VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0976/01 1991509
ZNR UUUUU ZZH
R 171509Z JUL 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1545
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000976 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL EINV AR
SUBJECT: Argentina: Economy Minister Fernandez on Economic Impact of 
Agricultural Strike 
 
Ref: (A) Buenos Aires 0974 
     (B) Buenos Aires 610 
     (C) Buenos Aires 831 
     (D) Buenos Aires 842 
 
This cable contains sensitive information - not for internet 
distribution. 
 
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Summary 
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¶1. (SBU) GoA Economy Minister Fernandez, in a meeting with WHA 
Assistant Secretary Shannon, Treasury DAS O'Neill, and Ambassador, 
emphasized the "legitimate right" of President Cristina Fernandez de 
Kirchner to unilaterally impose variable export tariffs on 
agricultural commodities, but argued that her June decision to 
request parliamentary approval for these taxes has since helped 
inform and "order" public debate on the issue.  Fernandez 
acknowledged that uncertainties generated by the extended conflict 
had impacted domestic financial markets, with recent evidence of 
deposit withdrawals and capital flight.  But Argentina's current 
economic situation is far stronger than it was in past crises, he 
argued, with almost $50 billion in reserves and twin fiscal and 
trade surpluses providing the economy a solid "structural" 
foundation.  Fernandez called the GoA's fiscal situation through 
June 2008 "good", notwithstanding the fact that revenues fell short 
of projections due to the agricultural sector holding back on 
taxable exports.  Fernandez called the GoA's pending announcement of 
"Bicentennial" projects and reforms still undefined due to the GoA's 
preoccupation with the agricultural sector conflict agenda but he 
indicated that the GoA was working on a number of initiatives aimed 
at boosting consumer income.  He called generating additional auto 
domestic sector production a GoA priority to generate jobs and 
reduce the bilateral trade deficit with Brazil.  Fernandez noted his 
earlier meeting with Treasury DAS O'Neill at the June regional 
finance ministers meeting in Cancun and said he plans to attend the 
October Bank/Fund annual meeting in Washington. End Summary 
 
----------------------------------------- 
Cancun Regional Finance Ministers Meeting 
----------------------------------------- 
 
¶2. (U) Assistant Secretary Thomas Shannon, Treasury Deputy Assistant 
Secretary Brian O'Neill, and Ambassador met Friday morning, July 11 
with Economy Minister Carlos Fernandez prior to the second round of 
USG/GoA bilateral discussions (Ref A).  Also attending were Vice 
Foreign Minister Taccetti, Argentine Ambassador to the U.S. Hector 
Timerman, and GoA Finance Secretary Hernan Lorenzino. 
 
¶3. (SBU) Treasury's O'Neill noted his recent meeting with Minister 
Fernandez at the June 2008 gathering of regional Finance Ministers 
in Cancun, Mexico.  Fernandez said he appreciated the meeting's 
unscripted format and its ban on press, which he said allowed for 
frank discussions of the impact of high food and hydrocarbon 
commodity prices on the global economy as well as on the impact of 
current U.S. economic weakness on the hemisphere's linked economies. 
 He called the interventions of the IMF, World Bank and IDB 
particularly helpful in reviewing both issues.  Argentina, Fernandez 
said, used the opportunity to outline the GoA's program of expanded 
investment in public infrastructure. 
 
¶4. (SBU) O'Neill noted that, while all attending ministers discussed 
the potential fallout of U.S. economic turmoil on their own 
economies, their key concern was the commodity price-linked increase 
in domestic inflation rather than the potential for U.S. economy 
contagion.  Aside from Canada, which has been most affected by 
reduced U.S. demand for autos and wood products, O'Neill noted that 
hemispheric economies have broadly weathered the U.S. downturn.  He 
added that in Latin America the Caribbean and Central American 
economies -- net food and energy importers -- were the most 
vulnerable.  Fernandez agreed, noting that net food and energy 
importing nations in the hemisphere had been "violently impacted" by 
the run-up on global agricultural commodity prices.  Countries like 
Argentina, which are largely self sufficient in food and energy, 
"remain on alert" as global markets absorb the significant shift in 
terms of trade. 
 
¶5. (SBU) O'Neill noted that Chile had offered to host next year's 
regional finance ministers meeting and that, in then interim, he 
looked forward to seeing Minister Fernandez at the upcoming 
IMF/World Bank annual meeting in Washington in October. 
 
