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Cablegate: Brazil-Argentina Coordinate On G-20, Differ On

VZCZCXYZ0002
RR RUEHWEB

DE RUEHBU #1489/01 3031928
ZNY CCCCC ZZH
R 291928Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2357
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 1805
RUEHPE/AMEMBASSY LIMA 2344
RUEHMD/AMEMBASSY MADRID 2162
RUEHRI/AMCONSUL RIO DE JANEIRO 2474
RUEHSO/AMCONSUL SAO PAULO 3811
RHMFISS/HQ USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

C O N F I D E N T I A L BUENOS AIRES 001489

SIPDIS

E.O. 12958: DECL: 10/29/2018
TAGS: ECON EFIN ETRD MARR MOPS PGOV PREL AR BR
SUBJECT: BRAZIL-ARGENTINA COORDINATE ON G-20, DIFFER ON
TRADE POLICY

Classified By: Ambassador E. Anthony Wayne for reasons (B) and (D).

Summary:
--------

1. (C) On October 27, Brazilian Ambassador to Argentina
Mauro Vieira (protect strictly) told the Ambassador that
while Brazil and Argentina differed on the proper trade
policy response to the current economic crisis, Brazil would
be patient with its neighbor and would work to encourage a
constructive Argentine role at the November 15 G-20 summit.
Separately, a U.S. citizen told the Ambassador that President
Cristina Fernandez de Kirchner said October 28 that she and
Brazilian President Lula had agreed to meet before the G-20
summit to coordinate positions.

2. (SBU) The conversation with the Brazilian Ambassador also

covered Argentina's protectionist response to the economic
crisis, Argentina's proposal to nationalize private pension
funds, bilateral military relations, Nestor Kirchner's UNASUR
candidacy, and other topics.

Protectionism and Argentine-Brazil
Bilateral Relations:
----------------------------------

3. (SBU) Argentina's response to the economic crisis is
knee-jerk protectionist, straight out of the Peronist
tradition, the Brazilian diplomat said. Vieira (protect) had
held a long conversation with Brazilian Foreign Minister
Amorim October 26 telling his boss to expect strong Argentine
pleading in the October 27 Mercosur economic ministers
meeting. Brazil would listen but would not adopt a
protectionist response, he said. Argentina swings back and
forth between seeing Brazil as its savior and fearing
Brazilian dominance. Right now, the pendulum is swinging to
fear.

4. (SBU) Argentine businessmen are afraid of cheaper
Brazilian goods flooding the domestic market and of Brazilian
purchases of more Argentine businesses. Many Argentines,
including trained economists and senior officials, have
approached the Brazilian Ambassador in recent days asking why
the GoB devalued the real at Argentina's expense. When he
tries to explain that it was the international economic
situation that brought about the devaluation, not a GoB
decision, they find that hard to believe. This is an
indication that many Argentines just don't understand
international finance or economic realities.

5. (SBU) Similarly, the Ambassador said, the Brazilians are
being patient about the GoA targeting Brazilian and Chinese
goods in its recent expansion of non-tariff barriers, but
they are telling the Argentines quietly that, if Brazilian
goods start being impeded at the borders, then Brazilian
manufacturers will ask the government to respond. Brazil
remains by far Argentina's largest market for its
manufactured goods exports. "Does Argentina really want to
endanger that?," he asked rhetorically. Vieira acknowledged
a large and increasing Brazilian bilateral trade surplus with
Argentina, which he said could grow by a billion or more
dollars under some scenarios of the next year. But he said
part of the surplus is a result of Argentina's own policies
and decisions. For example, Brazil had to look elsewhere to
buy wheat this year because of Argentine restrictions on
exports put in place to maintain low domestic prices. While
Brazil wants to be patient with its neighbor, there are
currently no plans for bilateral ministerial meetings in the
near future to address Argentina's trade concerns.

