VZCZCXYZ0034
RR RUEHWEB

DE RUEHBU #2386/01 2931939
ZNR UUUUU ZZH
R 201939Z OCT 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 6276
INFO RUEHBR/AMEMBASSY BRASILIA 5549
RUEHSG/AMEMBASSY SANTIAGO 5315
RUEHMN/AMEMBASSY MONTEVIDEO 5882
RUEHAC/AMEMBASSY ASUNCION 5707
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 002386 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC 
PASS NSC FOR JOSE CARDENAS 
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN 
TREASURY FOR ALICE FAIBISHENKO 
USDOC FOR ALEXANDER PREACHER AND JOHN ANDERSEN 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN AR
SUBJECT: CORDOBA GOVERNOR DE LA SOTA: ARGENTINA'S FREE MARKET 
STALWART 
 
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Summary 
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¶1. (SBU) Cordoba Governor Jose Manuel de la Sota, in a dinner with 
the Charge, portrayed himself as a champion of free market orthodoxy 
standing up to a Kirchner administration riding roughshod over 
market disciplines and contractual sanctity.  He questioned the 
values of a politically and socially immature Argentina that 
undervalues the rule of law and fails to re-invest appropriately in 
primary economic infrastructure.  De la Sota highlighted his 
provincial administration's successful use of targeted incentives in 
attracting new high-tech investment -- including Motorola and Intel 
software development centers and call center jobs -- to renew and 
expand Cordoba's productive capacity.  He complained that the GoA's 
increasing reliance on export tariffs and financial transaction 
taxes not shared with the provinces under Argentina's 
"co-participation" scheme has dramatically strengthened President 
Kirchner's hand in allocating government revenues, allowed him to 
consolidate political power.  De la Sota will complete two terms as 
Governor in 2007 and he hinted at possible ambitions to run for 
President in the 2011 elections. 
End Summary 
 
¶2. (U) On October 12, Cordoba Governor Jose Manuel de la Sota hosted 
Charge, EconCouns, Defense Attache and Poloff to dinner, with his 
guests Cordoba Production and Labor Minister Adriana Nazario, 
Federal Senator and Cordoba industrialist Roberto Urquia, President 
of the Cordoba Export Chamber of Commerce Ercole Felippa, Vice 
President of the Cordoba Stock Exchange Manuel Tagles, and Vice 
President of the Cordoba Industrial Union Rodolfo Banchio. 
 
---------------- 
Argentina Adrift 
---------------- 
 
¶3. (SBU) Governor De La Sota welcomed the Embassy visit, noted 
longstanding ties of U.S. multinationals in his province, and -- 
after seven years in office that spanned the 2001/2 economic crash 
-- reflected on Argentina's current crisis of identity.  He called 
Argentina's current social and economic structures worryingly weak 
due to: (1) the lack of a cohesive sense of society, manifest in 
citizens' lack of regard for the common good and for public property 
-- "Argentina will be 200 years old in 2010:  We are hardly a young 
county but remain very politically and socially immature;" (2) the 
lack of a culture of respect for the rule of law, manifest in a 
sense that the law is for others and those who obey the law are 
either naive or foolish; (3) the lack of reinvestment in primary 
economic infrastructure, with periods of growth taken as a windfall 
by provincial and federal governments alike to be enjoyed and 
exploited in the moment; and (4) the tendency of Argentines to favor 
strong caudillo-like central authority with a consequent 
hollowing-out of government institutional capacity. 
 
--------------------------------------------- - 
Cordoba:  A Haven for Multinational Investment 
--------------------------------------------- - 
 
¶4. (SBU)  Early in his governorship, de la Sota said, he appreciated 
the importance of attracting targeted investment to Cordoba province 
to renew and expand its productive capacity.  He called the 
high-tech sector cluster one of Cordoba's "jewels," and detailed a 
variety of targeted investment incentives -- including tax holidays, 
new employment bonuses and close coordination with the science 
faculties of Cordoba University -- used to beat stiff international 
competition to win Motorola (2001) and Intel 2005) software 
development centers.  Building on this success, Cordoba is now 
employing similar incentives to attract a wave of call-center 
investments, taking advantage of the provinces well-educated, 
multilingual and relatively low-cost university graduates.  (Note: 
There are currently over 30,000 call center jobs in Argentina, split 
between the city and Province of Buenos Aires and the cities of 
Cordoba and Rosario.  The industry is growing at a rapid 20 percent 
per annum.  End Note.) 
 
-------------- 
 
 
Trade Concerns 
-------------- 
 
¶5. (SBU) On trade issues, Senator Urquia  asked about the status of 
our GSP program renewal, noting that Cordoba province produces the 
bulk of Argentina's peanut crop, whose exports would be 
significantly impacted by any loss of privileges.  (Note: Argentina 
exported nearly USD 237 million in peanuts and peanut products 
worldwide in 2005, including USD 24 million in exports to the U.S., 
just over USD 2 million of which was exported under GSP.  End Note). 
  Urquia owns a major oil-seed processing and export factory in 
southern Cordoba which he said is Argentina's fifth largest overall 
and second largest nationally owned exporter.  Export Chamber of 
Commerce President Ercole Felippa, who also runs Manfrey, a major 
Cordoba dairy company.  He complained bitterly of the Chilean 
National Commission for Price Distortion's October 6 decision to 
impose a temporary 23 percent tariff on some milk and cheese product 
imports from Argentina.  Felippa attributed this to soaring Chilean 
export of diary products thanks to a variety of free trade 
agreements, with Argentine imports supplementing supplies for 
residual domestic consumption.  (Note:  This does not appear to be 
the case.  While the value of Chilean dairy imports from Argentina 
grew to $28.6 million for the 5-month period January to May 2006, up 
230% year-on-year, Chile's dairy exports fell by some 25% during 
this period.  Chile charges that Argentine dairy exports increased 
as a result of artificially low prices, supported by controlled 
energy costs, direct GoA subsidies to the sector, and the reduction 
of GoA dairy sector export tariffs.) 
 
