent "rapprochement" that ended seven
weeks of discord. With the new administration of President Cristina
Fernandez de Kirchner, we are looking to build on an already strong
and positive bilateral relationship. We are working together in
significant areas of mutual interest and cooperation in
counter-terrorism, counter-narcotics and regional stability. During
your meetings with President Kirchner, senior cabinet members, and
the congressional leadership, you will have the opportunity to
discuss a range of bilateral and regional issues and reinforce our
positive agenda. End Introduction.

--------------------
Political Context
--------------------

2. (SBU) In December, two days after President Cristina Fernandez de
Kirchner was inaugurated, the GOA misinterpreted and over-reacted to
news reports concerning a federal case in Miami against some
Venezuelans and an Uruguayan who were arrested on charges of
operating and conspiring to operate in the United States as agents
of the Venezuelan government without notifying the Attorney General
as required by law. During the proceedings in Miami, allegations
surfaced that undeclared cash brought into Buenos Aires in August
2007 from Venezuela had been destined for a presidential campaign.
The statements were not made by the USG, but rather by one of those
arrested. They were misinterpreted here as reflecting the USG's
views.

3. (SBU) President Fernandez de Kirchner reacted angrily to the
implication that she had been the intended recipient of the cash
that was intercepted by GOA officials. She publicly interpreted the
Miami arrests as directed against her government and characterized
the case as a "garbage operation." Her ministers and the Argentine
Congress made similar statements. However, the rhetoric gradually
subsided, and the relationship normalized with a great deal of
behind the scenes work. A new beginning occurred on January 31,
when I met with President Fernandez de Kirchner. We agreed at that
meeting to put the case aside and to work to strengthen bilateral
cooperation. Her chief Cabinet Minister Alberto Fernandez was vital
to the agreement.

--------------
Background
--------------

4. (SBU) Argentina, once one of the richest countries of the world,
has experienced much economic decline and political instability over
the last 70 years, culminating in a profound political and economic
crisis of 2001-2002 that was comparable to our Great Depression. A
financial panic in November 2001 led to bloody riots, forcing
President De La Rua to resign. Argentina defaulted on $88 billion
in debt, the largest sovereign debt default in history. Many
Argentines are at a loss to explain how their country, blessed with
rich natural resources, fertile land, and low population density,
fell so far short of its potential. Some blame the military
dictatorships, which predominated between 1930 and 1983; others
blame corruption and a series of populist measures taken since 1944;
and a significant number of Argentines blame external factors,
particularly the IMF and alleged U.S. insensitivity to their plight.


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

5. (SBU) Cristina Fernandez de Kirchner (CFK) took office on
December 10, receiving the presidential sash from her husband,
Nestor Kirchner. He completed his four-and-a-half-year term as the
most popular Argentine President since the return to democracy in
1983. Kirchner in 2002 was a little-known governor of he remote
province of Santa Cruz in southern Argentina. He won the
presidential election in 2003 with less than 23% of the vote and
then oversaw the country's Phoenix-like recovery from its 2001-2002
crash. His wife, CFK, has a long history in politics, having served
in the Chamber of Deputies and most recently in the Senate. She won
the October 28 election with 45% of the vote over a divided and
largely ineffective opposition, and she enjoys a strong majority in
both houses of Congress. Having campaigned on themes of change and
continuity, she has retained most of her husband's cabinet. Major
policy challenges 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.
She has also made clear that she would like to improve relations
with the United State and other international partners.

-----------------------------------
Economic and Commercial Landscape
-----------------------------------

6. (U) Argentina benefits from rich natural resources, a highly
literate population, an export-oriented agricultural sector, and a
diversified industrial base. Following the 2001-2002 economic
crisis, 2003-2006 real GDP growth averaged over 8%, and Argentina's
GDP in 2007 grew at an estimated rate of 8.5% to $255 billion,
roughly $6,500 per capita. This impressive economic recovery has
also led to improvements in key socio-economic indicators, with
unemployment down from a peak of over 20% in 2002 to 8.8% during the
third quarter of 2007 and poverty levels down from a post-crisis
high of over 50% to a (still-worrisome) 25% range. The
five-year-long economic recovery can be attributed to a number of
factors, including a post-crisis move to a flexible exchange rate
regime, sustained global and regional growth during this period, the
government's efforts to boost domestic aggregate demand via
monetary, fiscal, and income distribution policies, and favorable
international commodity price and interest rate trends.

