VZCZCXYZ0024
OO RUEHWEB

DE RUEHBU #1460/01 1801448
ZNR UUUUU ZZH
O 291448Z JUN 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5069
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 5587
RUEHBO/AMEMBASSY BOGOTA PRIORITY 1370
RUEHBR/AMEMBASSY BRASILIA PRIORITY 5386
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2925

UNCLAS BUENOS AIRES 001460 
 
SIPDIS 
 
SIPDIS 
 
H FOR CODEL CORNYN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON PARM AR SNAR
SUBJECT: ARGENTINA SCENE-SETTER FOR CODEL CORNYN 
 
¶1. (U) INTRODUCTION AND SUMMARY: On behalf of Embassy Buenos 
Aires, I warmly welcome your visit to Argentina on July 3. 
Your visit comes at a time of considerable ferment in the 
Argentine political and economic arenas.  On October 23, 2005 
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 Summit of the Americas in November 2005 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 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, 2005 
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 November 2005 OAS Summit 
of the Americas, 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. 
 
Kirchner's New Cabinet 
---------------------- 
 
¶5. (U) On November 28, 2005 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 
E 
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 GOA's target.  Unemployment declined to 9.8 percent 
as of the end of 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. 
 
Strong on Counter-Terrorism 
--------------------------- 
 
¶9. (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 
----------------------------------- 
 
¶10. (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 
----------------------------- 
¶11. (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