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INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY
RUEHRL/AMEMBASSY BERLIN 1097
RUEHCV/AMEMBASSY CARACAS 1696
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

C O N F I D E N T I A L BUENOS AIRES 000129 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 02/04/2018 
TAGS: PREL PGOV ECON EINV EPET KPAO KCOR MARR VZ AR
SUBJECT: ARGENTINA PERSPECTIVES 
 
Classified By: Ambassador E. Anthony Wayne for reasons (B) and (D). 

 

 ¶1.  (SBU) Summary: As part of outreach efforts during recent 

friction in U.S.-Argentine relations, Ambassador held 

one-on-one discussions with key players on the Argentine 

scene.  In each, he explained the U.S. perspective on discord 

over the Miami court case and on bilateral relations. 

Interlocutors expressed strong support for the U.S. position 

and offered to help quietly.  Almost to a person, they said 

the GoA's overreaction reflected a limited understanding of 

the U.S. and things international, the very small circle of 

decision-makers for key issues, and the penchant for the 

Kirchners to respond aggressively to perceived challenges and 

make up afterwards.  Interlocutors anticipated the GoA's 

reconciliation efforts with the USG, noting the Kirchner 

regime's need for U.S. and international investment/financing 

and the fact that, while anti-Americanism plays well in 

Argentina, serious conflict with the United States does not. 

 

¶2.  (SBU) Interlocutors were also fairly united in their 

views on the challenges facing the government: controlling 

inflation and wages and dealing with public security concerns 

related to rampant street crime.  Many noted that the new 

government has yet to break out of the short-term framework 

for policy-making which characterized Nestor Kirchner's 

government and suggested that Cristina Fernandez de Kirchner 

(CFK) had yet to demonstrate that she will govern in a manner 

distinct from that of her husband.  End Summary. 

 

¶3.  (SBU) The following are highlights of individual 

conversations over the past three weeks.  Topics covered 

include GOA decision-making style, economic policy making, 

inflation, salary negotiations, investment policy, public 

security challenges, anti-Americanism, corruption, oil and 

energy policy, and regional security concerns. 

 

Bank President 

-------------- 

 

¶4.  (SBU) Clarisa Lifsic is President of the Banco 

Hipotecario, Argentina's second largest bank in terms of net 

worth.  She has an MBA from MIT and represents private 

shareholders in this formerly state-owned mortgage bank. 

Private shareholders control the majority of seats on the 

board, but various public entities still control over 50% of 

Hipotecario's stock following its ""de-nationalization"" in 

¶1997.  While the bank used to specialize in mortgages, it is 

now a full service bank and has been expanding rapidly in 

recent years. 

 

¶5.  (C) She sees the main challenge to the Argentine economy 

and the banking system as getting inflation under control. 

The GoA's interventionist anti-inflation policy, including 

freezes in public utility tariffs and ""voluntary"" price 

stabilization agreements on a sizeable basket of consumer 

goods, has just hidden a very serious problem. 

 

¶6.  (C) The government has displayed little understanding of 

how to expand credit markets for medium- or long-term loans. 

Just before the elections, the government got banks to pledge 

to issue small enterprise and mortgage loans at less than the 

cost of money at that time.  The banks signed because the 

head of the Banking Association (see para. 12) assured them 

that the government just wanted the headlines and would never 

check to see if the loans were issued.  The government has no 

long-term vision or plan about generating a mortgage market, 

for example.  You don't do that by telling banks they have to 

make loans at a loss, she said.  You create policy structures 

and make funds available in the way Mexico did to begin 

expanding home mortgages. 

 

¶7.  (C) The appointed government members of the Banco 

Hipotecario Board of Directors have been weak.  The last two 

were friends of former Finance Minister Felisa Miceli's 

siblings.  One was an architect, who knew nothing about 

banking, and the other was an accountant, but he still asked 

where the mortgages were kept on his initial tour of the 

bank.  Much time had to be spent educating them both on 

basics and keeping them informed of what issues and topics 

meant.  Similarly, the lack of coordination and clear lines 

of responsibility within the government mean that a great 

deal of time has to be spent going individually to each actor 

in the government who might influence the bank's policy to 

brief them on new policies or strategic decisions by the 

bank. 