Response to Economic Crisis and Upcoming G-20
Summit:
---------------------------------------------

6. (C) Brazil will try to consult with the Argentines before
the G-20 Summit on November 15. Its Ambassador characterized
Argentine statements at the UNGA opening and since, as well
as during the Doha Round, as "provincial" and "not
constructive." Hopefully, the Argentines can play a more
constructive role at the Washington meeting, the Ambassador
said. A private U.S. citizen in recent contact with the top
of the GOA subsequently told the Ambassador that Argentine
President Cristina Fernandez de Kirchner (CFK) had said in a
private meeting on October 28 that she and Brazilian
President Lula had agreed to meet before the G-20 summit,
including a possible meeting on November 14 in Washington, in
order to coordinate positions for the summit. The U.S.
citizen said that CFK seemed to understand the importance of
the meeting, was clearly looking forward to it, and was quite
clear about the need to be fully coordinated with Lula. The
U.S. citizen noted that CFK is often much more reasonable in
her statements in closed-door meetings than when speaking in
a forum with the press present. (Comment: Ambassador has
been quietly urging, through the Central Bank governor and
others, that CFK deliver a responsible set of positions at
the G-20 gathering and play a constructive role.)

UNASUR Presidency:
------------------

7. (C) Uruguay's decision not to back Nestor Kirchner for
Secretary General of UNASUR had been conveyed independently
to Brazil and to Chile, at least, before it became public in
the last few days, Vieira said. Peru and Colombia had
privately indicated that they were not comfortable with
Kirchner's candidacy, but they did not want to be out front
about their opposition. Now, the Bolivian candidate may well
emerge as the front-runner, the Brazilian speculated. The
decision must be by consensus.

Paraguay and Military Exercises:
--------------------------------

8. (SBU) The Ambassador said that the Brazilians informed
the Paraguayans, Argentines, and Uruguayans months ago of the
military exercises underway in Brazil near Paraguay.
Brazilian Ambassadors received a second set of instructions
to tell host governments about the exercises five or six days
before they began. In Paraguay, however, one newspaper in
particular has tried to fan flames about this and this has
played off against local concern about Brazilian farmers and
workers in Paraguay. The Brazilian military conducts these
types of exercises fairly regularly, Vieira said. It was not
aimed at pressuring the government of Paraguay.

Argentine Military Exercise Participation:
------------------------------------------

9. (SBU) Ambassador asked Vieira his views about the
Argentine decision not to participate in the UNITAS combined
exercise this year, allegedly because of budget constraints.
The Brazilian said that budget could in reality be part of
the reason. The Argentines canceled annual bilateral
military exercises with Brazil this year, citing budget
costs. The Argentine Navy decided not to send their
submarines to Rio for repairs but asked the Brazilians to
send naval engineers here to help maintain the submarines.
The Argentines have cut back on naval aviation training on
the Brazilian aircraft carrier too. (Comment: Southern
Command offered over US$900k in DCCEP Exercise funding to
offset costs associated with the UNITAS exercise. MOD
Garre's animosity toward various aspects of U.S. policies
could be a factor.)

Embraer and the Lockheed Martin operation
in Cordoba:
-----------------------------------------

10. (SBU) The Brazilian Ambassador said that while the
Argentines are clearly interested in having Embraer replace
Lockheed Martin as manager of the aircraft production
facility in Cordoba, Embraer will have to make its own
decision based on its commercial interests. Right now,
Embraer is not evincing great interest and has signaled only
some minor interest in having a regional maintenance facility
in Cordoba as part of a greater regional network. The
company doesn't seem to have any interest in producing planes
at the facility, he noted.

Pension Nationalization:
------------------------

11. (C) The GoA apparently took the decision to confiscate
privately held retirement accounts in an unsophisticated way
without consulting widely, the Brazilian said. Increasingly
it appears that the political aspects were foremost in the
thinking of the two main decision-makers, CFK and Nestor
Kirchner, he noted. The GoA nationalization initiative will
provide more funds for public works programs in the run-up to
the 2009 and 2011 elections, and it will give the federal
government additional and important leverage over the
provinces as the private pension system has been an important
purchaser of provincial bonds. If Congress approves the
private pension system nationalization, the federal
government can purchase bonds of favored governors, not buy
bonds of others and be strict or not with repayment of bonds,
etc., he noted.
WAYNE

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