VZCZCXYZ0003
OO RUEHWEB

DE RUEHBU #0023/01 0042127
ZNR UUUUU ZZH
O 042127Z JAN 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2991
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 5235
RUEHBR/AMEMBASSY BRASILIA PRIORITY 4999
RUEHLP/AMEMBASSY LA PAZ JAN 3868
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 5185
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 4821
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2687

UNCLAS BUENOS AIRES 000023 
 
SIPDIS 
 
SIPDIS 
CODEL 
 
H FOR CINDY CHANG 
WHA/BSC FOR DOUGLAS BARNES 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON PARM AR SNAR
SUBJECT: ARGENTINA SCENE-SETTER FOR CODEL MCCONNELL 
 
¶1. (U) INTRODUCTION AND SUMMARY: On behalf of Embassy Buenos 
Aires, I warmly welcome your visit to Argentina on January 
10-12.  Your visit comes at a time of considerable ferment in 
the Argentine political and economic arenas.  On October 23, 
President Kirchner won a resounding victory in mid-term 
legislative elections.  Based on these results, Kirchner has 
tightened his already firm personal control of political and 
economic policy.  The Government of Argentina's performance 
at the recent Summit of the Americas gained no new friends 
for Argentina.  As a member of the UNSC, Argentina has worked 
closely with us on issues such as UN reform, 
counterterrorism, non-proliferation, and regional issues such 
as peacekeeping in Haiti.  Argentina is seeking to 
consolidate its impressive economic recovery from the 
2001-2002 crises.  It has successfully restructured over USD 
81 billion of private debt, following the largest sovereign 
default in history.  Argentina also just canceled its debt 
with the IMF by paying the remaining nearly USD 10 billion it 
owed to the Fund.  The debt restructuring will be a key 
component in reintegrating Argentina into world capital 
markets.  END INTRODUCTION AND SUMMARY. 
 
Background 
---------- 
 
¶2. (U) Argentina was once one of the richest countries of the 
Hemisphere, achieving a GNP per capita that was among the 
highest in the world in the early 20th century.  However, the 
history of Argentina over the last 70 years has been one of 
economic decline and political instability.  Many Argentines 
are at a loss to explain how their country, blessed with rich 
natural resources, a fertile land and manageable population 
numbers, could have fallen so far.  Some blame the military 
dictatorships, which controlled events from 1930-1983; others 
blame Peron and "Peronism;" and a significant number blame 
external factors: the IMF, the U.S., and, to a lesser extent, 
Europe.  Gone are the "carnal relations" with the U.S. when 
Argentina stood out as one of the top U.S. allies in the 
world during the administration of former President Carlos 
Menem during the 1990s.  The 2001-2002 economic crisis, the 
worst in Argentine history, changed all that.  The election 
of left-wing Peronist Nestor Kirchner in 2003 marked a 
different approach in Argentine foreign policy, aligning 
Argentina more closely with its MERCOSUR partners.  That 
said, Kirchner has cooperated closely with the U.S. on a 
number of issues, including counter-terrorism and narcotics, 
and regional problems like Bolivia and Haiti. 
 
Political Landscape 
------------------- 
 
¶3. (U) Kirchner won a major victory in the October 23 
legislative and provincial elections.  Kirchner gained a 
strengthened mandate and beat out his rivals for control of 
the ruling Peronist Party (PJ).  Kirchner is politically 
strong at home and faces a weak and divided opposition. 
Argentines give Kirchner much of the credit for the country's 
Phoenix-like recovery from its 2001-2002 economic crisis, an 
event equivalent to our Great Depression.  His already high 
approval ratings climbed last year after the conclusion of an 
audacious debt exchange offer that offered private creditors 
just over thirty cents on the dollar. 
 
Argentina Fumbles Summit of the Americas 
---------------------------------------- 
 
¶4. (U) As chairman and host of the Summit, Argentina failed 
to forge unity and achieve consensus where possible.  On the 
plus side, we reached our essential Summit goals in the 
Declaration and Plan of Action and 29 of the 34 Heads of 
State present voiced support for the launch of FTAA 
negotiations.    We do not expect Kirchner's public posturing 
in Mar del Plata to affect the excellent cooperation we 
continue to receive from Argentina on the key issues of 
counter terrorism, counter narcotics, and nonproliferation. 
Although many in Argentina have criticized the GOA's handling 
of the Summit, we do foresee the GOA paying a domestic 
political price as a result. 
 
Kirchner's New Cabinet 
---------------------- 
 
¶5. (U) On November 28, the Casa Rosada named replacements for 
several key cabinet positions.  President Kirchner appointed 
the Ambassador to Venezuela Nilda Garre as the new Defense 
Minister.  Kirchner also surprised local pundits by 
appointing Banco Nacion President Felisa Miceli to replace 
Roberto Lavagna as Minister of the Economy.  Deputy Foreign 
Minister Jorge Taiana was tapped to be the new Foreign 
Minister.  Taiana has been the intellectual powerhouse for 
the left in the Foreign Ministry during the Kirchner 
administration.  Finally, long-time Alicia Kirchner associate 
Juan Carlos Nadalich was announced as the new Minister for 
Social Development. 
 
