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C O N F I D E N T I A L SECTION 01 OF 04 BUENOS AIRES 000159 
 
SIPDIS 
 
E.O. 12958: DECL: 01/19/2015 
TAGS: PREL PGOV ECON EFIN ETRD PHUM AR
SUBJECT: CODEL DODD VISIT TO ARGENTINA 
 
REF: BUENOS AIRES 138 
 
Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (b) and (d). 

 

¶1. Summary: (C) During their 24-hour visit to Argentina 

January 12-13, CODEL Dodd, accompanied by Ambassador 

Gutierrez, held informative and wide-ranging discussions with 

President Nestor Kirchner, Minister of Interior Anibal 

Fernandez, Deputy Foreign Minister Jorge Taiana, and Central 

Bank President Martin Redrado.  In addition, prior to their 

arrival in Buenos Aires, the CODEL visited the Tri-border 

region of Argentina where they were briefed on GOA 

counternarcotics and counterterrorism activities.  All of the 

interlocutors expressed their satisfaction with the overall 

state of U.S.-Argentine relations.  In particular, they noted 

that cooperation with the U.S. on counternarcotics and 

counterterrorism issues was excellent.  During a luncheon 

hosted by the Ambassador attended by a number of independent 

political and economic analysts, the CODEL was told how the 

U.S. Administration had been particularly helpful to 

Argentina during the recent economic crisis, prompting 

Senator Dodd to state that the U.S. clearly had devoted 

considerable attention to support Argentina which is not what 

he thought prior to his visit.  End Summary. 

 

¶2.  (U)  Senators Christopher Dodd (D-Conn), Bill Nelson 

(D-Fla) and Lincoln Chafee (R-RI) had a brief but busy 

schedule during their visit to Argentina.  CODEL Dodd was in 

Argentina to discuss political and economic trends in general 

and counternarcotics and counterterrorism cooperation in 

particular.  In a last minute addition to the schedule, 

President Kirchner also received the delegation (reftel). 

 

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Interior Minister Fernandez Praises Cooperation 

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¶3. (C) In his opening remarks, Interior Minister Anibal 

Fernandez praised the level of cooperation the GOA has 

received from the U.S. on counterterrorism issues.  He noted 

this cooperation was of ""high quality"" and ""value added"" that 

included ""shared information, sources and common action.""  He 

said this work continued on a day-to-day basis with a 

constant exchange of information.  However, when asked by 

Senator Nelson if the cooperation was enough, Fernandez 

responded, ""No, it's never enough.  We can do a lot more."" 

 

¶4. (C) In response to a question on cooperation with Paraguay 

and Brazil on counterterrorism issues, Fernandez said there 

had been a lot of progress on common policy under the 

MERCOSUR umbrella but that joint work with its two neighbors 

was not as extensive as the GOA would prefer.  With Paraguay, 

the problem was one of capacity, while with Brazil it was a 

question of willingness to cooperate.  Fernandez, though, 

said the GOA was working to overcome difficulties with Brazil 

and that a common policy on counterterrorism was gradually 

emerging. 

 

¶5. (C) Fernandez said his ministry was focusing on three 

major transnational themes: terrorism, narcotics trafficking 

and smuggling.  In response to these challenges, the GOA had 

set out to define and create a common policy and response 

both at the federal and provincial level.  A critical 

component of this common policy would be to reach a consensus 

in judicial terms on rules of procedure to fast-track 

investigations and prosecutions in these areas.  Fernandez 

said that by February 1, the GOA would have a special strike 

force unit within the Attorney General,s office to deal with 

these issues.  A second critical component of the GOA,s 

efforts would be directed at coordinating the actions of the 

intelligence community on narcotics and terrorism 

investigations. 

 

¶6. (C) When Senator Dodd asked about reports that Colombians 

were increasingly involved in narcotics trafficking in 

Argentina, Fernandez, at first, expressed skepticism.  When 

told by an Embassy DEA representative attending the meeting 

that Colombians were behind a number of major narcotics cases 

currently being investigated by both Argentine and U.S. 

authorities, Fernandez agreed that ""Yes, it,s possible."" 

The Minister then said he was more concerned with the 

corrupting power of the money that goes along with 

trafficking than with who was actually running the drugs.  He 

said drug seizures alone did not really capture the depth of 

the problem in Argentina.  Fernandez, referring to two recent 

local drug lab seizures, added that drugs are not just 

reaching Buenos Aires, they are being processed here.  In a 

somewhat somber conclusion to the meeting, Fernandez opined 

that ""we can,t win (the fight against drug traffickers); 

what I don,t want is to lose badly."" 

 

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Taiana: GOA Will Continue to Work Regional Issues 

--------------------------------------------- ------ 

 

¶7. (C) Deputy Foreign Minister Taiana underscored to CODEL 

the GOA,s intention of remaining actively involved in 

promoting human rights and democratic institutions in the 

hemisphere.  Asked by Senator Chafee about relations with 

Venezuela, Taiana said the GOA had attempted to fashion a 

""moderating role"" designed to reduce tensions within 

Venezuela.  He noted that Kirchner had met with opposition 

leaders and factions during both of his visits to Venezuela. 

