VZCZCXYZ0000
OO RUEHWEB

DE RUEHBU #2229/01 3202012
ZNR UUUUU ZZH
O 162012Z NOV 07
FM AMEMBASSY BUENOS AIRES
TO RUEHSO/AMCONSUL SAO PAULO IMMEDIATE 3583
RUEHC/SECSTATE WASHDC IMMEDIATE 9725

UNCLAS BUENOS AIRES 002229 
 
SIPDIS 
 
CODEL 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR H AND RM/F/DFS/FO/AA/CAA 
SAO PAULO PLEASE PASS TO CODEL SANCHEZ 
 
E.O. 12958: N/A 
TAGS: PGOV PHUM PREL PTER SNAR AR
SUBJECT: ARGENTINA: SCENESETTER FOR CODEL SANCHEZ 
 
 
¶1. (SBU) INTRODUCTION: On behalf of Embassy Buenos Aires, I 
warmly welcome your visit to Argentina November 20-21.  Your 
visit occurs during a period of heightened political interest 
following the October 28 election victory of Cristina 
Fernandez de Kirchner and her November 14 announcement of her 
Cabinet makeup.  Many of her Cabinet members are holdovers 
from her husband's administration, indicating a policy of 
continuity over change.  She will be sworn in on December 10, 
and the Ministers currently in charge of Defense and homeland 
security (Interior) will stay on.  The advent of a new 
Argentine administration provides the U.S. an opportunity to 
build on an already-stong and positive bilateral 
relationship.  During your meetings, you will have the 
opportunity to discuss a range of bilateral and regional 
issues and reinforce our positive agenda in the region.  End 
Introduction. 
 
Background 
---------- 
 
¶2. (SBU) 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 predominated between 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, especially following the 2001-2002 economic crisis, 
the worst in Argentine history.  The election of 
left-of-center Peronist Nestor Kirchner in 2003 marked a 
significant shift in Argentine foreign policy, aligning the 
country more closely with its MERCOSUR partners and less 
closely to the U.S.  That said, Kirchner has cooperated 
closely with the U.S. on a number of issues, including 
counter-terrorism and narcotics, and regional problems like 
Haiti. 
 
Political Landscape 
------------------- 
 
¶3. (SBU) Kirchner is completing his four year term as the 
most popular Argentine President since the return to 
democracy in 1983, having overseen the country's Phoenix-like 
recovery from its 2001-2002 economic crisis, an event 
equivalent to our Great Depression.  With this steady popular 
support at 60-70 percent, Kirchner obtained a majority in 
both houses of Congress and enjoys the support of more than 
two-thirds of the provincial governors.  Rather than 
President Kirchner seeking a second term, his wife, Senator 
Cristina Fernandez de Kirchner ran as the official candidate, 
winning handily with 45 percent of the vote over a divided 
and largely ineffective opposition.  Her inauguration takes 
place on December 10, and it is widely anticipated that she 
will continue current government policies, making changes 
only gradually.  Major policy challenge for the new President 
will be to contain inflation, attract and boost investment -- 
particularly in Argentina's energy sector -- and to restore a 
sense of law and order to an electorate increasingly 
concerned about crime and security. 
 
Bilateral Relations and Strategic Goals 
--------------------------------------- 
 
¶4. (SBU) Argentina maintains positive political relations 
with the U.S., but one of the major tasks facing the Embassy 
is forging relationships of trust with a government that, to 
date, has been largely inward focused and intent on 
maintaining an image as independent from the U.S.  As part of 
his efforts to find international financing, Nestor Kirchner 
has also developed a close relationship with Hugo Chavez. 
The largest overall challenge we face in Argentina is the 
high level of anti-Americanism in the Argentine public. 
Argentina consistently registers the highest levels of 
anti-Americanism in the hemisphere in public opinion polls. 
Working to change these perceptions is the Embassy's highest 
priority. 
 
