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C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 000117 
 
SIPDIS 
 
SIPDIS 
 
WHA FOR A/S TOM SHANNON, PDAS CHARLES SHAPIRO AND PATRICK 
DUFFY 
NSC FOR DAN FISK 
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA 
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER 
 
E.O. 12958: DECL: 01/13/2016 
TAGS: PREL ECON ENRG EINV EFIN ETRD AR BO VE
SUBJECT: MINISTER DEVIDO DISCUSSES BOLIVIA AND THE GOA'S 
ECONOMIC PLANS WITH A/S SHANNON 
 
 
Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D) 
 
------- 
Summary 
------- 
 
¶1.  (C) Minister of Planning Julio DeVido received Assistant 
Secretary Tom Shannon on January 12.  A/S Shannon and DeVido 
 
SIPDIS 
discussed recent developments in Bolivia and the need to 
engage with the new Evo Morales government.  DeVido argued 
that it is important to help Morales consolidate his 
leadership to prevent a radicalization of his currently 
divided movement.  DeVido added that the GOA wants to propose 
the establishment of a fiduciary fund that would facilitate 
the purchase of Bolivian natural gas in change for Argentine 
industrial goods and services.  A/S Shannon expressed concern 
about Morales' insults of the U.S. and the separation that 
this creates between the two governments, as well as Morales' 
potentially negative impact on U.S. counternarcotics efforts. 
 DeVido also summarized the GOA's recent economic 
accomplishments and his ongoing efforts to encourage U.S. 
companies to invest in Argentina.  DeVido is one of President 
Kirchner's closest and most trusted lieutenants.  One of his 
top priorities is to ensure that the Argentine economy has 
sufficient energy supplies to continue to support Argentina's 
rapid economic recovery.  DeVido understands that Bolivia is 
the key to obtaining the necessary supplies of inexpensive 
natural gas without a dramatic increase in the domestic 
natural gas prices.  End Summary. 
 
----------------------------------------- 
Divisions in Bolivia and the Morales Team 
----------------------------------------- 
 
¶2.  (C) Minister of Planning Julio DeVido received Assistant 
Secretary Tom Shannon on January 12.  De Vido was accompanied 
 
SIPDIS 
by economic advisor and Secretary of Communications Guillermo 
Moreno.  A/S Shannon was accompanied by the Ambassador, 
Economic Counselor (notetaker) and Poloff.  A/S Shannon said 
the purpose of his visit was to obtain Argentina's point of 
view on recent developments in Bolivia and the possibilities 
for the United States' bilateral relationship with that 
country.  It will be a challenge, but there is a space for a 
bilateral relationship with the Evo Morales government.  The 
U.S. has had a close relationship with Bolivia in the past 
and is Bolivia's largest donor.  This assistance includes not 
just anti-narcotics assistance, but also economic and 
institutional development aid.  The U.S. would like to 
maintain this relationship.  The fact that the recent 
political change in Bolivia, from the collapse of the Sanchez 
de Losada government to the election of the Morales 
government, has taken place within the context of the 
Bolivian Constitution is an important accomplishment. 
 
¶3.  (C) DeVido responded that the GOA has the same questions 
about Bolivia.  He observed that it is a country that is 
divided between the "Altiplano," which is populated by 
indigenous peoples, who are themselves divided among ethnic 
groups, and the "valle," which is populated by "Europeans." 
The Altiplano lives off the valle and Morales represents the 
poor indigenous people in the altiplano.  The GOA has a good 
relationship with Argentine "piquetero" leader Luis D'Elia 
who in turn has a close relationship with Morales.  D'Elia 
has said that Morales has not consolidated the leadership of 
his political movement, which is divided between indigenous 
and non-indigenous leaders, such as vice-president-elect 
Garcia Linera.  DeVido reasoned that Morales is more open to 
dialogue than Garcia Linera and others.  Consequently, it is 
important to help Morales consolidate his leadership.  If 
not, the Morales government's relationship with Brazil and 
Argentina will radicalize.  Latin American societies also 
 
BUENOS AIR 00000117  002 OF 006 
 
 
need strong leaders and Bolivia will not develop without such 
a leader. 
 
¶4.  (C) DeVido added that he has tried to meet with the 
Morales team on two occasions but these meetings did not take 
place due to internal struggles between Garcia Linera and 
members of the indigenous faction.  Morales, Garcia Linera 
and two Bolivian natural gas experts are scheduled to come to 
Buenos Aires on January 17 and this will be the GOA's first 
opportunity to meet with the Morales team. 
 