It is a very time-consuming process. 

 

¶8.  (C) One of the great failings of GOA policy has been its 

very short-term focus.  There has been hope that CFK may 

change that.  She asked a number of individual economists and 

economic players to write longer term strategy papers for 

her.  She has also told at least one person that she intends 

to create a committee charged with developing a longer term 

economic vision for Argentina.  So far, however, there have 

not been any clear signs of more focus on the longer term. 

There is also no clear sign so far that the government will 

implement the ""social pact"" between labor, business and the 

government which CFK discussed in her electoral campaign. 

 

International Banker and Financier 

---------------------------------- 

 

¶9.  (SBU) Guillermo ""Willy"" Stanley is a board member of 

Macro Bansud, one of Argentina's largest banks, former 

President of Citibank Argentina, and Director of D&G, a 

consulting and investment firm that owns Havanna, a very 

successful Argentine cookie and coffee bar company.  Stanley 

noted that his companies have been prospering with 

Argentina's economic growth.  Havanna sales have grown 7% 

over the past year.  It now has 30 stores in other parts of 

Latin America and hopes to open a store in the United States. 

 Macro Bansud's deposit base has been growing steadily in 

recent years, loans are booming, and the bank has been able 

to borrow significant amounts at excellent rates in Europe 

over the past year. 

 

¶10.  (C) Inflation is the biggest challenge facing the 

government.  The inept price control policies of Commerce 

Secretary Guillermo Moreno have made the problem much more 

 

SIPDIS 

serious than it needed to be.  By destroying the credibility 

of the national statistics agency, INDEC, and by using 

offensive pressure tactics to try to control prices, the 

government has raised inflationary expectations for most 

economic actors.  Rather than what easily could have been 

inflation hovering around 13%, now most sectors have 

(self-fulfilling) expectations that inflation will be 20-25%. 

 This has repercussions across the economic spectrum as 

recent union claims for wage increases demonstrate. 

 

¶11.  (C) The government's repeated focus on the short-term is 

also taking its toll.  There had been hope that CFK would 

bring about a change in her husband's focus on the immediate, 

but decisions are still being made by the same small group 

and with no evident shift from the near-term political 

motivation for most decisions. 

 

Banking Association President 

----------------------------- 

 

¶12. (SBU) Jorge Brito is president of Banco Macro, 

Argentina's largest bank by several measures, and president 

of the association of Argentine-owned private banks, ADEBA. 

Macro has over 7,000 employees and 440 branches operating in 

many provinces.  It has enjoyed over 20 consecutive 

profitable quarters. 

 

¶13. (C) In Brito's view, Argentina's economy is well placed 

to weather the current international turmoil, but the 

domestic banking sector will still be squeezed by the higher 

cost of international capital, as money retreats from 

perceived risk.  The government needs to start letting prices 

rise on energy and key services and start to give more 

signals to encourage investment.  The key in the near term 

will be where salary negotiations end up. If they end up 

granting higher than 20% raises, for example, that will 

seriously fuel inflationary expectations and produce 

dangerous effects throughout the economy.  If the final set 

of raises average less than 20%, the effects will probably be 

manageable.  The government needs to adopt a new set of 

policies for tackling inflation.  The price limits and other 

controls were supposed to be in place only for the short 

term, but clearly, after more than a year in practice, they 

are not working. 

 

¶14. (C) Brito observed that the banking sector is growing 

well, with Banco Macro having a 40% growth in loans last year 

for example.  But the key to continued domestic economic grow 

is job creation, and much of that will only come if new 

domestic investment, especially by SMEs, is affordable.  The 

government has started again to urge private banks to make 

loans at low interest rates, but how, he asked rhetorically, 

can a bank make a five year loan at 7% if it has to give 10% 

to get 60 day deposits?  Only if the government finds a way 

to offer a guarantee or something like a rate subsidy, can 

private banks lower rates.  So far, he said, the government 

has not come up with workable ideas or mechanisms. 