¶5. (SBU) Argentina is, nevertheless, a Major Non-Nato Ally 
and cooperates in regional security, counterterrorism, drug 
interdiction, and in contributing troops to U.N. peacekeeping 
missions.  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, 2006 IAEA Board of Governors meeting.  The GOA 
has also endorsed the Proliferation Security Initiative (PSI). 
 
¶6. (SBU) Terrorism:  Argentina  was itself a victim of 
international terrorist attacks in the 1990s and has been a 
cooperative partner in countering terrorism, especially in 
the Tri-border Area.  On November 7, Interpol's General 
Assembly voted to issue international capture notices for 
five current and former Iranian officials and one Lebanese 
Hizballah member wanted in connection with the 1994 terrorist 
bombing of the Buenos Aires Jewish Community Center (AMIA). 
The Embassy and USG agencies worked with the GOA to pass 
comprehensive antiterrorism, money laundering, and terrorism 
finance legislation to strengthen local enforcement efforts. 
We assist the GOA in capacity building in the Financial 
Intelligence Unit, within the restraints created by Brooke 
Amendment penalties, and work closely with the Argentine 
military on modernization, increasing interoperability, and 
training and education focused on civilian control, respect 
for human rights, defense resource management, strategic 
planning, and science and technology. 
 
¶7. (SBU) International Crime and Drugs:  Argentina is a 
trans-shipment point for narcotics emanating largely from 
Colombia, Peru and Bolivia.  Argentine law enforcement 
agencies cooperate closely with their USG counterparts on 
drug interdiction efforts, fugitive arrests and information 
sharing, which has resulted in increased enforcement.  This 
Mission is focused on institutional capacity building and 
expanding training opportunities for law enforcement 
officials, prosecutors and judges in order to improve 
internal security and decrease international drug and 
criminal activity in Argentina. 
 
¶8. (SBU) Democracy and Rule of Law:  This Mission works with 
the GOA, media and civil society to strengthen democratic 
institutions, fight corruption and reinforce civilian control 
of the military.  We promote key reform efforts such as 
ending the election of representatives by party slate lists, 
increasing governmental transparency, and limiting public 
corruption and strengthening the political independence of 
the judicial branch.  While it does not side with us on every 
issue, we continue to cultivate the GOA as a cooperative 
partner in multilateral fora, and seek Argentina's 
cooperation in the defense of democracy and the observance of 
human rights in countries like Cuba, Venezuela and Bolivia. 
 
¶9. (SBU) Human Rights:  The Government of Argentina generally 
respects the human rights and fundamental freedoms of its 
citizens.  The Kirchner government's human rights policy 
focuses on seeking justice for the human rights violations 
committed during the 1976-83 military dictatorship, which 
resulted in the disappearance of 11,000-30,000 political 
dissidents.  It does not, however, focus on bringing to 
justice armed guerrilla groups who also committed human 
rights abuses during the same period, known as "the Dirty 
War", albeit on a much smaller scale.  To date, the courts 
have convicted three former officials of the military regime, 
including a military chaplain. 
 
¶10. (SBU) Human Trafficking:  Argentina is on G/TIP's Tier-2 
Watchlist for lack of progress in providing greater 
assistance to victims and curbing official complicity in 
trafficking at the provincial level.  Argentina is a source, 
transit, and destination country for men, women, and children 
trafficked for the purposes of commercial sexual exploitation 
and forced labor.  According to the International 
Organization for Migration, 80 percent of trafficking victims 
in Argentina are Argentine, most of whom are trafficked for 
the purpose of sexual exploitation.  Bolivians and Peruvians 
are trafficked into the country for forced labor in 
sweatshops and agriculture.  Argentine efforts to combat 
trafficking have focused on prevention and training of 
security and government officials.  Draft anti-trafficking 
legislation is currently being considered by the Argentine 
Congress, with the debate focused on the issue of victim's 
consent.  The Senate version of the bill makes trafficking in 
minors a federal crime, but considers a victim's consent 
relevant in the case of adult trafficking victims.  The 
Embassy has worked with NGOs, lawmakers, and government 
officials in an effort to push for comprehensive 
anti-trafficking legislation. 
 