---------------------------------- 
Dependence on Bolivian Natural Gas 
---------------------------------- 
 
¶5.  (C)  DeVido said that Morales' most immediate policy is 
to increase the price of the natural gas that Bolivia sells 
to Argentina and Brazil.  Argentina consumes 130 million 
cubic meters of natural gas per day, exports 20 million cubic 
meters per day to Chile, and imports 5 million cubic meters 
per day from Bolivia.  This is much different than Brazil, 
which consumes 65 million cubic meters per day and imports 27 
million cubic meters per day from Bolivia.  As a result, 
Brazil is much more dependent on Bolivian natural gas than 
Argentina.  Argentina also pays a little less for Bolivian 
gas than Brazil because Argentina imports "dry gas" (i.e., 
natural gas after the more valuable liquid petroleum gas has 
been removed) and Brazil imports "wet gas."  The GOA is now 
trying to negotiate the long-tern purchase of an additional 
20 million cubic meters of natural gas per day from Bolivia 
to supply the proposed USD 1.2 billion Northeastern Natural 
Gas Pipeline (GNA).  This pipeline would provide natural gas 
for the provinces of Salta, Jujuy, Formosa, Chaco, 
Corrientes, Misiones, Entre Rios and Santa Fe, including the 
industrial center and port of Rosario.  This pipeline would 
take two years to build from the day the project is approved. 
 If Morales asks for a price that is too high, the project 
will not be feasible.  (Comment: DeVido told CODEL McConnell 
on the previous day that President Kirchner would be visiting 
President Lula in Brasilia January 18 and that the price that 
Argentina and Brazil pay for Bolivian natural gas would be 
part of their discussions.  See septel.  End Comment.) 
 
¶6.  (C)  DeVido said that the GOA wants to propose the 
establishment of a fiduciary fund that would facilitate the 
exchange of Bolivian natural gas for Argentine industrial 
goods and services.  The fund would be similar to the 
fiduciary fund that Argentina has established with Venezuela 
to facilitate the exchange of Venezuelan fuel oil for 
Argentine industrial goods and service and agricultural 
products.  DeVido explained that natural gas is the only 
commodity that Bolivia has to trade and that foreign 
companies are the only companies that have the necessary 
technology to develop this resource.  DeVido claimed that the 
Argentina-Venezuela fiduciary fund has produced results, 
causing Argentina's bilateral trade with Venezuela to 
increase from USD 100 million to USD 900 million per year. 
DeVido concluded that the GOA currently pays the GOB USD 50 
million per year in the form of royalties for the purchase of 
4.5 million cubic meters of natural gas per day.  Ths amount 
could be increased to USD 500 million per year with the 
export of an additional 20 million cubic meters per day to 
Argentina for the GNA pipeline and the export of an 
additional 30 million cubic meters per day to Brazil.  This 
amount of annual revenue would put Bolivia on a sustainable 
growth path. 
 
------------------------- 
Our Problems with Bolivia 
------------------------- 
 
 
BUENOS AIR 00000117  003 OF 006 
 
 
¶7.  (C)  A/S Shannon responded that the U.S. currently has 
two problems with Bolivia: the insults and the separation 
that this creates between the two governments, and the 
production of drugs.  The nature of his personal attacks 
against President Bush and Secretary Rice make it more 
difficult for Morales to engage in a dialogue with the U.S. 
Fortunately, Morales most recent statements in South Africa 
suggest that he has lowered his tone. 
 
¶8.  (C)  Regarding the production of drugs, Bolivia produces 
coca leaf and pasta, and a lesser amount of cocaine.  The 
success of our anti-drug efforts in Bolivia had the effect of 
pushing cocaine production into the FARC-controlled area of 
Colombia.  As a result, Colombia now controls the cocaine 
market in the U.S., while Peru and Bolivia control the 
cocaine market in Europe.  If Colombian President Uribe wins 
reelection and succeeds reducing cocaine production in that 
country, the Colombian cocaine industry will be looking for a 
place to go.  U.S. anti-drug efforts are based on three 
pillars: eradication, interception and alternative 
development.  It is difficult to separate the three, and 
without foreign assistance, it will be difficult for the GOB 
to accomplish the first two.  If our anti-drug efforts fail 
in Bolivia, the Colombian cocaine industry could move into 
that vacuum.  This would have consequences for democracy in 
Bolivia and for drug trade, drug consumption and crime rates 
in Argentina and Brazil. 
 
