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Cablegate: Argentina: Opposition Candidates' Economic Platforms

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PASS NSC FOR MSMART
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
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USTR FOR KDUCKWORTH
DOC FOR 4322/ITA/MAC/OLAC/PEACHER
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E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV AR
SUBJECT: Argentina: Opposition Candidates' Economic Platforms

Ref: (A) Buenos Aires 2021

(B) Buenos Aires 2015
(C) Buenos Aires 1995

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Summary
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1. (SBU) Substantive policy debate about clouds gathering on
Argentina's economic horizon has been largely absent from the
presidential election campaign here. An exception has been
high-profile sniping by principal opposition candidates Roberto
Lavagna and Elisa Carrio at GoA mis-steps in its alleged efforts to
manipulate inflation statistics. Former Economy Minister Lavagna,
the architect of the GoA's current economic policy mix, supports the
main tenets of the GoA's economic model but argues it should
"evolve" to meet domestic and external market challenges. Lavagna
has limited his economic policy critique to the GoA's inefficient
price control regime, the President's use of non-transparent
"superpower" budget authority, and the government's hollowing out of
key Argentine economic institutions. Surprisingly, Carrio, the most
leftist major candidate (besides, arguably, frontrunner Cristina
Kirchner), has articulated the most orthodox economic policy
platform, emphasizing a central bank focused on inflation
management, a more flexible exchange rate regime, and a progressive
income redistribution bias via tax reform. Less popular candidates
Rodriquez Saa, Lopez Murphy, and Sobisch have similarly echoed more
orthodox economic prescriptions and hammered on inflation.
End Summary.

--------------------------------------------- --
Lavagna: Former Economy Minister's Bully Pulpit
--------------------------------------------- --

2. (SBU) If any one person can claim to be the architect of
Argentina's economic recovery, it is Roberto Lavagna, who was
Economy Minister from 2002 until November 2005. In his election
campaign, Lavagna has not been shy about making this point.
Responding sardonically to claims by President Kirchner's allies
that the president is the real economic helmsman, Lavagna observed
that "there is a tendency to put on the medals won by others, from
human rights to the economic recovery." In recent weeks, Lavagna
has increasingly focused his attacks on inflation and the GoA's
apparent manipulation of statistics.

3. (SBU) In Lavagna's view, the Kirchner government is squandering
the economic legacy he left in 2005 by imposing "a rigid system of
price controls" and resuming ownership of some formerly state-run
companies privatized in the 1990's. Lavagna has also been critical
of the President's misuse of "superpower" budget authority to allow
him to alter budget expenditures and issue "decrees of necessity and
urgency" without seeking congressional approval. In an August 2007
AmCham luncheon attended by the Ambassador and EconCouns, he decried
the Kirchner administration's "systematic hollowing out" of key
economic institutions, including statistical agency INDEC (Ref A),
competition policy agency CNDC, agricultural marketing agency ONCCA,
and the GoA's financial investigation unit UIF. On regional trade
policy, Lavagna has been critical of what he calls president
Kirchner's "turn to the left" in his alliance with Venezuelan
President Chavez. As Lavagna sees it, Chavez is trying to hijack
Mercosur's trade promoting customs union and economic integration
priorities and turn Mercosur into a regional anti-American political
alliance.

4. (SBU) Lavagna's resignation from the Kirchner administration in
November, 2005 followed his warning that government contracts and
control of state companies were being steered to President
Kirchner's political allies based on records of loyalty rather than
competence. During the August 2007 AmCham lunch, Lavagna recalled a
conversation he once had with another senior official while still a
member of the Kirchner government. The official told him that the
only two ways of dealing with Mr. Kirchner were "to be either a
slave or an enemy, and I've chosen to be a slave." That option, Mr.
Lavagna added, "is not for me."

-----------------------------------------
Lavagna's Contradictory Economic Platform
-----------------------------------------

5. (SBU) In June 2007, Lavagna was the first of a group of early
presidential candidates to publish an outline of his economic
platform in major Argentine dailies. Key components include: (1)
Maintaining a total and primary fiscal surplus with the goal of
substantially reducing the GoA's debt overhang; (2) maintaining a
"competitive" (i.e. undervalued) peso exchange rate; (3) eliminating
price controls; (4) combating inflation via responsible fiscal
policies; (5) stimulating and expanding domestic demand/consumption
via a "virtuous circle" of increased salaries, pension payments and
investment, the latter via targeted tax incentives; and (6) using
appropriate banking sector and capital market policies to maintain
low interest rates. He has argued that any macro and micro policy
prescription needs to evolve to meet domestic challenges and
exogenous shocks, calling the GoA's "if-it-ain't-broke-don't-fix-it"
economic policy philosophy an "ostrich" approach to economic
management.

