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Cablegate: Argentina: Cfk Boosted by Lula, Chavez Visits, Mixed

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RR RUEHWEB

DE RUEHBU #1089/01 2191327
ZNR UUUUU ZZH
R 061327Z AUG 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1717
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUCNMER/MERCOSUR COLLECTIVE
RHMFIUU/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 001089

PASS NSC FOR MICHAEL SMART
PASS USTR FOR KATHERINE DUCKWORTH
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL ECON ETRD WTRO AR BR VE
SUBJECT: ARGENTINA: CFK BOOSTED BY LULA, CHAVEZ VISITS, MIXED
MESSAGES ON INVESTMENT AND INTEGRATION

Ref: BUENOS AIRES 1079

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Summary
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1. (SBU) President Cristina Fernandez de Kirchner (CFK) used
overlapping August 3-5 visits by Brazil's President Lula and
Venezuelan President Chavez to try to regain political momentum.
Lula's visit focused on renewed Argentine-Brazilian commercial
collaboration following a damaging public divergence in end-game WTO
Doha Round negotiations, while Chavez waded directly into Argentine
affairs, offering a strong defense of CFK's domestic agenda and
promising continuing Venezuelan financial support. Lula and CFK
focused on areas of agreement on global trade and opportunities for
expanding bilateral trade and investment, though GoA officials gave
assurances of protecting sensitive domestic sectors. The
last-minute addition of a trilateral heads of state meeting offered
mixed messages: flirtation with Chavez's hemispheric agenda, jabs at
domestic opponents, and a recognition of Brazil's importance. A
planned Chavez-CFK trip to Bolivia to meet President Morales had to
be called off, reportedly because of security problems in Bolivia.
End Summary.

--------------------------------
Post-Doha Failure Reconciliation
--------------------------------

2. (SBU) Brazilian President Lula arrived in Argentina the evening
of August 3, accompanied by 300-plus business leaders, for a
bilateral trade and investment conference that our Foreign Ministry
contacts tell us was pulled together in less than a week. GoA
contacts admit that the conference was a vehicle designed in the
last week to allow Mercosur-bloc leaders Argentina and Brazil to
publicly reconcile following sharp differences in positions that
emerged at failed Doha Round global trade talks in Geneva (Reftel).
There, Brazil had softened its stance against developed nations'
agricultural subsidies, but negotiations collapsed when China,
India, and others (including Argentina) opposed the deal.

3. (SBU) In his opening remarks to the August 4 conference, Lula
said: "The frustration of the Doha round demands that we redouble
our efforts in other arenas to eliminate distortions and barriers in
international trade...Argentina and Brazil can lead the response to
those challenges from Mercosur and South America. Together, we can
challenge the richest countries on trade." (Earlier that day in a
radio address, Lula said world trade talks would continue despite
the impasse.) President Cristina Fernandez de Kirchner (CFK), in
her conference remarks, argued that, post-Doha, Argentina and Brazil
can still work together to promote the interests of developing
countries. "There are moments when we feel that for the first time
we are more needed than the developed countries. That should put
Argentina and Brazil in synergy, deepening this alliance and this
productive model."

--------------------------------------------- ----------
Push for Expanded Trade, Bilateral Economic Integration
--------------------------------------------- ----------

4. (SBU) At the conference, Lula called the strategic alliance
between Argentina and Brazil "the backbone" of South America, an
alliance that should form the nucleus of a "South American Union of
Nations." Lula said that 2008 trade with Argentina may rise to $30
billion, up from $24.8 billion in 2007, and that he can imagine a
future in which South America's two biggest economies share the same
currency. He called the global food crisis a historic opportunity
for Argentina and Brazil to be increasingly competitive players in
supplying the world's expanding food requirements. Lula argued for
deeper economic integration with Argentina, saying stronger ties
between the two countries would help boost all South American
economies and promising the creation of a sovereign fund to finance
Brazilian private sector or Brazilian/Argentine joint venture
investment in Argentina. In her remarks, CFK noted that any such
process of economic integration must take into account the interests
of Argentina's national industries, particularly the sensitive and
labor-intensive textile and shoe manufacturing sectors.

5. (SBU) In later discussions between GoA and GoB officials,
Secretary of Industries Alberto Fraguio praised the bilateral
automotive trade regime, but insisted that Argentina's 62-month long
- and growing - bilateral trade deficit with Brazil (septel) must be
addressed. Fraguio agreed that expanded Brazilian investment in
Argentina is desirable and called for increased Argentine

value-added in the bilateral auto trade.

