VZCZCXYZ0006
RR RUEHWEB

DE RUEHBU #1451/01 2970938
ZNR UUUUU ZZH
R 230938Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2300
INFO RUEHMD/AMEMBASSY MADRID 2151
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 001451 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAIR EFIN EINV PREL AR SP
SUBJECT: SPANISH-ARGENTINE RELATIONS: SPAIN WAITING OUT TOUGH TIMES 
 
Ref: 
A) BUENOS AIRES 1277 
B) BUENOS AIRES 1395 
C) BUENOS AIRES 1396 
 
This cable contains sensitive information - not for internet 
distribution. 
 
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Summary 
------- 
 
¶1. (SBU) SBU Ambassador met with Spanish Ambassador to Argentina, 
Rafael Estrella Pedrola, on October 16 to compare notes on recent 
developments.  Estrella (protect) explained that Spanish-Argentine 
relations have been going through difficult times, in large part due 
to the GoA decision to nationalize the Argentine flag carrier 
Aerolineas Argentinas (AA) and its sister carrier Austral Airlines, 
and to actively dispute compensation claimed by the two firms' 
Spanish owners.  He also commented on other Spanish investments in 
Argentina, the GOA's recent foreign debt announcements, and 
Argentina's political outlook.  Despite lingering tensions, 
Argentine President Cristina Fernandez de Kirchner (CFK) is still 
planning to visit Spain in February.  End Summary. 
 
---------------- 
Unfriendly Skies 
---------------- 
 
¶2.  (SBU)  Estrella said that the GoA's decision to nationalize AA 
and Austral and to actively dispute compensation claimed Marsans, 
their Spanish owner, had angered Prime Minister Zapatero and King 
Juan Carlos.  The owner of Marsans heads the largest Spanish chamber 
of commerce, and he stoked the ire of the GoS.  In the end, the 
Ambassador said he told Argentine Cabinet Chief Massa that CFK's 
visit to Spain should be postponed from October while both sides 
work to manage the airline issue constructively.  Next February was 
agreed as a safer timeframe.  However, GoA handling of the case 
since the discussion with Massa has not calmed Spanish concerns, 
Estrella said.  GoA Transportation Secretary Jaime has distanced 
himself from the original agreement between the Marsans' group and 
the GoA (which Jaime did not heartily support), Qd Argentina's 
Congress did not accept the original method for establishing a value 
of the airlines, resulting in a large gap between what the Spanish 
company says it is owed and what Argentine authorities say the 
company is worth.  (See ref a for background.)  When President CFK 
met with President Zapatero in New York during the UN opening in 
late September, she said that an acceptable solution would be found. 
 The Spanish are being patient waiting for that solution to emerge, 
the Ambassador said. 
 
---------------- 
Other Investment 
---------------- 
 
¶3.  (SBU) Other Spanish firms in Argentina that have invested in 
public utilities have recently gotten some tariff relief to assure a 
return that will cover new investment needs but not a lot more, the 
Spanish Ambassador said.  The GoA has indicated that it will let the 
prices and rates charged by the companies rise to cover basic 
company needs.  But that commitment will need to be confirmed now 
that the economic situation has deteriorated.  Estrella said that he 
is encouraged that, for the first time in his tour here, it looks 
like the GoA is trying to tackle some longer term economic issues, 
rather than just reacting to short term developments.  While this 
apparent trend still needs to be confirmed by consistent GoA 
actions, local Spanish businessmen tell him they are hopeful about 
recent signs. 
 
---------------------------- 
Paris Club and Bond Holdouts 
---------------------------- 
 
¶4.  (SBU) In this context, the Spanish Ambassador said that the 
recent GoA decisions to pay Paris Club debt and to open discussions 
on an arrangement with private bond holders were positive, but the 
timing was unfortunate.  The global economic crisis has made their 
implementation problematic.  Also, he said, the decisions were taken 
with the same poor policymaking style that characterized earlier 
Kirchner decisions: economic advisors were not involved until the 
decisions were ready to be announced or had been announced.  And, as 
previously, this meant that some of important nuances of the 
initiatives were wrong at first, requiring correction after the 
fact.  Still, Spain hopes that both processes will eventually 
proceed.  (See refs b and c for background.) 
 
---------------------------- 
Bilateral Trade and Mercosur 
---------------------------- 
 
¶5.  (SBU) The Spanish have no major problems with bilateral trade 
issues, according to Estrella.  Exports and imports are growing, but 
he noted that Argentina enjoys a surplus, which mitigates the 
Argentine propensity to implement protectionist measures.  He 
observed that Argentina protectionist tendencies seem to be 
manifestly themselves most clearly with respect to Brazil. 
President Lula is still committed to international trade, but CFK is 
grounded in the Argentine tradition of protecting industry.  This is 
likely to lead to more problems in Mercosur during this economic 
downturn, though Lula seems to have given orders to try to avoid a 
clash with Argentina. 
 
---------- 
Digital TV 
---------- 
 
¶6.  (SBU) The Spanish Ambassador said that his impression was that 
the Argentine decision to choose the Brazilian/Japanese norm for 
Digital TV still holds, but progress to implement it has slowed.  He 
said he thinks this is because Lula has yet to deliver on promises 
to make new investments in Argentina, including an Embraer 
investment in the Cordoba aircraft manufacturing facility where 
Lockheed-Martin currently has the management contract. 
 
------------------------- 
Argentine Political Scene 
------------------------- 
 
¶7.  (SBU) The Spanish Ambassador did not see the Argentine 
opposition rallying together anytime soon to pose an effective 
counter-force to the Kirchners.  That might happen by 2011, he 
speculated, but it is just as likely that the effective opposition 
to the first couple will emerge from within the Peronist Party.  All 
that said, he continued, for the 2009 Congressional elections, it 
looks very much like the Kirchners and their allies will be limited 
to 30-35% of the vote, and that the results will include an 
increased presence in Congress for the opposition within and without 
of the Peronist party. 
 
WAYNE