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UNCLAS BUENOS AIRES 000318 
 
SIPDIS 
 
FOR SENATOR RICHARD SHELBY FROM AMBASSADOR TONY WAYNE 
 
DEPARTMENT FOR H AND RM/F/DFS/FO/AA/CAA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM PTER SNAR ECON EFIN BEXP AR
SUBJECT: ARGENTINA: SCENESETTER FOR CODEL SHELBY 
 
 
------------ 
Introduction 
------------ 
 
¶1. (SBU) On behalf of Embassy Buenos Aires, I warmly welcome your 
March 23-26 visit to Argentina.  We are looking to build on an 
already strong and positive bilateral relationship with the 
three-month-old administration of President Cristina Fernandez de 
Kirchner.  Current significant areas of mutual interest and 
cooperation include counter-terrorism, counter-narcotics, and 
regional stability.  We understand that, beyond a general interest 
in Argentina's economic trade and commercial developments, your 
delegation has a particular interest in money laundering and 
terrorism finance.  The GoA and Central Bank have put in place an 
adequate anti-money laundering and counter-terrorism finance legal 
and regulatory regime over the last few years that needs to be 
aggressively enforced (see paras. 9-14 below).  Our overall priority 
objective in Argentina is to keep chipping away at the very high 
levels of anti-Americanism of Argentines by reaching out to 
Argentine society as well as the government, with a special focus on 
youth.  Beyond our request for your delegation to meet with the 
President, we have asked for meetings with Argentine government 
leadership that oversee the financial sector, including Central Bank 
President Martin Redrado, Justice Minister Anibal Fernandez, and 
Economy Minister Martin Lousteau.  During your discussions in Buenos 
Aires, you may wish to inquire about plans to enforce the newly 
strengthened and expanded legal, regulatory, and administrative 
measures available to combat financial crimes. 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 three 
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 the presidential campaign 
in Argentina.  The original allegations were not made by the USG, 
but rather by one of those arrested.  But given the initial media 
coverage, they were misinterpreted here as reflecting the USG's 
views. 
 
¶3. (SBU) President Fernandez de Kirchner reacted angrily to the 
implication that her campaign 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, with much 
behind the scenes work, the rhetoric gradually subsided, and the 
relationship normalized.  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.  We have billed your visit as an important indication 
of Washington's interest in relations with Argentina. 
 
---------- 
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 and a lack of strong democratic institutions 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 the 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 $50 billion as of March 2008) 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 was 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 $55.7 billion in 2007. 
Major 2007 Argentine export markets were Mercosur (22%), the EU 
(18%), and NAFTA (11%).  Argentine 2007 imports totaled $44.7 
billion, with the major suppliers Mercosur (36%), the EU (17%) and 
NAFTA (16%).  Total U.S.-Argentina two-way trade in 2007 amounted to 
$9.3 billion.  Imports from the U.S. largely comprise intermediate 
capital goods which have contributed to improvements in domestic 
productive capacity. 
 
¶8. (U) Some 500 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. 
In recent days, the GoA has announced new energy policies aimed at 
increasing availability, and new export taxes on agricultural 
exports aimed in part at boosting government revenues. 
 
--------------------------------------------- ---- 
Money Laundering, Terrorism Finance, Legal Reform 
--------------------------------------------- ---- 
 
¶9. (SBU) Since 2005, and largely in response to pressure from the 
Financial Action Task Force (FATF), the GoA and Argentine Central 
Bank have acted to fortify the anti-money laundering and 
counter-terrorism finance legal and regulatory regime, passing new 
legislation, amending existing laws, and establishing stricter 
financial sector regulations.  The result is that Argentina 
currently has an adequate legal/regulatory structure that provides 
the legal foundation for the Central Bank and other law enforcement 
and regulatory bodies to investigate and prosecute money laundering 
and terrorism finance.  The challenge now is for Argentine law 
enforcement and regulatory agencies and institutions to enforce 
aggressively the newly strengthened and expanded legal, regulatory, 
and administrative measures available to them to combat financial 
crimes. 
 