---------------------------- 
Bolivia's Land-Locked Status 
---------------------------- 
 
¶9.  (C)  DeVido observed that Bolivia's land-locked status 
carried considerable weight in the national mind-set.  For 
example, Bolivia has refused to export natural gas directly 
to Chile.  It also insisted in including language in its 
natural gas export agreement with Argentina that "not one 
molecule" of Bolivian natural gas will be re-exported to 
Chile.  Turning to the rest of the region, DeVido said that 
the political situation in Peru was very uncertain.  However, 
the new president of Ecuador seems very "normal."  DeVido 
said he spoke to him at the Summit of the Americas in Mar del 
Plata and had come away with a good impression. 
 
¶10.  (C)  DeVido also recommended that A/S Shannon meet with 
Andean Development Corporation (CAF) President Enrique 
Garcia.  Garcia is a Bolivian, is from the altiplano, and has 
good relationships with all sectors of Bolivian society. 
Garcia is reasonable and could be helpful in establishing a 
dialogue with the Morales government.  There are lots of 
complaints in Bolivia.  They have lots of natural gas, but 
the people are not able to use it in their homes.  The GOA 
has a proposal that it would like to discuss with the CAF 
that would use the monetization of Bolivian gas reserves to 
finance development natural gas distribution projects in 
Bolivia.  The idea is to let Bolivians see the benefits of 
natural gas production in their daily lives.  If this can not 
be done, there is little reason why they should want to 
support the production and export of natural gas to Argentina 
and elsewhere.  DeVido said there is agreement that the U.S. 
and Argentina should work together.  "Until now," DeVido 
said, "we have the same concerns that you have."  Moreno 
recommended the development of joint U.S.-Argentina 
development projects using Argentina as "the point of the 
lance." 
 
¶11.  (C)  A/S responded that it would be possible to have 
Argentina and Brazil work with the U.S. in Bolivia to avoid 
the radicalization of the Morales government.  The projects 
in Bolivia should not be difficult.  On the positive side, 
Morales' election represents the inclusion of formally 
 
BUENOS AIR 00000117  004 OF 006 
 
 
marginalized groups in a democratic system. 
 
--------------------- 
The Argentine Economy 
--------------------- 
 
¶12.  (C)  A/S Shannon said he was interested in hearing about 
the GOA's economic plans, especially as it related to the 
participation of U.S. companies in the Argentine economy. 
DeVido summarized the GOA's recent economic accomplishments, 
noting that the GOA had renegotiated and reduced the 
country's private debt and paid off its IMF debt. 
Consequently, Argentina does not have to ask for help 
anymore.  "Some day we will do something with the holdouts," 
he said, "but publicly I would have to deny that I said 
that."  DeVido said that the Argentine economy had grown 9 
percent per year for the last three years and Argentina 
needed at least 6 percent in 2006.  "We can not accept 3 
percent," he explained, "because we have too many social 
conflicts."  For this reason, Argentina needs to attract 
foreign investment to maintain high levels of growth. 
 
¶13.  (C)  Turning to U.S. companies, DeVido reviewed his 
ongoing efforts to encourage U.S. companies to invest in 
Argentina.  He said he had recently to New York in December 
at the invitation of the Council of the Americas, where he 
had met with an audience of 300 businessmen who were "very 
interested in investing" in his areas of responsibility, 
e.g., energy, mining, transportation, communications, and 
infrastructure/public works.  He had met separately with 
Deutschebank, Fintech, ExxonMobil, and CMS.  He is now 
working with Argentine Consul General in New York Hector 
Timmerman to organize a reverse visit for U.S. investors to 
come to Buenos Aires in April.  DeVido said he is also 
working with U.S. Secretary of Commerce Carlos Gutierrez to 
consider the U.S. digital TV standard for the digitalization 
of TV in Argentina and Brazil.  And Citigroup has offered to 
finance combined-cycle thermal power products in Rosario. 
Newly established state oil company ENARSA signed agreements 
with Repsol YPF of Spain, Petrobras of Brazil and ANCAP of 
Uruguay to explore for oil in two offshore blocks east of 
Buenos Aires Province.  He would like for U.S. companies to 
participate in offshore exploration some day.  (Comment: The 
GOA has also invited PDVSA of Venezuela to explore for oil in 
the offshore blocks, but no agreements have been signed. 
U.S. oil executives are not optimistic about the possibility 
of finding oil in these blocks.  They note that over 50 
offshore wells have been drilled in the last few decades and 
the only significant discovery has been the offshore natural 
gas deposits north of the island of Tierra del Fuego.  End 
Comment.) 
 