Economic Situation 
------------------ 
 
¶6. (U) Argentina has had an impressive economic recovery 
since suffering the worst economic crisis in its history -- 
including the largest sovereign default in history and a 
devaluation of its currency -- in 2001-02.  An export-led 
boom triggered an 8.7 percent surge in real GDP in 2003, 9 
percent in 2004, and estimated growth of 7.8 percent in 2005. 
 The Kirchner Administration has ably managed the nation's 
public finances and achieved large budget surpluses. 
Investment has increased to 18 percent of GDP, but still is 
below the OA's target.  Unemployment declined to 12.1 
percent in June, but has not fallen as fast as the economy is 
growing, largely due to a slow recovery in the service 
sector.  Poverty has also fallen from the post-crisis level 
of 60 percent, but remains stubbornly high.  During the first 
half of 2005, 38.5 percent of the population was living below 
the poverty line and 13.6 percent was considered destitute. 
 
¶7. (U) Argentina's robust economic recovery is the result of 
major economic reforms in the 1990s, the adoption of a 
market-based exchange rate regime in early 2002, and the 
combination of high commodity prices and low interest rates. 
Argentina has sound economic fundamentals and should continue 
to perform well in 2006, but will need to lower its inflation 
rate (6.1 percent in 2004, an estimated 11.4 percent in 2005) 
and increase investment to sustain its growth, reduce 
unemployment and poverty.  Argentina negotiated a debt 
exchange with 76 percent of its creditors in 2005.  Argentina 
canceled its debt with the IMF on January 3, 2006 by paying 
the nearly USD 10 billion it owed to the Fund. 
 
Regional Influence 
------------------ 
 
¶8. (U) Argentina has played a positive role in promoting 
human rights and democratic institutions in the hemisphere, 
particularly in Haiti and Bolivia.  Along with a number of 
its neighbors, Argentina currently has 575 peacekeeping 
troops in Haiti in support of MINUSTAH, reflecting its 
traditionally strong support of UN peacekeeping operations 
and commitment to Haiti.  President Kirchner has been a 
strong supporter of constitutional democracy in Bolivia over 
the last year.  Argentina sent a group of election observers 
to the recent presidential elections in Bolivia, headed by 
former Argentine Vice President and current Mercosur 
President, Carlos "Chacho" Alvarez.  Argentina's stated 
policy on Bolivia mirrors the U.S. policy of supporting 
Bolivia's constitutional democracy. 
 
¶9. (U) In Venezuela, President Kirchner also played a 
constructive role in pressing Chavez to hold a recall 
referendum in 2004 and met with the Venezuelan opposition on 
two occasions in 2004.  More recently, Argentina has sought 
stronger economic ties with Venezuela.  President Kirchner 
traveled to Puerto Ordaz to meet with Chavez November 22 to 
discuss a proposed gas pipeline.  In January 2005, Argentina 
assumed a two-year seat on the UN Security Council. 
 
Strong on Counter-Terrorism 
--------------------------- 
 
¶10. (U) Kirchner's administration has strongly supported 
counter-terrorism policies.  The GOA has ratified all of the 
12 international counter-terrorism conventions.  Argentina is 
a participant in the Three Plus One regional mechanism, which 
focuses on possible terrorist-related activity in the 
Tri-border region between Argentina, Brazil, and Paraguay. 
 
Equally Strong on Non-Proliferation 
----------------------------------- 
 
¶11. (U) The GOA has been a strong international voice on arms 
control and nonproliferation issues.  On Iran, the GOA voted 
to refer Iran's noncompliance to the UNSC at the September 24 
IAEA Board of Governors meeting.  The GOA has also endorsed 
the Proliferation Security Initiative (PSI) and has offered 
to host a PSI exercise.  On the IAEA Additional Protocol, the 
Argentines traditionally have followed the Brazilians, but 
they may eventually sign the AP with or without the 
Brazilians.  Finally, the GOA has implemented the Container 
Security Initiative (which scans containers for WMD 
components) and is in the final stages of negotiating an MOU 
on the Megaports Initiative -- which will passively detect 
radioactive materials moving through the Buenos Aires seaport 
-- the first such agreement in South America. 
 
Military-Military Cooperation 
----------------------------- 
 
¶12. (U) The U.S. military enjoys excellent relations with 
their Argentine counterparts.  Argentine forces participate 
frequently in exercises with U.S. and regional forces 
(outside of Argentina) and are currently contributing about 
575 troops to the Haiti PKO.  We are stymied, however, by the 
lack of a political-level agreement on immunities, (i.e. 
administrative and technical immunities, as defined in the 
Vienna Convention on Consular Relations, which would be 
extended to U.S. service members on exercises in Argentina). 
The lack of this type of agreement precludes many bilateral 
exercises on Argentine territory.  The Argentines 
unfortunately confuse the immunities issue with Article 98, 
which deals only with the International Criminal Court. 
 
GUTIERREZ