Identifier
Created
Classification
Origin
05BUENOSAIRES159
2005-01-21 18:51:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

CODEL DODD VISIT TO ARGENTINA

Tags:  PREL PGOV ECON EFIN ETRD PHUM AR 
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C O N F I D E N T I A L SECTION 01 OF 04 BUENOS AIRES 000159 

SIPDIS

E.O. 12958: DECL: 01/19/2015
TAGS: PREL PGOV ECON EFIN ETRD PHUM AR
SUBJECT: CODEL DODD VISIT TO ARGENTINA

REF: BUENOS AIRES 138

Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (b) and (d).



C O N F I D E N T I A L SECTION 01 OF 04 BUENOS AIRES 000159

SIPDIS

E.O. 12958: DECL: 01/19/2015
TAGS: PREL PGOV ECON EFIN ETRD PHUM AR
SUBJECT: CODEL DODD VISIT TO ARGENTINA

REF: BUENOS AIRES 138

Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (b) and (d).




1. Summary: (C) During their 24-hour visit to Argentina

January 12-13, CODEL Dodd, accompanied by Ambassador

Gutierrez, held informative and wide-ranging discussions with

President Nestor Kirchner, Minister of Interior Anibal

Fernandez, Deputy Foreign Minister Jorge Taiana, and Central

Bank President Martin Redrado. In addition, prior to their

arrival in Buenos Aires, the CODEL visited the Tri-border

region of Argentina where they were briefed on GOA

counternarcotics and counterterrorism activities. All of the

interlocutors expressed their satisfaction with the overall

state of U.S.-Argentine relations. In particular, they noted

that cooperation with the U.S. on counternarcotics and

counterterrorism issues was excellent. During a luncheon

hosted by the Ambassador attended by a number of independent

political and economic analysts, the CODEL was told how the

U.S. Administration had been particularly helpful to

Argentina during the recent economic crisis, prompting

Senator Dodd to state that the U.S. clearly had devoted

considerable attention to support Argentina which is not what

he thought prior to his visit. End Summary.




2. (U) Senators Christopher Dodd (D-Conn),Bill Nelson

(D-Fla) and Lincoln Chafee (R-RI) had a brief but busy

schedule during their visit to Argentina. CODEL Dodd was in

Argentina to discuss political and economic trends in general

and counternarcotics and counterterrorism cooperation in

particular. In a last minute addition to the schedule,

President Kirchner also received the delegation (reftel).



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

Interior Minister Fernandez Praises Cooperation

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3. (C) In his opening remarks, Interior Minister Anibal

Fernandez praised the level of cooperation the GOA has


received from the U.S. on counterterrorism issues. He noted

this cooperation was of ""high quality"" and ""value added"" that

included ""shared information, sources and common action."" He

said this work continued on a day-to-day basis with a

constant exchange of information. However, when asked by

Senator Nelson if the cooperation was enough, Fernandez

responded, ""No, it's never enough. We can do a lot more.""




4. (C) In response to a question on cooperation with Paraguay

and Brazil on counterterrorism issues, Fernandez said there

had been a lot of progress on common policy under the

MERCOSUR umbrella but that joint work with its two neighbors

was not as extensive as the GOA would prefer. With Paraguay,

the problem was one of capacity, while with Brazil it was a

question of willingness to cooperate. Fernandez, though,

said the GOA was working to overcome difficulties with Brazil

and that a common policy on counterterrorism was gradually

emerging.




5. (C) Fernandez said his ministry was focusing on three

major transnational themes: terrorism, narcotics trafficking

and smuggling. In response to these challenges, the GOA had

set out to define and create a common policy and response

both at the federal and provincial level. A critical

component of this common policy would be to reach a consensus

in judicial terms on rules of procedure to fast-track

investigations and prosecutions in these areas. Fernandez

said that by February 1, the GOA would have a special strike

force unit within the Attorney General,s office to deal with

these issues. A second critical component of the GOA,s

efforts would be directed at coordinating the actions of the

intelligence community on narcotics and terrorism

investigations.




6. (C) When Senator Dodd asked about reports that Colombians

were increasingly involved in narcotics trafficking in

Argentina, Fernandez, at first, expressed skepticism. When

told by an Embassy DEA representative attending the meeting

that Colombians were behind a number of major narcotics cases

currently being investigated by both Argentine and U.S.

authorities, Fernandez agreed that ""Yes, it,s possible.""

The Minister then said he was more concerned with the

corrupting power of the money that goes along with

trafficking than with who was actually running the drugs. He

said drug seizures alone did not really capture the depth of

the problem in Argentina. Fernandez, referring to two recent

local drug lab seizures, added that drugs are not just

reaching Buenos Aires, they are being processed here. In a

somewhat somber conclusion to the meeting, Fernandez opined

that ""we can,t win (the fight against drug traffickers);

what I don,t want is to lose badly.""