--------------------------------------------- ------ 
Impact of Agricultural Conflict on Domestic Economy 
 
--------------------------------------------- ------ 
 
¶6. (SBU) In response to O'Neill's question on the economic impact of 
the extended GoA confrontation with the agricultural sector over its 
November 2007 increase in agricultural export tariffs, Fernandez 
said that the conflict has unfolded in the context of a "complex 
politico-economic scenario" in which "false arguments" have muddied 
the debate and in which fundamental economic issues have been 
"discussed badly."  Both Fernandez and Timerman emphasized the 
"legitimate right" of the executive to impose variable export 
tariffs.  (There is a pending constitutional challenge in the 
Supreme Court to the Executive's right to impose such high export 
taxes without Congressional assent).   Nevertheless, Fernandez said 
that President Kirchner's June decision to request parliamentary 
approval has since helped inform and "order" public debate.  "We are 
a democracy, after all," he concluded. 
 
¶7. (SBU) Fernandez acknowledged that uncertainties generated by the 
extended conflict had impacted domestic financial markets.  He 
called recent evidence of deposit withdrawals and capital flight the 
response of an Argentine public long sensitized to uncertainty by 
Argentina's volatile economic track record.  But Argentina's current 
economic situation is far stronger than it was in past crises, he 
argued, with almost $50 billion in reserves and twin fiscal and 
trade surpluses providing the economy a solid "structural" 
foundation.  Fernandez called the GoA's fiscal situation through 
June 2008 "good," notwithstanding the fact that revenues fell short 
of projections due to the agricultural sector holding back on 
taxable exports.  "We will have to calibrate our [agricultural 
sector] agenda going forward," Fernandez concluded, "and work to 
address sector-specific concerns in the cotton, fruit and foo 
processing sectors."  [Comment:  In separate meetings with local and 
foreign bank representatives (septel), more serious concerns were 
raised about the health of the GoA's fiscal situation.] 
 
----------------------------------- 
Bicentennial Agenda Still Undefined 
----------------------------------- 
 
¶8. (SBU) Ambassador Wayne noted media speculation that 
"Bicentennial" initiatives (in the run-up to the 2010 Revolution 
Bicentennial) the GoA might announce shortly could include measures 
to promote the return of flight capital, including via favorable tax 
treatment.  President Fernandez de Kirchner was originally to have 
announced measures, including a social pact initiative -- Ref B -- 
and a long term infrastructure development program on May 25 
(Revolution Day) and later on July 9 (Independence Day).  Fernandez 
replied that the GoA's Bicentennial agenda is still being developed 
and debated internally and the timing of announcements has been 
delayed due to the GoA's focus on resolving the agricultural sector 
crisis.  He said the government is working on a number of 
initiatives designed to help with consumer spending.  (Press reports 
say the government is considering a higher minimum wage, higher 
pension payments and some other fiscal/tax moves designed to win 
public favor.) 
 
¶9. (SBU) One of his Economy Ministry's current focuses, Fernandez 
said, is negotiating with Brazil further modifications to its 
bilateral auto pact (Ref C), which has contributed to a growing 
bilateral Argentine trade deficit.  Argentina will seek more 
"balance," particularly in auto parts trade.  Fernandez called the 
auto sector an important source of new industrial employment. 
Argentina will produce a record level of about 640,000 cars this 
year, and the GoA's goal is to double that number in five years 
time. 
 
----------- 
FDI Numbers 
----------- 
 
¶10. (SBU) Ambassador Timerman offered that Argentina had attracted 
some $14 billion in new investment in the first half of 2008, of 
which 10-15% was of U.S. origin.  (Comment:  Timerman's statement is 
based on a new GoA report on $13.6 billion in "announced" 
investments in the first half of 2008, i.e., investment projects 
mentioned in the press.  85% of this total was attributed to foreign 
firms and over half of the announced amount was concentrated in 
oil/gas exploration and development).  O'Neill noted that Brazil had 
attracted a record $34 billion in FDI in 2007.  Institutional 
investors including sovereign wealth funds, he added, appear to be 
recalibrating their hemispheric portfolio investments, with Canada 
the number one destination. 
 
¶11. (U) This cable was cleared by WHA A/S Shannon and Treasury DAS 
O'Neill. 
 
 
WAYNE