 

¶15. (C) Brito noted that Argentina still suffers from having 

a large part of the money flow in the economy taking place in 

the informal system.  Only about 65% of the money flows in 

the formal system.  The rest is off the books, and many 

entrepreneurs are fighting hard to keep it that way, as it 

allows them to save about 25% that would otherwise go into 

retirement and health benefit payments.  The rural economy 

also has much of its transactions taking place through 

informal, untaxed transactions, he said.  Brito added that he 

and his association looked forward to working further with 

the USG on better controls for money laundering and against 

terrorist finance. 

 

Political Pollster and Professor 

-------------------------------- 

 

¶16.  (SBU) Manuel Mora Y Araujo is currently Professor in the 

Masters in Journalism program at the Di Tella University and 

in the Masters in Political Science program at CEMA 

University.  He is also the Director of the International 

Center of Public Opinion of Torcuato Di Tella Institute and 

director of the local polling firm IPSOS, among many other 

activities. 

 

¶17.  (SBU) He argues that the government will be judged by 

how well it handles the problems of inflation and public 

security.  People are deciding how happy they are depending 

on how much money they have to spend in their pockets, what 

they can buy with it, and how safe they feel carrying their 

money around.  CFK's poll numbers have improved since her 

inauguration, in part because people feel they are doing well 

in their personal lives and give her the benefit of the doubt 

at the moment. 

 

¶18.  (C) CFK's overreaction to the U.S. court case and Nestor 

Kirchner's ill-fated trip to Colombia as ""guarantor"" of a 

hostage release doesn't weigh heavily, because most of the 

Argentine public do not care that much about foreign affairs. 

 Plus, in the case of the United States, playing the 

anti-American card pays off initially.  Governments have to 

be careful, however, as the population doesn't like being in 

conflict with the United States - a strange (but, from our 

perspective, salutary) counterpoint to the anti-Americanism. 

Thus, in this case as in many past ones, the best U.S. 

response to an anti-American outburst by an Argentine 

government is not to fuel the fire but just to keep calmly 

explaining the U.S. point of view. 

 

¶19.  (C) CFK intellectually knows the value of having a 

long-term vision and implementing it, but she is short-term 

in her political outlook and practice, he said.  She and her 

husband share that outlook, but she is still more interested 

in exploring new concepts and new countries than her husband. 

 That might be an advantage. 

 

¶20.  (C) It is far from clear that CFK will implement the 

""social pact"" that she talked about between labor, capital, 

and government over how to keep the economy growing without 

disruption for the years ahead, according to Mora Y Araujo. 

We have not heard much of the concept from CFK and getting 

something like that done will take a great deal of political 

effort and capital - no signs of plans to do that so far. 

 

¶21.  (SBU) Di Tella University's 50th Anniversary:  Many 

events are planned for this year.  The university would like 

to coordinate on some joint work with the Embassy on bringing 

in speakers and working with U.S. universities, for example. 

 

German Ambassador 

----------------- 

 

¶22.  (C) Regarding the Paris Club debt, German Ambassador 

Wolf Rolf Schumacher said that until the crisis with the USG, 

the Germans were getting strong messages that the new GoA 

wanted to move pretty rapidly on solving the debt, but since 

early December the GoA has gone silent.  The Germans think 

this is because the GoA knows that the USG will be an 

obstacle unless relations improve.  They expect the GOA to 

move ahead if relations with the U.S. improve. 

 

¶23.  (C) Many German companies are doing quite well selling 

into this market, but most are not making big new 

investments.  Volkswagen is an exception.  Its local CEO (and 

former Austrian Chancellor) Victor Klima has gone out of his 

way to court CFK, using his connections in Europe with good 

results.  Siemens has found the Argentines eager to purchase 

its turbines.  As far as the Embassy can tell, all of the 

energy deals are on the up and up.  However, corruption is 

widespread.  One German CEO went into see Planning Minister 

De Vido to complain that one of his deputies had solicited a 

bribe and the CEO had refused.  De Vido reportedly took no 

interest in getting the name of the offending official but 

instead recommended the CEO film and record the next bribe 

solicitation. 