Economic and Commercial Situation 
--------------------------------- 
 
¶11. (SBU) Argentina's economy has sustained a robust recovery 
following the severe 2001/2002 economic crisis, with 4 
consecutive years of over 8% growth in real gross domestic 
product (GDP). Argentine GDP reached U.S. $213 billion in 
2006, approximately U.S. $5,460 per capita, with real 
investment up 18.7%.  Economic expansion is creating jobs, 
with unemployment down from a post-crisis high over 20% to 
8.5% in the second quarter of 2007. Poverty levels have also 
fallen from a post-crisis high of over 50% to the 
still-worrisome 25% range. 
¶12. (SBU) Argentina benefits from rich natural resources, a 
highly literate population, an export-oriented agricultural 
sector, and a diversified industrial base.  Its post-crisis 
move to a flexible exchange rate regime and favorable 
international commodity and interest rate trends were 
catalytic factors in supporting renewed growth, allowing the 
government to accumulate a reserve cushion (over $43 billion 
as of November 2007) to help insulate the economy from 
external shocks.  A higher tax burden and the recovery's 
strong impact on revenues allowed the government to achieve a 
primary fiscal surplus in 2006 equivalent to 3.5% of GDP. 
However, the primary surplus for 2007 is estimated to fall to 
about 2-2.5% of GDP due to the strong increase in primary 
expenditure during this year's pre-election period. 
Argentina should continue to perform well in 2007 with GDP 
growth projected in the 8% range.  Challenges to sustaining 
high levels of economic growth in the future include capacity 
constraints; the need for substantial new investment in 
primary infrastructure; potential energy shortages in the 
face of high growth and energy prices below international 
market levels; and inflation (9.8% in 2006) and the 
government's heterodox policies to contain it, including 
price controls, export taxes, pressure on the private sector 
to limit price increases and the alleged manipulation of 
economic statistics.  The consumer price index (CPI) is 
independently estimated to be increasing in the 14-18% range 
in 2007, about twice the level measured by the government's 
official CPI. 
 
¶13. (SBU) Argentina's exchange rate policy is based on a 
managed float that appears to be targeting a nominal exchange 
rate in the 3.15-3.20 Argentine pesos (ARP) per U.S. dollar 
range.  Market analysts consider the peso's real exchange 
rate broadly undervalued.  This, along with historically high 
global commodity prices, has helped lift export volumes and 
value to record levels, resulting in a $12 billion trade 
surplus in 2006, but estimated to fall to $9.5 billion in 
2007 due to the strong increase in imports.  Foreign trade 
equaled approximately 38% of GDP in 2006 (up from only 11% in 
1990) and plays an increasingly important role in Argentina's 
economic development.  Exports totaled approximately 22% of 
GDP in 2006 (up from 14% in 2002), and key export markets 
included MERCOSUR (21% of exports), the EU (18%), and NAFTA 
countries (13%).  Total two-way trade with the U.S. in 2006 
totaled almost $9 billion.  The production of grains, cattle, 
and other agricultural goods continues to be the backbone of 
Argentina's export economy.  Energy products, high technology 
goods, and services are emerging as significant export 
sectors. 
 