7. (U) While the accumulation of a substantial foreign exchange
reserve cushion (over $46 billion as of December 2007) and expanded
tax collections have helped insulate Argentina's economy from
external shocks, the Central Bank's policy of maintaining an
undervalued exchange rate and negative real interest rates has
contributed to substantial inflationary pressures. Private sector
analysts estimate inflation is in the 17-20% range for 2007,
although the government's official 2007 inflation is 8.5%. There is
ongoing public debate about inflation measures. To help control
inflation, the government largely froze key public utility tariff
rates since 2002 and, since 2005, has negotiated price stabilization
agreements on a sizeable basket of essential consumer goods. The
combination of Argentina's undervalued currency and high global
commodity prices have lifted Argentine exports to a record $55.4
billion in 2007. Major 2007 Argentine export markets were Mercosur
(22%), the EU (18%) and NAFTA (11%). Argentine 2007 imports totaled
$44.8 billion, with the major suppliers Mercosur (36%), the EU (17%)
and NAFTA (16%). Total U.S.-Argentina two-way trade in 2006 (the
latest year available) amounted to $8.9 billion. Imports from the
U.S. largely comprise intermediate capital goods which have
contributed to improvements in domestic productive capacity.

8. (U) 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, Japan, and Brazil. U.S. investment in
Argentina is concentrated in the manufacturing, information, and
financial sectors. A range of economic experts have identified
challenges to sustaining high levels of economic growth in the
future, including: capacity constraints; the need for substantial
new investment in primary infrastructure; potential energy shortages
in the face of high growth and domestic energy prices kept below
international market levels; increasing scarcity of highly skilled
labor; inflation and the government's heterodox policies to contain
it, including price controls. 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, approximately $360
million of which is owed to 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 affect Argentina's investment climate.


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

9. (SBU) Argentina maintains positive political relations with the
United States, but one of the major tasks facing the Embassy is
forging relationships of trust with a government that has been
largely inward-focused and intent on maintaining an image as
independent from our country. In lobbying the GOA, it can be
counter-productive to push an issue too aggressively and specially
in public. Argentine officials react very negatively to perceived
affronts to their sovereignty, often winning public support for
their strong reactions. Shut off from other sources of
international financing, the GOA has turned to Hugo Chavez to place
its latest bond issues. 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.

10. (SBU) Argentina is, nevertheless, a Major Non-NATO Ally and
cooperates in regional security, counter-terrorism, 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. In the IAEA, the GOA has voted
to refer Iran's noncompliance to the UNSC. The GOA has also
endorsed the Proliferation Security Initiative (PSI).

11. (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, 2007, Argentina succeeded in getting Interpol's General
Assembly vote to issue international capture notices for five
current and former Iranian officials and one Lebanese Hizballah
member (who was reportedly killed in Syria February 13) 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
sanctions, to build capacity of Argentine law enforcement forces,
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.

12. (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.

13. (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, as well as UN
peacekeeping in Haiti.

14. (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.

15. (SBU) Human Trafficking: Argentina is on the USG'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. The government has
told us they intend to get a first federal law passed in the next
couple of months.

16. (SBU) Promoting U.S. economic/commercial interests: In support
of U.S. companies operating in Argentina, we are encouraging the GoA
to support a more welcoming investment climate, with greater
regulatory, legal, and tax regime consistency. We make a good deal
of effort supporting and working with U.S. companies. We are
working closely with the GoA and the Paris Club of sovereign
creditors to resolve longstanding arrears to the USG and are
encouraging the GoA to resolve claims of U.S. holders of defaulted
Argentine bonds. Regarding ongoing WTO trade negotiations,
Argentina has staked out a hard-line position that links acceptance
of developed economy agricultural sector proposals with more
developing nation flexibility on industrial tariff cuts. We have
been urging them to adopt a more constructive approach.

WAYNE

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