 

¶24.  (SBU) Germany's Max Planck Institute has decided to 

build its own regional center in Buenos Aires adjoining the 

new GoA science center.  This will be only the second 

overseas institute location for Germany, and Buenos Aires was 

chosen because of the consistently high quality of students 

and researchers who travel from Argentina for training and 

scholarships at the Institute in Germany. 

 

¶25.  (C) The German Ambassador noted that it had been a big 

challenge to get Chancellor Merkel to agree to meet with CFK 

several months ago during CFK's visit to Germany, given the 

reputation of the Kirchner government in Germany.  But Merkel 

agreed to do so in part because of signs that CFK might bring 

about some changes.  However, so far there are no real 

changes evident.  Decisions are still made by the same small 

group.  The clash with the United States, he opined, shows 

that advice from outside that group (e.g., from the Foreign 

Minister) is not sought or heeded.  The focus is still on the 

short-term and political, rather than on medium- and 

longer-term goals.  Relations with other countries are still 

not highly valued, even if CFK has a personal interest in 

travel and in meeting other leaders.  It is not an impressive 

start. 

 

Defense Businessman, Publisher, Ex-Montonero 

-------------------------------------------- 

 

¶26.  (C) Mario Montoto is involved in defense and security 

industries, publishes a monthly magazine on defense and 

international affairs issues called DEF, and is an ex-advisor 

to the head of the Montonero guerrillas.  He is now very 

pro-U.S. and does business with Israel.  Montoto says the 

crisis with the USG is rooted in the limited perspectives of 

the key decision-makers.  For example, the Vatican is 

refusing to accept the GoA nominee for ambassador, former 

Justice Minister Irribarne, because he is a divorced and 

remarried Catholic.  The key decision-makers did not consider 

that a 2000-year-old institution that has opposition to 

divorce for Catholics like Irribarne as one of its key 

principles might have a problem with this nominee.  In the 

case of the Miami arrests, it took the key GoA figures a 

while to figure out that these were not orchestrated by the 

USG.  Montoto said he had raised this ""mistake"" with the head 

of Argentine intelligence, Justice Minister Anibal Fernandez 

and others, arguing that the GoA action was an embarrassment 

and runs against Argentina's strategic interests.  He said 

Anibal Fernandez quietly whispered in his ear that he agrees. 

 

 

¶27.  (C) Montoto said he is working hard to raise 

consciousness in Argentina and the region about the dangerous 

arms build-up by Venezuela which he believes emboldens Chavez 

to make bellicose statements against neighbors like Colombia. 

 He said this build-up also spurs similar purchases by 

Brazil.  Meanwhile, Argentina's military is severely 

under-funded.  This means that the United States is 

strategically more important than ever to Argentina, and the 

GoA should reinforce its defense dialogue and cooperation 

with the U.S., not limit it.  He said he argues with GoA 

officials about this.  He also said he had a very frank talk 

with former President Nestor Kirchner recently where he 

warned the ex-president about the inapplicability of Chavez' 

model for Argentina and about being careful not to become 

captive to Chavez.  NK listened but did not concede the 

points, Montoto said. 

 

¶28.  (C) On public security, Montoto said he believes 

Argentines in greater Buenos Aires are going to judge their 

government on how well it controls crime and returns peace to 

the neighborhoods.  This is the reason that Buenos Aires 

province governor Daniel Scioli, whom Montoto advises, has 

just rolled out a big effort to get more police on the 

streets: he wants to show his voters that he is acting boldly 

on this serious problem.  Montoto said he just worked out the 

broad outlines of an agreement between the State of Rio de 

Janeiro and the Province of Buenos Aires to share experiences 

and expertise on public security.  Montoto said he has told 

Scioli that he believes Buenos Aires may face the same 

serious problems as Rio in a couple of years if firm action 

is not taken now.  Of course, the other part of the solution 

is job creation, and that is why Scioli is also taking a 

number of steps to promote SME creation and to attract 

investment, including from the United State. 