Trade and Commercial Debt Issues 
-------------------------------- 
 
¶14. (SBU) Over 450 U.S. companies are currently operating in 
Argentina and employ over 150,000 Argentine workers. U.S. 
investment in Argentina is concentrated in the manufacturing, 
information, and financial sectors.  Other major sources of 
investment include Spain, Chile, Italy, France, Canada, and 
Japan.  Continuing Argentine arrears to international 
creditors (including over $20 billion in default claims by 
international bondholders, including U.S. citizens, and over 
$6 billion owed to official creditors, including the U.S. 
Government) and a large number of arbitration claims filed by 
foreign companies, including U.S. companies, are legacies of 
the 2001/2002 economic crisis that remain to be resolved and 
adversely impact Argentina's investment climate.  We hope to 
work with the new government to resolve these problems. 
Regarding ongoing WTO trade negotiations, Argentina has 
staked out a surprisingly strident position in order to 
protect its domestic manufacturing industries.  We have been 
urging them to adopt a more constructive approach. 
Agriculture 
----------- 
 
¶15. (U) The agricultural sector is a mainstay of the 
Argentine economy (e.g., over 50 percent of total Argentine 
exports are represented by agricultural, livestock, and food 
shipments), but it has been negatively affected by GOA 
policies to contain inflation.  The two principal policy 
initiatives which the GOA has chosen to curb inflation have 
been through price and export controls.  The chief 
agricultural and livestock products that have been affected 
by this policy are grains (wheat and corn), dairy, and meat. 
The GOA has watched, with great concern, as the international 
price of wheat has sharply increased.  Argentina is the 
number 5 exporter of wheat in the world.  To control domestic 
prices, the GOA suspended export registrations for much of 
this year and recently increased the export tax from 20 
percent to 28 percent. 
 
¶16. (U) Corn prices have also caught the attention of the 
GOA.  The GOA has frozen export registrations for much of the 
year, hoping to ensure sufficient corn for domestic use (the 
corn is used, in the main, as a feed for livestock and 
poultry, and for food) without putting upward pressure on 
prices.  The export tax was also recently increased to 25 
percent. 
 
¶17. (U) Since Argentina has the highest per capita beef 
consumption in the world (about 63 kilograms per capita), the 
GOA has been extremely concerned about the price of this 
commodity.  In the face of rising domestic prices, the GOA 
increased the export tax on fresh beef from 5 to 15 percent 
in late 2005, and the minimum slaughter weight to 240 
kilograms.  In 2006, it banned almost all fresh beef exports 
for 3 months.  The government currently has an informal 
policy in place to limit beef exports to around 500,000 tons 
per year. 
 
¶18. (U) The biofuels industry in Argentina, particularly 
biodiesel production, is rapidly growing due to the large 
availability of feedstock and a tremendous potential for 
exports.  For 2007, biodiesel production is estimated at 200 
million liters.  Production in 2008 is forecast to surpass 
800 million liters as many plants now being constructed will 
be operational.  Currently, there are over 20 announced 
biodiesel projects in Argentina.  Many of them are large 
capacity plants (over 200,000 tons/year output) situated 
around Rosario.  To comply with the current mandated mixing 
ratios for biodiesel set for 2010, Argentina will only have 
to produce and use about 700 million liters of biodiesel 
(about 10 percent of current soybean oil output).  As such, 
the output of those plants is focused on the export market. 
 
¶19. (U) Currently, ethanol production capacity is almost 400 
million liters per year due to a large ethanol distillery 
inaugurated in the province of Tucuman in 2006 with the 
objective of producing ethanol for fuel use, and a sugar mill 
in Salta Province that is expanding its capacity for non-fuel 
usage.  There are currently very few plants being built for 
ethanol production using corn or sorghum feedstock.  Most 
analysts believe, however, that ethanol production in 
Argentina will grow significantly, but with a primary focus 
on the export market.  Potential collaboration between the 
U.S. and Argentina on biofuels development is strong due to 
keen interest by both parties and potential synergies given 
that the U.S. and Argentina have opposite growing seasons. 
 
¶20. (U) To help build a large fiscal surplus for Christina 
Kirchner,s first year in office, the GOA on November 7 
increased export taxes on many agricultural commodities. 
Soybean export taxes were raised from 27.5 percent to 35 
percent; soybean oil and derivatives from 24 percent to 32 
percent; corn from 20 percent to 25 percent; and wheat from 
20 percent to 25 percent. 
WAYNE