¶10. (U) Argentina is not an important regional financial center or 
offshore financial cenQr.  Money laundering related to narcotics 
trafficking, corruption, contraband, and tax evasion is believed to 
occur throughout the financial system, in spite of the GoA's efforts 
to stop it.  Tax evasion is the predicate crime in most Argentine 
money laundering investigations.  Argentina has a long history of 
capital flight and tax evasion, and Argentines hold billions of 
dollars offshore, much of it legitimately earned money that was 
never taxed.  The large informal sector in Argentina (as well as in 
most other Latin American countries) exposes it to financial 
crimes. 
 
¶11. (U) In 2007, the Argentine Congress passed legislation to 
criminalize acts of terrorism and terrorist financing, and establish 
terrorist financing as a predicate offense for money laundering. 
The law, which amends the Penal Code and Argentina's 2000 anti-money 
laundering law, entered into force in mid-July 2007.  It effectively 
removed Argentina from FATF's follow-up process, which began in 2004 
to address deficiencies in the GOA's anti-money laundering and 
counter-terrorist financing (AML/CTF) regime.  With the passage of 
this law, Argentina joined Chile, Colombia, and Uruguay as the only 
countries in South America to have criminalized terrorist 
financing. 
 
¶12. (U) On September 11, 2007, President Nestor Kirchner signed into 
force the National Anti-Money Laundering and Counter-Terrorism 
Finance Agenda.  The overall goal of the National Agenda is to 
provide a roadmap for fine-tuning and implementing existing money 
laundering and terrorist financing laws and regulations.  The 
Agenda's 20 individual objectives focus on closing legal and 
regulatory loopholes and improving interagency cooperation. 
 
¶13. (U) The U.S. Department of Homeland Security's Office of 
Immigration and Customs Enforcement (ICE) and the GoA have 
established a Trade Transparency Unit (TTU) in Argentina.  The TTU 
examines anomalies in trade data that could be indicative of customs 
fraud and international trade-based money laundering, and maintains 
a key focus on financial crimes occurring in the Triborder Area. 
The creation of the TTU was a positive step towards complying with 
FATF Special Recommendation VI on terrorist financing via 
alternative remittance systems. 
 
¶14. (SBU) Even with the improved AML/CTF legal/regulatory regime, 
the GoA is more limited than the U.S. in its ability to combat 
financial crimes.  The root of the problem is the relatively 
overburdened and inefficient judicial system, which is an 
inquisitorial as opposed to an accusatorial system (such as the 
United States has).  Judges have the lead on all investigations. 
The system is backed up, slow, and prone to subornment.  The result 
is that the GoA has successfully concluded only two money laundering 
convictions since money laundering was first criminalized in 1989, 
and none since the passage of the GoA's 2000 anti-money laundering 
law.  Former Justice Minister Alberto Iribarne, who left office with 
the change of government in December 2007, proposed sweeping reforms 
to create a more effective and fair criminal justice system (one 
closer in design to the U.S. system of justice).  However, 
implementing such reforms would be a difficult and lengthy process, 
and it is as yet unclear whether new Justice Minister Anibal 
Fernandez supports them. 
 
--------------------------------------------- --------- 
Anti-Americanism, Bilateral Relations, Strategic Goals 
--------------------------------------------- --------- 
 
¶15. (SBU) The greatest 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.  Yet, overall, 
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 especially 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 large bond issues. 
 
¶16. (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). 
 
¶17. (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 area of 
combating money laundering and terrorism finance,, 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. 
 
¶18. (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.  In the area or anti-money laundering and 
counter-terrorism finance, the Mission is working through dilomatic 
channels and via bilateral technical assistance and training 
programs to encourage Argentine law enforcement and regulatory 
bodies to enforce existing laws and regulations more aggressively. 
Justice Minister Fernandez has just announced that he wants to put 
top priority on attacking drug traffickers and less priority on 
arresting individual users. 
 
¶19. (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. 
 
¶20. (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. 
 
¶21. (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. 
 
¶22. (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