--------------------------------------------- --------
Chavez Joins, Supports CFK, Talks Tripartite Alliance
--------------------------------------------- --------

6. (SBU) Venezuelan President Hugo Chavez's participation in the
discussions with CFK and Lula was only confirmed at the last minute.
Argentina's state news agency Telam announced Mr. Chavez's presence
only on August 4, halfway through Lula's official visit to Buenos
Aires. Local press described sustained Argentine efforts to
convince the Brazilian delegation to agree to the trilateral
meeting. Chavez arrived in Buenos Aires the afternoon of August 4
and met with CFK and Lula before Lula returned to Brazil that
evening. (Chavez and Fernandez were to travel together August 5 to
the southern Bolivian city of Tarija to meet with President Evo
Morales on regional energy issues, but the visit was cancelled
August 5, reportedly because of security concerns.)

7. (SBU) At a ceremony inaugurating a low-income housing project in
the Buenos Aires suburb of Almirante Brown, Chavez congratulated CFK
for having confronted "the attacks of the oligarchy" in her ongoing
battle with the rural agrarian sector over export tariffs. In line
with her earlier August 2 press conference comments justifying the
GoA's conflict with the rural sector in the name of needed income
redistribution, CFK followed Chavez to the podium arguing that
"those in sectors that are growing and have more wealth have no
right not to see that, by giving a little, they help those who,
alone, cannot escape poverty."

8. (SBU) Chavez, in airport discussions with local media, celebrated
the increasingly close relationship between Venezuela, Brazil, and
Argentina: "We have revived the process of forming a tripartite
alliance that is based on what we have for several years been
calling the main axis of South America: Caracas-Brasilia-Buenos
Aires," he said. Such an axis, he said, is capable of countering
Europe and the United States, and able to help meet the world's
rising demand for food. Chavez added that his country "already felt
part of Mercosur," though ratification of Venezuela's full
membership remains pending from the Brazilian and Paraguayan
parliaments.

9. (SBU) On Argentina-specific issues, Chavez told local media he
considered himself a "true Peronist," that Venezuela was "disposed"
to purchase additional Argentine sovereign debt (beyond the $6.6
billion the GoV has purchased since 2005), and that GoV discussions
with Argentina's Techint Group on appropriate compensation for the
GoV's forced nationalization of Techint's SIDOR steel plant were
going so well that the issue was not even raised in his discussions
with CFK. (This was not the description Techint's CEO gave the
Ambassador earlier August 4.) Chavez also told local media that his
earlier proposal to build a 5,000-mile Caracas-to- Buenos Aires
natural gas pipeline (Gasoducto del Sur) at an estimated cost of $23
billion should be reconsidered. "I think it is the moment to bring
that back," he said. Chavez added that the three heads of state
would meet again in Brazil's Pernambuco city on September 6 and that
they had agreed that joint state companies should be created in the
oil and energy sectors. GoA Ambassador to Caracas, Alicia Castro,
told local media that the three countries were considering creation
of a regional air carrier (only two weeks after the GoA announced
the state takeover of flagship carrier Aerolineas Argentinas) as
well as a railway linking Caracas and Buenos Aires, "a dream that
today appears utopian."

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Comment
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10. (SBU) It appears that CFK tried to use Lula and Chavez's visits
to bolster her beleaguered public image. The Lula/CFK trade and
investment conference was also broadly viewed as a hastily arranged
kiss-and-make-up affair to ease intra-Mercosur tensions generated
during heated Doha end-game negotiations. Lula himself summed up
the overriding rationale in his conference address: "We often lose
time in internal fights without realizing that this suffocates
growth." The new initiatives announced, including sovereign funds
to promote Brazilian investment in Argentina and cooperation between
the two nations' state-owned development banks, appear vague and ad
hoc. Neither Lula nor CFK used their remarks to criticize the U.S.
Lula talked about calling President Bush on trade issues and CFK
publicly recognized the presence of the Ambassador during her
speech.

11. (SBU) Chavez's last-minute participation and discussion of a
"tripartite alliance" added political color but little economic
substance to discussions. Media focused on his political support of
CFK in the aftermath of her Senate defeat on the export tariff issue
and his hints that Venezuela is willing to purchase additional GoA
sovereign debt. This was followed by a statement by GoA Finance
Secretary that Argentina would have no trouble meeting its 2008
financing needs but that the GoA "had not discarded" the possibility
of additional borrowing from Venezuela this year. Chavez's
participation may have muddied the Casa Rosada's message of
returning to more constructive politics in which fundamental issues
like Argentine-Brazil trade and investment would supersede
ideological agendas. The planned August 5 Chavez-CFK trip to
Bolivia to meet President Morales had to be called off because of
security problems, but CFK got her photo with Chavez and Lula on the
front pages of many Buenos Aires dailies.

WAYNE

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