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

Taiana: GOA Will Continue to Work Regional Issues

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




7. (C) Deputy Foreign Minister Taiana underscored to CODEL

the GOA,s intention of remaining actively involved in

promoting human rights and democratic institutions in the

hemisphere. Asked by Senator Chafee about relations with

Venezuela, Taiana said the GOA had attempted to fashion a

""moderating role"" designed to reduce tensions within

Venezuela. He noted that Kirchner had met with opposition

leaders and factions during both of his visits to Venezuela.

Taiana said he had discussed with Assistant Secretary Roger

Noriega the question of human rights in Venezuela and how the

GOA and the U.S. might work together in this area. Taiana

mentioned in particular his concern about legislation either

enacted or being considered by the Venezuelan legislature

impacting on human rights. Senator Nelson commented that

President Chavez claims he wants a new relationship with the

U.S.; but what he really wants is the public relations

benefits of better relations while continuing to crack down

on the press, property rights and packing the Supreme Court.




8. (C) On other regional issues, Taiana told the CODEL that

the GOA was firm in its commitment to Haiti. ""We can,t turn

our backs or look at the cost. We can,t fail."" He said it

was important that Latin America make a significant

contribution and work to improve basic security and to build

democratic institutions in Haiti. Taiana said that friendly

and cooperative relations with Brazil and Chile were now

Argentina,s highest priority and that this change of culture

from one of confrontation to one of cooperation with these

two nations represented one of the greatest accomplishments

of Argentina,s 22 years of democracy. In his concluding

remarks, Taiana reiterated the GOA,s commitment for a

successful Summit of the Americas which Argentina will host

this November. He noted that the Summit would focus on the

interrelated themes of creating jobs, fighting poverty and

increasing democratic governance.



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

BCRA President Redrado Discusses Macroeconomic Issues

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




9. (SBU) Central Bank (BCRA) President Martin Redrado told

the CODEL that Argentina,s economic history could be

summarized by the phrase, ""overspending and

overindebtedness."" He then claimed that the world was now

seeing for the first time in Argentina fiscal discipline, a

realistic floating exchange rate, prudential monetary policy,

and ""productive integration with the rest of the world.""

Argentina had a consolidated fiscal surplus of 5.2 percent of

GDP in 2004, including 4.3 percent of GDP in the central

government plus almost another one percent in the provinces.

Argentina,s floating exchange rate is important for the

""productive integration"" of the Argentine economy with the

rest of the world. The BCRA held inflation to 6.1 percent in

2004, below the originally targeted range of 7-11 percent.

Redrado also recognized that the country still needed to

""address public utility and energy prices and adapt to a new

regulatory framework"" or there ""won,t be any investment"" and

to obtain a successful debt restructuring with ""a strong

response from the creditors.""




10. (C) Senator Dodd asked Redrado to what extent he thought

there was tolerance in the body politic for badly needed

structural reforms. On the debt restructuring, Redrado

emphasized that this was not in his area of responsibility,

but speaking as a private economist he thought that the

strong participation of domestic pension funds, banks and

industry would produce a participation rate of at least 45-50

percent. After that, he thought it was a question of how

much manpower the participating banks had to persuade the

foreign bondholders to participate in the restructuring.

Powerful investors like Soros have the option of going to the

courts, unlike individual bondholders, and will win, but even

then, they will not be able to collect because, unlike

Venezuela, Argentina does not have assets abroad. From what

he saw in the foreign exchange market, he thought investors

wanted to go to emerging markets to take advantage of the

difference in yields, and this increased the likelihood of a

successful debt exchange. More specifically, he said that

the spread between the yields on emerging market bonds and

U.S. Treasuries was now only 350 basis points, or 3.5

percent, which was the narrowest spread that there had been

in 10 years.




11. (C) On tax reforms, Redrado said that President Kirchner

was fiscally conservative, to the point of blocking some

changes. Redrado wanted to eliminate the distortionary

financial transactions tax, which encourages people to

operate in the informal economy. However, whenever he tried

to eliminate the tax, President Kirchner would ask, ""With

what are you going to replace it?"" On revenue sharing,

Redrado said Argentina has a federal government with central

tax collection and subsequent distribution of revenues to the

provinces, which prevents the development of fiscal

responsibility in the provinces. ""There is a move toward

decentralization,"" he said, ""but this is hard to do

politically."" There is also a feeling that it is not worth

the effort, so progress will be limited to reforms such as

""the elimination of distortionary taxes in due time."" On the

renegotiation of public utility and energy prices, Redrado

said ""the sooner, the better"" but it is unlikely this will

occur in an election year. Price increases that do occur

will be limited to private companies, and will not affect

residential users. Redrado explained that President Kirchner

is ""willing to go over the heads of the political structure""

to appeal to the people and is therefore especially sensitive

to the public's reaction to potential price increases.