Taiana said he had discussed with Assistant Secretary Roger 

Noriega the question of human rights in Venezuela and how the 

GOA and the U.S. might work together in this area.  Taiana 

mentioned in particular his concern about legislation either 

enacted or being considered by the Venezuelan legislature 

impacting on human rights.  Senator Nelson commented that 

President Chavez claims he wants a new relationship with the 

U.S.; but what he really wants is the public relations 

benefits of better relations while continuing to crack down 

on the press, property rights and packing the Supreme Court. 

 

¶8. (C) On other regional issues, Taiana told the CODEL that 

the GOA was firm in its commitment to Haiti.  ""We can,t turn 

our backs or look at the cost.  We can,t fail.""  He said it 

was important that Latin America make a significant 

contribution and work to improve basic security and to build 

democratic institutions in Haiti.  Taiana said that friendly 

and cooperative relations with Brazil and Chile were now 

Argentina,s highest priority and that this change of culture 

from one of confrontation to one of cooperation with these 

two nations represented one of the greatest accomplishments 

of Argentina,s 22 years of democracy.  In his concluding 

remarks, Taiana reiterated the GOA,s commitment for a 

successful Summit of the Americas which Argentina will host 

this November.  He noted that the Summit would focus on the 

interrelated themes of creating jobs, fighting poverty and 

increasing democratic governance. 

 

--------------------------------------------- --------- 

BCRA President Redrado Discusses Macroeconomic Issues 

--------------------------------------------- --------- 

 

¶9. (SBU) Central Bank (BCRA) President Martin Redrado told 

the CODEL that Argentina,s economic history could be 

summarized by the phrase, ""overspending and 

overindebtedness.""  He then claimed that the world was now 

seeing for the first time in Argentina fiscal discipline, a 

realistic floating exchange rate, prudential monetary policy, 

and ""productive integration with the rest of the world."" 

Argentina had a consolidated fiscal surplus of 5.2 percent of 

GDP in 2004, including 4.3 percent of GDP in the central 

government plus almost another one percent in the provinces. 

Argentina,s floating exchange rate is important for the 

""productive integration"" of the Argentine economy with the 

rest of the world.  The BCRA held inflation to 6.1 percent in 

2004, below the originally targeted range of 7-11 percent. 

Redrado also recognized that the country still needed to 

""address public utility and energy prices and adapt to a new 

regulatory framework"" or there ""won,t be any investment"" and 

to obtain a successful debt restructuring with ""a strong 

response from the creditors."" 

 

¶10. (C) Senator Dodd asked Redrado to what extent he thought 

there was tolerance in the body politic for badly needed 

structural reforms.  On the debt restructuring, Redrado 

emphasized that this was not in his area of responsibility, 

but speaking as a private economist he thought that the 

strong participation of domestic pension funds, banks and 

industry would produce a participation rate of at least 45-50 

percent.  After that, he thought it was a question of how 

much manpower the participating banks had to persuade the 

foreign bondholders to participate in the restructuring. 

Powerful investors like Soros have the option of going to the 

courts, unlike individual bondholders, and will win, but even 

then, they will not be able to collect because, unlike 

Venezuela, Argentina does not have assets abroad.  From what 

he saw in the foreign exchange market, he thought investors 

wanted to go to emerging markets to take advantage of the 

difference in yields, and this increased the likelihood of a 

successful debt exchange.  More specifically, he said that 

the spread between the yields on emerging market bonds and 

U.S. Treasuries was now only 350 basis points, or 3.5 

percent, which was the narrowest spread that there had been 

in 10 years. 

 

¶11. (C) On tax reforms, Redrado said that President Kirchner 

was fiscally conservative, to the point of blocking some 

changes.  Redrado wanted to eliminate the distortionary 

financial transactions tax, which encourages people to 

operate in the informal economy.  However, whenever he tried 

to eliminate the tax, President Kirchner would ask, ""With 

what are you going to replace it?""  On revenue sharing, 

Redrado said Argentina has a federal government with central 

tax collection and subsequent distribution of revenues to the 

provinces, which prevents the development of fiscal 

responsibility in the provinces.  ""There is a move toward 

decentralization,"" he said, ""but this is hard to do 

politically.""  There is also a feeling that it is not worth 

the effort, so progress will be limited to reforms such as 

""the elimination of distortionary taxes in due time.""  On the 

renegotiation of public utility and energy prices, Redrado 

said ""the sooner, the better"" but it is unlikely this will 

occur in an election year.  Price increases that do occur 

will be limited to private companies, and will not affect 

residential users.  Redrado explained that President Kirchner 

is ""willing to go over the heads of the political structure"" 

to appeal to the people and is therefore especially sensitive 

to the public's reaction to potential price increases. 