¶6. (SBU) De la Sota noted that, as elsewhere in Argentina following 
the 2002 peso devaluation, agricultural production has exploded, 
with soy and corn yields doubling over the past four years.  (Note: 
This claim appears exaggerated:  According to the U.S. Foreign 
Agricultural Service, while total Argentine soy production has 
increased 262 percent from 1996 to 2005, soy yield have increased 48 
percent in the same period.  Corn production has increased 53 
percent from 1983 to 2005 and corn yields have risen 92 percent in 
that same period.  End Note).  He was particularly excited about the 
prospect of developing an ethanol industry in the province, with 
corn-distilled fuel production adding local value and contributing 
to the GoA's legislative mandate to have domestically-sold 
conventional diesel and gasoline contain a mix of 5% biodiesel (oil 
seed-derived) and/or ethanol (corn- or sugar-derived) by 2010. 
 
---------------------------- 
Provincial/Federal Frictions 
---------------------------- 
 
¶7. (SBU) Turning to longstanding provincial frictions with the 
federal government, de la Sota complained that the GoA's reliance on 
export tariffs and the financial transaction tax - taxes not covered 
by Argentina's "co-participation" law, which defines the split of 
federally collected revenues with the provinces -  has dramatically 
strengthened the hand of the federal government.  He explained that 
the co-participation formula agreed upon in the 1960s mandated an 
"equitable" 40-60 percent split of revenues between provinces and 
the federal government.  Factoring in the new unshared taxes, the 
province's cut of federal revenue collections has been pared to an 
"unsustainable" 30-70 percent split.  (Note:  Export tariffs 
contributed 11.5 percent of GoA revenues in 2005, net of social 
security contributions.  End Note).  President Kirchner has used 
federal control over revenues to consolidate power and put 
provincial governors under his thumb, de la Sota concluded, calling 
it imperative that the co-participation formula be revised for the 
sake of "political sanity." 
 
¶8. (SBU) De la Sota called the federal export tariff and financial 
transactions taxes broadly  regressive and noted that Cordoba's 
citizens  are currently paying Pesos 1.4 billion into federal 
coffers but getting back only Pesos 300-400 million in 
co-participation revenue sharing.  Adding insult to injury, he 
added, the provinces are paying for the federal government to 
subsidize "excessive" transport and social service subsidies for the 
Federal District City of Buenos Aires.  The poor in Cordoba, he 
said, must pay significantly more for public transportation than do 
City of Buenos Aires residents, whom President Kirchner feels it is 
 
 
necessary to appease. 
 
¶9. (SBU)  De la Sota commented on outstanding ICSID arbitration 
cases against the GoA by multinationals whose public service 
contracts were abrogated by the GoA's 2002 pesification decree. 
While the federal government has taken control and re-nationalized 
both City and Province of Buenos Aires waterworks concessions (from 
France's Suez and the U.S.'s Enron, respectively), Cordoba has 
maintained its majority Suez-run Aguas de Cordoba concession.  The 
provincial government, de la Sota explained, is not in the habit of 
unilaterally renegotiating service contracts with either foreign or 
domestic companies and in any case, the Cordoba waterworks contract 
remains cost effective and well run.  "How can we attract new 
investment if we keep changing the rules of the game?" he concluded. 
 
 
---------------------- 
Break from Kirchnerism 
---------------------- 
 
¶10. (SBU) Governor de la Sota stressed his independence as a 
politician, said he has enjoyed his time as governor, but that after 
eight years in office, it is time for a change.  He explained that 
the electorates of more "sophisticated" provinces like Cordoba want 
change of leadership, even if they do not immediately recognize the 
need themselves.  De la Sota raised the controversial initiative by 
the current Misiones province governor to change the constitution to 
allow for his own indefinite reelection.  De la Sota said that this 
was especially dangerous in a small province like Misiones, because 
the electorate is indebted to the local government for publicly 
administered social programs and for locally determined civil 
service employment.  With 40 to 60 percent of its population in 
public service positions, the electorate of Misiones is unlikely to 
vote for change, he said.  Cordoba, however, has only about five 
percent of its population in public positions, and therefore enjoys 
a truly independent electorate. 
 
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Comment 
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¶11. (SBU) De la Sota's agenda was clearly to present himself as a 
free market stalwart, one whose track record of a successful 
commitment to market disciplines and contractual sanctity stand him 
apart from the policies of the Kirchner administration.  His closing 
comments on elections made it evident that he sees the Kirchner 
administration with a lock on the October 2007 presidential 
elections.  De la Sota's presentation of Cordoba's progress and 
success under his administration hinted at his possible ambitions to 
run for President in 2011 elections.  De la Sota is charismatic, 
astute, and enjoys high public approval ratings.  He was considered 
as a possible Peronist Presidential candidate for the 2003 
elections, but did not make the cut.  He has a demonstrated a record 
of strong economic growth and stability in Cordoba, but has yet to 
transform into a national figure.  If President Kirchner's heterodox 
economic policy mix cannot sustain the current economic health of 
the country into and through a second mandate, Governor de la Sota 
may well have a compelling message to offer voters in the 2011 
elections. 
 
MATERA