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FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0247
INFO RUEHQT/AMEMBASSY QUITO 1045
RUEHLP/AMEMBASSY LA PAZ 5097

UNCLAS BUENOS AIRES 000176 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR REPRESENTATIVE ELIOT ENGEL FROM AMBASSADOR TONY WAYNE 
 
DEPARTMENT FOR H AND RM/F/DFS/FO/AA/CAA 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM PTER SNAR ECON EFIN BEXP AR
SUBJECT: ARGENTINA: SCENESETTER FOR CODEL ENGEL 
 
¶1. (SBU) Introduction:  On behalf of Embassy Buenos Aires, I warmly 
welcome your visit to Argentina February 20-23.  The Government of 
Argentina is billing your visit as a major indicator of U.S. 
goodwill, firming up the recent "rapprochement" that ended seven 
weeks of discord.  With the new administration of President Cristina 
Fernandez de Kirchner, we are looking to build on an already strong 
and positive bilateral relationship.  We are working together in 
significant areas of mutual interest and cooperation in 
counter-terrorism, counter-narcotics and regional stability.  During 
your meetings with President Kirchner, senior cabinet members, and 
the congressional leadership, you will have the opportunity to 
discuss a range of bilateral and regional issues and reinforce our 
positive agenda.  End Introduction. 
 
-------------------- 
Political Context 
-------------------- 
 
¶2. (SBU) In December, two days after President Cristina Fernandez de 
Kirchner was inaugurated, the GOA misinterpreted and over-reacted to 
news reports concerning a federal case in Miami against some 
Venezuelans and an Uruguayan who were arrested on charges of 
operating and conspiring to operate in the United States as agents 
of the Venezuelan government without notifying the Attorney General 
as required by law.  During the proceedings in Miami, allegations 
surfaced that undeclared cash brought into Buenos Aires in August 
2007 from Venezuela had been destined for a presidential campaign. 
The statements were not made by the USG, but rather by one of those 
arrested.  They were misinterpreted here as reflecting the USG's 
views. 
 
¶3. (SBU) President Fernandez de Kirchner reacted angrily to the 
implication that she had been the intended recipient of the cash 
that was intercepted by GOA officials.  She publicly interpreted the 
Miami arrests as directed against her government and characterized 
the case as a "garbage operation."  Her ministers and the Argentine 
Congress made similar statements.  However, the rhetoric gradually 
subsided, and the relationship normalized with a great deal of 
behind the scenes work.  A new beginning occurred on January 31, 
when I met with President Fernandez de Kirchner.  We agreed at that 
meeting to put the case aside and to work to strengthen bilateral 
cooperation.  Her chief Cabinet Minister Alberto Fernandez was vital 
to the agreement. 
 
-------------- 
Background 
-------------- 
 
¶4. (SBU) Argentina, once one of the richest countries of the world, 
has experienced much economic decline and political instability over 
the last 70 years, culminating in a profound political and economic 
crisis of 2001-2002 that was comparable to our Great Depression.  A 
financial panic in November 2001 led to bloody riots, forcing 
President De La Rua to resign.  Argentina defaulted on $88 billion 
in debt, the largest sovereign debt default in history.  Many 
Argentines are at a loss to explain how their country, blessed with 
rich natural resources, fertile land, and low population density, 
fell so far short of its potential.  Some blame the military 
dictatorships, which predominated between 1930 and 1983; others 
blame corruption and a series of populist measures taken since 1944; 
and a significant number of Argentines blame external factors, 
particularly the IMF and alleged U.S. insensitivity to their plight. 
 
 
----------------------- 
Political Landscape 
----------------------- 
 
¶5. (SBU) Cristina Fernandez de Kirchner (CFK) took office on 
December 10, receiving the presidential sash from her husband, 
Nestor Kirchner.  He completed his four-and-a-half-year term as the 
most popular Argentine President since the return to democracy in 
¶1983.  Kirchner in 2002 was a little-known governor of he remote 
province of Santa Cruz in southern Argentina.  He won the 
presidential election in 2003 with less than 23% of the vote and 
then oversaw the country's Phoenix-like recovery from its 2001-2002 
crash.  His wife, CFK, has a long history in politics, having served 
in the Chamber of Deputies and most recently in the Senate.  She won 
the October 28 election with 45% of the vote over a divided and 
largely ineffective opposition, and she enjoys a strong majority in 
both houses of Congress.  Having campaigned on themes of change and 
continuity, she has retained most of her husband's cabinet.  Major 
policy challenges 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. 
She has also made clear that she would like to improve relations 
with the United State and other international partners. 
 