 

Fund Manager, Entrepreneur, and Real Estate Magnate 

--------------------------------------------- ------ 

 

¶29.  (SBU) Eduardo Elsztain is the founder of Dolphin Fund 

Management (with several very large U.S. partners), President 

of IRSA Inversiones y Representationes (real estate), and 

Cresud (livestock), among many other activities.  He is an 

active civic leader and active in the NGO Endeavor which 

promotes young entrepreneurs. 

 

¶30.  (C) Elsztain argues that the key to understanding 

Argentine economic developments is to realize that it's the 

concrete that matters (e.g., real estate, not financial 

instruments).  Right now, the key factor is salaries - how 

will the government negotiate new salary caps with the 

unions.  Argentina is well-placed to weather current economic 

problems in the world.  ""I would rather have a populist 

government with a good fiscal policy and reserves, than a 

liberal government with a big deficit.""  But, it will be very 

important what policy signals the government sends to 

investors. This government is on the right side of the 

""private property"" debate compared to Chavez, but it is not 

yet clear that it will come up with the right set of 

policies.  If it does, plenty of capital will flow here. 

Essential to sustain such capital flows will be the justice 

system and sanctity of contracts.  Elsztain noted that his 

investments in Brazil are currently valued three times higher 

than similar investments in Argentina in good part because 

people have more faith in the enforceability of contractual 

agreements in Brazil.  Still, investments in solid things 

such as real estate and gold are good, and he will pursue 

some additional mining investments in Argentina, for example. 

 (The strength of the Brazilian Real is also a factor in 

Brazilian values, he noted.) 

 

¶31.  (SBU) Elsztain said he had just donated a computer 

center for kids in the city of Buenos Aires with Mayor 

Mauricio Macri earlier in the week, and Macri had asked him 

to work on creating 90 more.  Elsztain said he thought there 

was room to work with the U.S. Embassy on this project. 

 

Oil Man and Entrepreneur 

---------------------- 

 

¶32.  (C) Jorge Estrada is a Colombian-Argentine-American who 

started his career as a successful oilman and has 

subsequently branched out successfully in many other areas. 

In his view, inflation is the key issue facing the new 

government, with the real figure probably somewhere around 

18%.  The government has been sending all the wrong signals 

to the oil and gas sector.  At present, for example, wealthy 

households pay less for gas than do the poorest, who are 

compelled to pay world prices to buy bottled gas for their 

homes.  While the government has been able to raise a lot of 

money through its export taxes, the result is that the price 

market does not work effectively, and production and 

investment are distorted in agriculture as well as oil and 

gas.  The government should move to new taxing and pricing 

schemes, he opined; it could still collect more taxes via 

income taxes rather than using the export taxes.  Right now, 

the Argentine economy is well-placed to support such economic 

reforms.  Demand for Argentina's commodities is high, and 

will remain so for a couple of years. 

 

¶33.  (C) At present, it is not yet clear that the government 

is ready to introduce significant reforms.  Nestor Kirchner 

seems to still call many of the shots, and the government 

seems to function in the same way as it did when he was 

president.  There is still no evident long-term vision.  GOA 

reactions to events are often based on domestic political 

calculations, and there is little appreciation of other 

countries.  All of this was evident in the reaction to the 

court case in Miami.  As for the suitcase money itself, it 

was probably coming in for some under-the-table deal, he 

commented, but not likely for CFK's own campaign.  She had 

plenty of campaign money flowing in from various sources in 

country, including the government. 

 

¶34.  (C) As for overall corruption, it seems as bad or worse 

than under Menem.  In the oil area, two old friends of Nestor 

Kirchner have won many of the concessions offered publicly: 

the bidding rules were designed so they would win.  Also, 

Nestor Kirchner has been a master at using state revenue to 

build alliances with governors and mayors.  Kirchner has used 

his combative style (characteristically followed by a 

subsequent embrace) to build a set of alliances founded on 

mutual interests and fear.  With Argentine supermarket owner 

Coto, for example, he first criticized him harshly, almost 

forced him to go broke, and then saved his business.  Coto is 

now an ally. 

WAYNE 


=======================CABLE ENDS============================