¶14.  (C)  Moreno said that the Ministry of Planning had 
argued in favor of U.S. companies for the last two years.  If 
there was a problem in the 1990s, it was the lack of 
transparency in the privatization of public services.  As a 
result, there are many companies that have high profit 
margins that are not justified.  U.S. companies were not 
involved in the purchase of these companies because of the 
U.S. Foreign Corrupt Practices Act.  The only exception was 
the "disgraceful" case of IBM paying bribes for a large 
computer sales contract with the state-owned Banco de la 
Nacion.  U.S. companies are known for their entrepreneurial 
spirit," he said, "and that is what we want."  (Comment: IBM 
Corporate Headquarters cooperated with the GOA in the 
investigation of the local IBM management's payment of bribes 
to state-owned Banco de la Nacion executives in a large 
computer sales contract in 1995.  IBM Corporate Headquarters 
then changed the local management and removed anyone remotely 
associated with the alleged bribery.  IBM is now one of the 
top five U.S. investors in Argentina and is the largest 
 
BUENOS AIR 00000117  005 OF 006 
 
 
investor and employer in the information technology sector. 
End Comment). 
 
¶15.  (C)  Returning to Argentina's investment climate, DeVido 
admitted that "the investment climate is not like the U.S.," 
but he claimed that "it is improving each day."  He said he 
had good relationships with companies like AES, CMS, Pioneer, 
ExxonMobil, Cargill and Citigroup.  "There are always 
differences," he said, "but not because they are U.S. 
companies."  He then praised a series of dinners that the 
Ambassador had organized in late 2003 and early 2004 with GOA 
officials and U.S. CEOs from different sectors of the 
economy.  These meetings had allowed the government to 
establish constructive relationships with U.S companies 
during its first months in office. 
 
-------------------------- 
Don't Get Hung Up on Trade 
-------------------------- 
 
¶15.  (C)  DeVido also urged the U.S. to avoid the 
"FTAA-MERCOSUR debate and not centralize the bilateral 
relationship on this one point."  "We understand that the 
U.S. and the EU have domestic political considerations and 
can not solve this problem overnight," he said, "but if you 
don't do something about agricultural subsidies, we can't do 
anything."  Almost half of Argentina's USD 40 billion in 
exports in 2005 are agricultural, so it is a big issue for 
Argentina.  Nevertheless, the U.S. and Argentina should not 
centralize the bilateral relationship on something that does 
not have a solution. 
 
¶16.  (C)  A/S Shannon concluded that the U.S. understands 
that Argentina can be an important partner in Latin America. 
"We want economic development to trickle down to all sectors 
of society, not just some sectors," he said.  Turning to the 
Summit of the Americas, he said that the press had tried to 
present the Summit as a conflict.  The U.S. actually saw 
broad support for free trade and economic integration as the 
best way of achieving economic development and prosperity in 
the hemisphere.  The U.S. wants to open markets.  The U.S. is 
trying to eliminate agricultural subsidies, and President 
Bush recently said so in New York. 
 
------- 
Comment 
------- 
 
17  (C)  DeVido is one of President Kirchner's closest and 
most trusted lieutenants.  One of his top priorities is to 
ensure that the Argentine economy has sufficient energy 
supplies to continue to support Argentina's rapid economic 
recovery.  DeVido understands better than anyone else that 
Bolivia is the key to obtaining the necessary supplies of 
inexpensive natural gas without a dramatic increase in the 
domestic natural gas prices.  Consequently, he has devoted 
more time than any other senior GOA official to the Bolivia 
political stability/natural gas issue.  DeVido is also the 
chief advocate within the GOA for working with the U.S. and 
Brazil to ensure that political stability is maintained in 
Bolivia and that a pragmatic government is in place to 
negotiate and sustain a major, long-term natural gas 
agreement with Argentina.  The negotiation of this agreement 
and the construction of the related USD 1.2 billion GNA 
pipeline would raise GOB revenues by USD 200-500 million per 
year, or as much as 7 percent of GDP, depending on the 
negotiated price of the natural gas.  It would also be a win 
for the GOA, the energy-starved provinces of northeast 
Argentina, Argentina's energy-intensive industrial sector 
centered around the city and port of Rosario, the builders 
and suppliers of the GNA pipeline led by the Argentine 
 
BUENOS AIR 00000117  006 OF 006 
 
 
industrial company Techint, Chile, which would be less 
vulnerable to an eminent cut-off of natural gas exports from 
Argentina, and the U.S., which would no longer have to be 
concerned about the perennial fiscal deficits of the GOB. 
The Embassy will continue to work closely with the GOA to 
assure maximum cooperation on Bolivia.  End Comment. 
GUTIERREZ