----------------------------------- 
Economic and Commercial Landscape 
----------------------------------- 
 
¶6. (U) Argentina benefits from rich natural resources, a highly 
literate population, an export-oriented agricultural sector, and a 
diversified industrial base.  Following the 2001-2002 economic 
crisis, 2003-2006 real GDP growth averaged over 8%, and Argentina's 
GDP in 2007 grew at an estimated rate of 8.5% to $255 billion, 
roughly $6,500 per capita.  This impressive economic recovery has 
also led to improvements in key socio-economic indicators, with 
unemployment down from a peak of over 20% in 2002 to 8.8% during the 
third quarter of 2007 and poverty levels down from a post-crisis 
high of over 50% to a (still-worrisome) 25% range.   The 
five-year-long economic recovery can be attributed to a number of 
factors, including a post-crisis move to a flexible exchange rate 
regime, sustained global and regional growth during this period, the 
government's efforts to boost domestic aggregate demand via 
monetary, fiscal, and income distribution policies, and favorable 
international commodity price and interest rate trends. 
 
¶7. (U) While the accumulation of a substantial foreign exchange 
reserve cushion (over $46 billion as of December 2007) and expanded 
tax collections have helped insulate Argentina's economy from 
external shocks, the Central Bank's policy of maintaining an 
undervalued exchange rate and negative real interest rates has 
contributed to substantial inflationary pressures.  Private sector 
analysts estimate inflation is in the 17-20% range for 2007, 
although the government's official 2007 inflation is 8.5%.  There is 
ongoing public debate about inflation measures.  To help control 
inflation, the government largely froze key public utility tariff 
rates since 2002 and, since 2005, has negotiated price stabilization 
agreements on a sizeable basket of essential consumer goods.  The 
combination of Argentina's undervalued currency and high global 
commodity prices have lifted Argentine exports to a record $55.4 
billion in 2007.  Major 2007 Argentine export markets were Mercosur 
(22%), the EU (18%) and NAFTA (11%).  Argentine 2007 imports totaled 
$44.8 billion, with the major suppliers Mercosur (36%), the EU (17%) 
and NAFTA (16%).  Total U.S.-Argentina two-way trade in 2006 (the 
latest year available) amounted to $8.9 billion.  Imports from the 
U.S. largely comprise intermediate capital goods which have 
contributed to improvements in domestic productive capacity. 
 
¶8. (U) 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, Japan, and Brazil.  U.S. investment in 
Argentina is concentrated in the manufacturing, information, and 
financial sectors.  A range of economic experts have identified 
challenges to sustaining high levels of economic growth in the 
future, including: capacity constraints; the need for substantial 
new investment in primary infrastructure; potential energy shortages 
in the face of high growth and domestic energy prices kept below 
international market levels; increasing scarcity of highly skilled 
labor; inflation and the government's heterodox policies to contain 
it, including price controls.  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, approximately $360 
million of which is owed to 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 affect Argentina's investment climate. 
 
 
---------------------------------------- 
Bilateral Relations and Strategic Goals 
--------------------------------------- 
 
¶9. (SBU) Argentina maintains positive political relations with the 
United States, but one of the major tasks facing the Embassy is 
forging relationships of trust with a government that has been 
largely inward-focused and intent on maintaining an image as 
independent from our country.  In lobbying the GOA, it can be 
counter-productive to push an issue too aggressively and specially 
in public.  Argentine officials react very negatively to perceived 
affronts to their sovereignty, often winning public support for 
their strong reactions.  Shut off from other sources of 
international financing, the GOA has turned to Hugo Chavez to place 
its latest bond issues.  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. 
 
¶10. (SBU) Argentina is, nevertheless, a Major Non-NATO Ally and 
cooperates in regional security, counter-terrorism, 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.  In the IAEA, the GOA has voted 
to refer Iran's noncompliance to the UNSC.  The GOA has also 
endorsed the Proliferation Security Initiative (PSI). 
 
¶11. (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, 2007, Argentina succeeded in getting Interpol's General 
Assembly vote to issue international capture notices for five 
current and former Iranian officials and one Lebanese Hizballah 
member (who was reportedly killed in Syria February 13) 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 
sanctions, to build capacity of Argentine law enforcement forces, 
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. 
 
¶12. (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. 
 
¶13. (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, as well as UN 
peacekeeping in Haiti. 
 
¶14. (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. 
 
¶15. (SBU) Human Trafficking:  Argentina is on the USG'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.  The government has 
told us they intend to get a first federal law passed in the next 
couple of months. 
 
¶16. (SBU) Promoting U.S. economic/commercial interests:  In support 
of U.S. companies operating in Argentina, we are encouraging the GoA 
to support a more welcoming investment climate, with greater 
regulatory, legal, and tax regime consistency.  We make a good deal 
of effort supporting and working with U.S. companies.  We are 
working closely with the GoA and the Paris Club of sovereign 
creditors to resolve longstanding arrears to the USG and are 
encouraging the GoA to resolve claims of U.S. holders of defaulted 
Argentine bonds.  Regarding ongoing WTO trade negotiations, 
Argentina has staked out a hard-line position that links acceptance 
of developed economy agricultural sector proposals with more 
developing nation flexibility on industrial tariff cuts.  We have 
been urging them to adopt a more constructive approach. 
 
WAYNE