12. (C) On monetary policy, Redrado said that there was a

great deal of stimulus at the beginning of the year coming

from measures like increased payments to retirees, higher

wage payments, and postponed tax payments. The BCRA

compensated by raising the BCRA interest rate from 2.5 to

2.75 percent. Redrado thought Minister of Economy Roberto

Lavagna had implemented these measures in order to lower the

consolidated fiscal surplus when he had to present the debt

exchange to the country,s creditors. Redrado said the BCRA

wanted to tell the market that it would err on the side of

conservatism, dealing with ""inflation first, and the exchange

rate second."" If there was a problem with the exchange rate,

he said, the GOA could use its surplus to buy dollars as it

had done in the past. On relations with the IMF, Redrado

said the IMF had ""made a mistake"" in not asking for a higher

primary fiscal surplus in Argentina,s current IMF agreement.

Consequently, the GOA should commit to a higher surplus in

the renegotiation of the current IMF agreement, but should

""not tie our hands"" as to how to use the surplus.




13. (C) Redrado said that he was sensitive to the things that

are of interest to the U.S. He said that he was concerned

about how the financial system could be used for money

laundering to finance terrorism and that he had asked the

Ambassador for technical assistance to tell the BCRA what it

was doing right or wrong. (Note: During January 10-15 a U.S.

Treasury technical assistance team visited Argentina to

assess Argentina's anti-money laundering capability and

possibilities for USG technical assistance in this area.)

Redrado expressed particular concern about the use of

Argentina,s money exchange houses for money laundering,

since he did not have enough inspectors to inspect either the

money exchange houses or banks in the provinces. Redrado

added that he had just issued a BCRA resolution that

permitted the BCRA to freeze financial accounts due to

suspicious activity.



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

Lunch with Economic and Political Analysts

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




14. (C) In order to provide a different perspective on

Argentine political and economic developments, the Ambassador

hosted a luncheon for the CODEL with a number of prominent

independent analysts. The main topic of the discussion was

Argentina,s ongoing debt rescheduling offer and the

country,s expected renegotiation of its existing IMF

agreement. Daniel Artana, Director and Chief Economist of

the Latin American Economic Research Foundation, was cautious

about the potential outcome of the debt rescheduling, noting

that even if all of the creditors accepted the offer,

Argentina would still have a large debt burden, which he

estimated at 80 percent of GDP. On the positive side, he

noted the GOA had delivered much better fiscal results than

in the past and would not have to go to the debt market for

the next few years. Artana also thought that Argentina could

obtain a new IMF agreement in the second quarter of 2005.




15. (C) Senator Dodd asked how the U.S. role during

Argentina,s recent economic crisis had been perceived. The

lunch participants agreed that the U.S. role had been and

continues to be very positive. Javier Finkman, Chief of

Economic and Risk Research for HSBC Bank Corporation,

described the U.S. as ""a friendly voice for Argentina"" and

praised U.S. support in the G7 and the IMF. Political

analyst Jorge Castro, president of the Argentine Institute of

Strategic Planning, said that the USG had been the GOA,s

""main supporter"" during the last 18 months. Senator Dodd

said he was pleased to hear that the U.S. role had been

constructive, since prior to his visit he had been convinced

that this had not been the case.




16. (C) Another topic of discussion was the contrast between

the faster than expected economic recovery and the

persistently high level of individuals still living below the

poverty line. Economist Artana noted that the economy would

soon be back to where it was during its previous peak in


1998. Nevertheless, poverty and structural unemployment had

doubled during the same seven-year period. In addition, two

out of four of those employed work in the informal sector,

and a third works for the public sector. Political and

military analyst Vicente Massot observed that Argentina is a

""very peculiar country"" where social problems increase at a

time when social conflict goes to zero. He argued that the

lack of social conflict was due to the weakness of civil

society and the political system's successful co-optation of

the unions. Economic consultant Esteban Fernandez described

President Kirchner as a ""neo-populist economic conservative,""

who takes a populist approach to politics while maintaining

conservative fiscal and monetary policies. Senator Dodd

responded that despite the problems, the overall lunch

conversation had been much more positive than the

conversations that he had had a year ago.




17. (C) Comment: All of the CODEL,s interlocutors, up to

and including the President, spoke highly of the GOA,s

cooperative relationship with the U.S. and President Bush's

strong support for Argentina. At the conclusion of the

luncheon, Senator Dodd acknowledged that he had come to

Argentina believing that the Administration had not been

helpful but recognized that the Bush Administration had been

engaged in suppporting Argentina. End Comment.




18. (U) CODEL Dodd did not review/clear on this cable.




19. To see more Embassy Buenos Aires reporting, visit our

classified website at

http://www.state.sgov.gov/p/wha/buenosaires

GUTIERREZ


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