 

¶12. (C) On monetary policy, Redrado said that there was a 

great deal of stimulus at the beginning of the year coming 

from measures like increased payments to retirees, higher 

wage payments, and postponed tax payments.  The BCRA 

compensated by raising the BCRA interest rate from 2.5 to 

2.75 percent.  Redrado thought Minister of Economy Roberto 

Lavagna had implemented these measures in order to lower the 

consolidated fiscal surplus when he had to present the debt 

exchange to the country,s creditors.  Redrado said the BCRA 

wanted to tell the market that it would err on the side of 

conservatism, dealing with ""inflation first, and the exchange 

rate second.""  If there was a problem with the exchange rate, 

he said, the GOA could use its surplus to buy dollars as it 

had done in the past.  On relations with the IMF, Redrado 

said the IMF had ""made a mistake"" in not asking for a higher 

primary fiscal surplus in Argentina,s current IMF agreement. 

 Consequently, the GOA should commit to a higher surplus in 

the renegotiation of the current IMF agreement, but should 

""not tie our hands"" as to how to use the surplus. 

 

¶13. (C) Redrado said that he was sensitive to the things that 

are of interest to the U.S.  He said that he was concerned 

about how the financial system could be used for money 

laundering to finance terrorism and that he had asked the 

Ambassador for technical assistance to tell the BCRA what it 

was doing right or wrong.  (Note: During January 10-15 a U.S. 

Treasury technical assistance team visited Argentina to 

assess Argentina's anti-money laundering capability and 

possibilities for USG technical assistance in this area.) 

Redrado expressed particular concern about the use of 

Argentina,s money exchange houses for money laundering, 

since he did not have enough inspectors to inspect either the 

money exchange houses or banks in the provinces.  Redrado 

added that he had just issued a BCRA resolution that 

permitted the BCRA to freeze financial accounts due to 

suspicious activity. 

 

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Lunch with Economic and Political Analysts 

------------------------------------------- 

 

¶14. (C) In order to provide a different perspective on 

Argentine political and economic developments, the Ambassador 

hosted a luncheon for the CODEL with a number of prominent 

independent analysts.  The main topic of the discussion was 

Argentina,s ongoing debt rescheduling offer and the 

country,s expected renegotiation of its existing IMF 

agreement.  Daniel Artana, Director and Chief Economist of 

the Latin American Economic Research Foundation, was cautious 

about the potential outcome of the debt rescheduling, noting 

that even if all of the creditors accepted the offer, 

Argentina would still have a large debt burden, which he 

estimated at 80 percent of GDP.  On the positive side, he 

noted the GOA had delivered much better fiscal results than 

in the past and would not have to go to the debt market for 

the next few years.  Artana also thought that Argentina could 

obtain a new IMF agreement in the second quarter of 2005. 

 

¶15. (C) Senator Dodd asked how the U.S. role during 

Argentina,s recent economic crisis had been perceived.  The 

lunch participants agreed that the U.S. role had been and 

continues to be very positive.  Javier Finkman, Chief of 

Economic and Risk Research for HSBC Bank Corporation, 

described the U.S. as ""a friendly voice for Argentina"" and 

praised U.S. support in the G7 and the IMF.  Political 

analyst Jorge Castro, president of the Argentine Institute of 

Strategic Planning, said that the USG had been the GOA,s 

""main supporter"" during the last 18 months.  Senator Dodd 

said he was pleased to hear that the U.S. role had been 

constructive, since prior to his visit he had been convinced 

that this had not been the case. 

 

¶16. (C) Another topic of discussion was the contrast between 

the faster than expected economic recovery and the 

persistently high level of individuals still living below the 

poverty line.  Economist Artana noted that the economy would 

soon be back to where it was during its previous peak in 

¶1998.  Nevertheless, poverty and structural unemployment had 

doubled during the same seven-year period.  In addition, two 

out of four of those employed work in the informal sector, 

and a third works for the public sector.  Political and 

military analyst Vicente Massot observed that Argentina is a 

""very peculiar country"" where social problems increase at a 

time when social conflict goes to zero.  He argued that the 

lack of social conflict was due to the weakness of civil 

society and the political system's successful co-optation of 

the unions.  Economic consultant Esteban Fernandez described 

President Kirchner as a ""neo-populist economic conservative,"" 

who takes a populist approach to politics while maintaining 

conservative fiscal and monetary policies.  Senator Dodd 

responded that despite the problems, the overall lunch 

conversation had been much more positive than the 

conversations that he had had a year ago. 

 

¶17. (C) Comment:  All of the CODEL,s interlocutors, up to 

and including the President, spoke highly of the GOA,s 

cooperative relationship with the U.S. and President Bush's 

strong support for Argentina.  At the conclusion of the 

luncheon, Senator Dodd acknowledged that he had come to 

Argentina believing that the Administration had not been 

helpful but recognized that the Bush Administration had been 

engaged in suppporting Argentina.  End Comment. 

 

¶18. (U) CODEL Dodd did not review/clear on this cable. 

 

¶19. To see more Embassy Buenos Aires reporting, visit our 

classified website at 

http://www.state.sgov.gov/p/wha/buenosaires 

GUTIERREZ 


=======================CABLE ENDS============================