Cablegate: Argentina: Scenesetter for Codel Shelby


DE RUEHBU #0318/01 0731135
O 131135Z MAR 08






E.O. 12958: N/A


1. (SBU) On behalf of Embassy Buenos Aires, I warmly welcome your
March 23-26 visit to Argentina. We are looking to build on an
already strong and positive bilateral relationship with the
three-month-old administration of President Cristina Fernandez de
Kirchner. Current significant areas of mutual interest and
cooperation include counter-terrorism, counter-narcotics, and
regional stability. We understand that, beyond a general interest
in Argentina's economic trade and commercial developments, your
delegation has a particular interest in money laundering and
terrorism finance. The GoA and Central Bank have put in place an
adequate anti-money laundering and counter-terrorism finance legal
and regulatory regime over the last few years that needs to be
aggressively enforced (see paras. 9-14 below). Our overall priority
objective in Argentina is to keep chipping away at the very high
levels of anti-Americanism of Argentines by reaching out to
Argentine society as well as the government, with a special focus on
youth. Beyond our request for your delegation to meet with the
President, we have asked for meetings with Argentine government
leadership that oversee the financial sector, including Central Bank
President Martin Redrado, Justice Minister Anibal Fernandez, and
Economy Minister Martin Lousteau. During your discussions in Buenos
Aires, you may wish to inquire about plans to enforce the newly
strengthened and expanded legal, regulatory, and administrative
measures available to combat financial crimes. 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 three
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 the presidential campaign
in Argentina. The original allegations were not made by the USG,
but rather by one of those arrested. But given the initial media
coverage, they were misinterpreted here as reflecting the USG's

3. (SBU) President Fernandez de Kirchner reacted angrily to the
implication that her campaign 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, with much
behind the scenes work, the rhetoric gradually subsided, and the
relationship normalized. 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. We have billed your visit as an important indication
of Washington's interest in relations with Argentina.


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 and a lack of strong democratic institutions 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 the 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 $50 billion as of March 2008) 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 was 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 $55.7 billion in 2007.
Major 2007 Argentine export markets were Mercosur (22%), the EU
(18%), and NAFTA (11%). Argentine 2007 imports totaled $44.7
billion, with the major suppliers Mercosur (36%), the EU (17%) and
NAFTA (16%). Total U.S.-Argentina two-way trade in 2007 amounted to
$9.3 billion. Imports from the U.S. largely comprise intermediate
capital goods which have contributed to improvements in domestic
productive capacity.

8. (U) Some 500 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.
In recent days, the GoA has announced new energy policies aimed at
increasing availability, and new export taxes on agricultural
exports aimed in part at boosting government revenues.

--------------------------------------------- ----
Money Laundering, Terrorism Finance, Legal Reform
--------------------------------------------- ----

9. (SBU) Since 2005, and largely in response to pressure from the
Financial Action Task Force (FATF), the GoA and Argentine Central
Bank have acted to fortify the anti-money laundering and
counter-terrorism finance legal and regulatory regime, passing new
legislation, amending existing laws, and establishing stricter
financial sector regulations. The result is that Argentina
currently has an adequate legal/regulatory structure that provides
the legal foundation for the Central Bank and other law enforcement
and regulatory bodies to investigate and prosecute money laundering
and terrorism finance. The challenge now is for Argentine law
enforcement and regulatory agencies and institutions to enforce
aggressively the newly strengthened and expanded legal, regulatory,
and administrative measures available to them to combat financial

10. (U) Argentina is not an important regional financial center or
offshore financial cenQr. Money laundering related to narcotics
trafficking, corruption, contraband, and tax evasion is believed to
occur throughout the financial system, in spite of the GoA's efforts
to stop it. Tax evasion is the predicate crime in most Argentine
money laundering investigations. Argentina has a long history of
capital flight and tax evasion, and Argentines hold billions of
dollars offshore, much of it legitimately earned money that was
never taxed. The large informal sector in Argentina (as well as in
most other Latin American countries) exposes it to financial

11. (U) In 2007, the Argentine Congress passed legislation to
criminalize acts of terrorism and terrorist financing, and establish
terrorist financing as a predicate offense for money laundering.
The law, which amends the Penal Code and Argentina's 2000 anti-money
laundering law, entered into force in mid-July 2007. It effectively
removed Argentina from FATF's follow-up process, which began in 2004
to address deficiencies in the GOA's anti-money laundering and
counter-terrorist financing (AML/CTF) regime. With the passage of
this law, Argentina joined Chile, Colombia, and Uruguay as the only
countries in South America to have criminalized terrorist

12. (U) On September 11, 2007, President Nestor Kirchner signed into
force the National Anti-Money Laundering and Counter-Terrorism
Finance Agenda. The overall goal of the National Agenda is to
provide a roadmap for fine-tuning and implementing existing money
laundering and terrorist financing laws and regulations. The
Agenda's 20 individual objectives focus on closing legal and
regulatory loopholes and improving interagency cooperation.

13. (U) The U.S. Department of Homeland Security's Office of
Immigration and Customs Enforcement (ICE) and the GoA have
established a Trade Transparency Unit (TTU) in Argentina. The TTU
examines anomalies in trade data that could be indicative of customs
fraud and international trade-based money laundering, and maintains
a key focus on financial crimes occurring in the Triborder Area.
The creation of the TTU was a positive step towards complying with
FATF Special Recommendation VI on terrorist financing via
alternative remittance systems.

14. (SBU) Even with the improved AML/CTF legal/regulatory regime,
the GoA is more limited than the U.S. in its ability to combat
financial crimes. The root of the problem is the relatively
overburdened and inefficient judicial system, which is an
inquisitorial as opposed to an accusatorial system (such as the
United States has). Judges have the lead on all investigations.
The system is backed up, slow, and prone to subornment. The result
is that the GoA has successfully concluded only two money laundering
convictions since money laundering was first criminalized in 1989,
and none since the passage of the GoA's 2000 anti-money laundering
law. Former Justice Minister Alberto Iribarne, who left office with
the change of government in December 2007, proposed sweeping reforms
to create a more effective and fair criminal justice system (one
closer in design to the U.S. system of justice). However,
implementing such reforms would be a difficult and lengthy process,
and it is as yet unclear whether new Justice Minister Anibal
Fernandez supports them.

--------------------------------------------- ---------
Anti-Americanism, Bilateral Relations, Strategic Goals
--------------------------------------------- ---------

15. (SBU) The greatest 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. Yet, overall,
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 especially 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 large bond issues.

16. (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).

17. (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 area of
combating money laundering and terrorism finance,, 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.

18. (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. In the area or anti-money laundering and
counter-terrorism finance, the Mission is working through dilomatic
channels and via bilateral technical assistance and training
programs to encourage Argentine law enforcement and regulatory
bodies to enforce existing laws and regulations more aggressively.
Justice Minister Fernandez has just announced that he wants to put
top priority on attacking drug traffickers and less priority on
arresting individual users.

19. (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.

20. (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

21. (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.

22. (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.


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