6. (SBU) Clearly, Lavagna's economic platform is many steps removed
from liberal free-market orthodoxy. Local analysts argue that many
of his proposals are contradictory or mutually exclusive. Most
commonly cited are his calls to combat inflation via "responsible"
fiscal policies while continuing to stimulate already overheated
domestic consumption via higher salaries, cutting taxes to encourage
investment, and maintaining low (currently net real negative)
interest rates. Critics also note that, despite Lavagna's calls for
fiscal probity, his record is that of a spendthrift. During the
2002-2005 period that Lavagna served as Economy Minister, public
expenditures jumped over 100%, from approximately Pesos 53 to 107
billion.

7. While Lavagna has been the primary voice in defining and
defending his economic platform, he has been accompanied by Javier
Gonzalez Fraga, former central bank governor from 1989-1991 under
the Menem administration. Currently a professor at Buenos Aires
prestigious Catholic university, Fraga has made a number of public
statements regretting the GoA's "debasement" of statistical agency
INDEC.

--------------------------------------------- ---
Carrio's Surprisingly Orthodox Economic Platform
--------------------------------------------- ---

8. (SBU) Center-left candidate Elisa Carrio is widely seen as the
front-runner for second place in the October 28 elections. An
outspoken political figure, Carrio says she would return Argentina
to its republican roots, "democratizing" power and limiting
presidential mandates to one term. She argues it is possible to
simultaneously enjoy a "republic, economic development, and social
justice" and that her first priorities as president would be to
lower inflation, fight Argentina's escalating drug problem, and
establish better social programs for youths. At a September 28
lunch attended by the Ambassador, Carrio criticized the cost and
ineffectiveness of school nutrition programs and proposed to use
that money instead for direct payments to families to feed their
children and keep them in school. She also promised guaranteed
pensions for the elderly.

9. (SBU) Carrio's campaign gained considerable credibility when she
brought former Central Bank governor (2002-2004) Alfonso Prat-Gay
onto her team as her shadow Economy Minster. Prat-Gay was appointed
President of the Argentine Central Bank in December 2002, during the
Duhalde administration. The Kirchner administration's decision not
to renew Prat-Gay's appointment in 2004 was reportedly related to
his conflicts with then-Minister of Economy Lavagna and his
criticism of the GoA's handling of IMF negotiations and debt
restructuring with private creditors.

10. (SBU) In September 2007, Carrio's Civic Coalition party
published a "Productivity Plan: 2007-2011" which included mandates
for (1) a wholly independent central bank conducting a monetary
policy focused on controlling inflation; (2) contra-cyclic fiscal
policy with the creation of contra-cyclic trust funds on the Chilean
model; (3) a commitment to maintain a true primary fiscal surplus in
the 1% to 4% of GDP range; (4) a more flexible exchange rate regime
to more readily accommodate exogenous shocks; and (5) a progressive
income redistribution bias via tax reform, including a lowering of
VAT taxes and an extension of income taxes to financial assets.
Interestingly, Carrio's economic platform does not specifically
reject government price controls, but rather asks for substantive
product- and sector-specific impact analyses of controls.

11. (SBU) Like Lavagna, Carrio and Prat Guy have repeatedly and
loudly charged that the GoA has manipulated inflation statistics and
damaged both the credibility of INDEC and the Argentine state in the
eyes of domestic and foreign investors. When current Central Bank
governor Martin Redrado said to an investor group in London last
month that he is "preoccupied" by Argentine inflation levels,
Prat-Gay retorted: "Better the central bank should be 'occupied'
(dealing) with inflation rather than simply 'preoccupied' by it."

12. (SBU) Given Carrio's left-of-center political base, many of her
public statements on economic policy have focused less on the Civic
Coalition's relatively conservative published economic platform and
more on economic themes with a populist twist: despite significant
declines in poverty and indigence levels, Carrio has criticized the
GOA for a regressive tax system that, in an inflationary
environment, has contributed to growing income inequality. And,
while demanding clear rules of the regulatory and incentive game for
domestic and foreign investors, Carrio asks for ongoing oversight of
private sector players to combat their the private sector's
"tendency" to monopolistic abuses of market power.

----------------------------------
Other Candidate Economic Platforms
----------------------------------

13. (SBU) Alberto Rodrguez Saa, a Peronist leader and current
governor of San Luis province, is running in fourth place for the
Presidency, according to most polls. His brother Rodolfo Rodriguez
Saa also served as governor of San Luis and briefly as President of
Argentina for one-week in December 2001 following De la Rua's
resignation, where he gained international notoriety for declaring
Argentina's debt default in Congress. Alberto Rodriguez Saa's
economic platform highlights initiatives to re-work Argentina's
"co-participation" federal revenue sharing regime to increase the
share of government revenues automatically passed to provinces; the
need to restrict Presidential "superpowers" and linked decrees of
"necessity and urgency," and more broadly, the need to reduce overt
government intervention in the productive economy, particularly in
the agricultural and cattle sectors.

14. (SBU) Ricardo Lopez Murphy, the center-right candidate currently
running in fifth place according to most polls, previously ran for
the presidency in 2003, where he came in third place with 18% of the
votes. Today, however, he is running at less than 5% in the polls.
Lopez Murphy served as Minister of Defense and of Economy in the
1999-2001 de la Rua administration, though his tenure as Economy
Minister lasted only two weeks: after attempting to introduce a
fiscal tightening program, popular protests ended in his
resignation. An economist with a PhD from Chicago University, his
economic platform reflects an orthodox monetary approach to cooling
down an over-heated Argentine economy. Lopez Murphy's public
comments on economic policy have decried GoA manipulation of
inflation statistics; encouraged market-based competition within a
transparent and consistent regulatory framework; called for a
reduction in "politicized" state infrastructure expenditures in
favor of more efficient private sector investment; proposed the
development of incentive programs to encourage Argentine software
and high-tech companies to undertake in-country R&D, and recommended
the development of non-conventional energy sources to address
looming electricity and natural gas shortages.

15. (SBU) Finally, center-right leader and current governor of
Neuquen province Jorge Sobisch is running a distant sixth place for
the Presidency, according to most polls. Sobisch's governorship
ends in December 2007; in April 2007, after sending in police to
manage a teacher's union strike, he was blamed for the shooting
death of a Neuquen teacher. Despite popular calls for his
resignation, he vowed to finish his term as governor. Sobisch's
economic platform calls for a reform of Argentina's co-participation
revenue sharing regime and a linked simplification of Argentina's
complex the tax structure which concentrates revenue -- and power --
at the federal level. He has also called for more "balanced"
Argentine economic development, with a focus on Argentina's
productive provincial regions.

-------
Comment
-------

16. (SBU) GoA mis-steps in its attempts to manage inflation via
price controls and - allegedly - to manipulate inflation statistics
have become prime fodder for opposition candidates. Otherwise, the
final weeks of Argentina's presidential campaign have been bereft of
substantive debate on economic themes. It appears that five
consecutive years of 8+% post-crisis GDP growth, topped off by a
pre-election "pinata" of salary and pension increases, tax breaks,
industrial protection measures and public works commitments have
encouraged Argentine voters to accept GoA promises of continued
growth and increases in real income in a follow-on Cristina
Fernandez de Kirchner administration.

17. (SBU) It is one of the ironies of this Argentine electoral
campaign that Elisa Carrio, the first-tier candidate farthest to the
left on the political spectrum, is running on the most "orthodox"
economic platform, one that calls for measures to cool down
Argentina's overheated consumer demand. In contrast, Roberto
Lavagna, architect of all the key aspects of the GoA's current macro
policy mix, is calling for an "evolutionary" economic policy that
adapts to domestic and international market realities. But other
than promising an end to price controls and damning the GoA's poor
implementation of "his" economic model, Lavagna has consistently
validated current GoA macro policies -- policies that many argue
have led, inexorably, to the very inflationary pressures and related
disequilibria that cast a shadow over Argentina's current economic
boom.

WAYNE

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