Identifier
Created
Classification
Origin
06BUENOSAIRES117
2006-01-17 20:08:00
CONFIDENTIAL
Embassy Buenos Aires
Cable title:  

MINISTER DEVIDO DISCUSSES BOLIVIA AND THE GOA'S

Tags:  PREL ECON ENRG EINV EFIN ETRD AR BO VE 
pdf how-to read a cable
VZCZCXRO3785
OO RUEHRG
DE RUEHBU #0117/01 0172008
ZNY CCCCC ZZH
O 172008Z JAN 06
FM AMEMBASSY BUENOS AIRES
TO RHEHNSC/NSC WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 3114
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 5276
RUEHBR/AMEMBASSY BRASILIA PRIORITY 5045
RUEHCV/AMEMBASSY CARACAS PRIORITY 0802
RUEHLP/AMEMBASSY LA PAZ PRIORITY 3909
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 5239
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 4866
RUEHRG/AMCONSUL RECIFE PRIORITY 0087
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 1835
RUEHSO/AMCONSUL SAO PAULO PRIORITY 2726
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RHEBAAA/USDOE WASHDC PRIORITY
RHMFISS/HQ USSOUTHCOM MIAMI FL PRIORITY
C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 000117 

SIPDIS

SIPDIS

WHA FOR A/S TOM SHANNON, PDAS CHARLES SHAPIRO AND PATRICK
DUFFY
NSC FOR DAN FISK
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER

E.O. 12958: DECL: 01/13/2016
TAGS: PREL ECON ENRG EINV EFIN ETRD AR BO VE
SUBJECT: MINISTER DEVIDO DISCUSSES BOLIVIA AND THE GOA'S
ECONOMIC PLANS WITH A/S SHANNON


Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D)

-------
Summary
-------

C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 000117

SIPDIS

SIPDIS

WHA FOR A/S TOM SHANNON, PDAS CHARLES SHAPIRO AND PATRICK
DUFFY
NSC FOR DAN FISK
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER

E.O. 12958: DECL: 01/13/2016
TAGS: PREL ECON ENRG EINV EFIN ETRD AR BO VE
SUBJECT: MINISTER DEVIDO DISCUSSES BOLIVIA AND THE GOA'S
ECONOMIC PLANS WITH A/S SHANNON


Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D)

--------------
Summary
--------------


1. (C) Minister of Planning Julio DeVido received Assistant
Secretary Tom Shannon on January 12. A/S Shannon and DeVido

SIPDIS
discussed recent developments in Bolivia and the need to
engage with the new Evo Morales government. DeVido argued
that it is important to help Morales consolidate his
leadership to prevent a radicalization of his currently
divided movement. DeVido added that the GOA wants to propose
the establishment of a fiduciary fund that would facilitate
the purchase of Bolivian natural gas in change for Argentine
industrial goods and services. A/S Shannon expressed concern
about Morales' insults of the U.S. and the separation that
this creates between the two governments, as well as Morales'
potentially negative impact on U.S. counternarcotics efforts.
DeVido also summarized the GOA's recent economic
accomplishments and his ongoing efforts to encourage U.S.
companies to invest in Argentina. DeVido is one of President
Kirchner's closest and most trusted lieutenants. One of his
top priorities is to ensure that the Argentine economy has
sufficient energy supplies to continue to support Argentina's
rapid economic recovery. DeVido understands that Bolivia is
the key to obtaining the necessary supplies of inexpensive
natural gas without a dramatic increase in the domestic
natural gas prices. End Summary.

--------------
Divisions in Bolivia and the Morales Team
--------------


2. (C) Minister of Planning Julio DeVido received Assistant
Secretary Tom Shannon on January 12. De Vido was accompanied


SIPDIS
by economic advisor and Secretary of Communications Guillermo
Moreno. A/S Shannon was accompanied by the Ambassador,
Economic Counselor (notetaker) and Poloff. A/S Shannon said
the purpose of his visit was to obtain Argentina's point of
view on recent developments in Bolivia and the possibilities
for the United States' bilateral relationship with that
country. It will be a challenge, but there is a space for a
bilateral relationship with the Evo Morales government. The
U.S. has had a close relationship with Bolivia in the past
and is Bolivia's largest donor. This assistance includes not
just anti-narcotics assistance, but also economic and
institutional development aid. The U.S. would like to
maintain this relationship. The fact that the recent
political change in Bolivia, from the collapse of the Sanchez
de Losada government to the election of the Morales
government, has taken place within the context of the
Bolivian Constitution is an important accomplishment.


3. (C) DeVido responded that the GOA has the same questions
about Bolivia. He observed that it is a country that is
divided between the "Altiplano," which is populated by
indigenous peoples, who are themselves divided among ethnic
groups, and the "valle," which is populated by "Europeans."
The Altiplano lives off the valle and Morales represents the
poor indigenous people in the altiplano. The GOA has a good
relationship with Argentine "piquetero" leader Luis D'Elia
who in turn has a close relationship with Morales. D'Elia
has said that Morales has not consolidated the leadership of
his political movement, which is divided between indigenous
and non-indigenous leaders, such as vice-president-elect
Garcia Linera. DeVido reasoned that Morales is more open to
dialogue than Garcia Linera and others. Consequently, it is
important to help Morales consolidate his leadership. If
not, the Morales government's relationship with Brazil and
Argentina will radicalize. Latin American societies also

BUENOS AIR 00000117 002 OF 006


need strong leaders and Bolivia will not develop without such
a leader.


4. (C) DeVido added that he has tried to meet with the
Morales team on two occasions but these meetings did not take
place due to internal struggles between Garcia Linera and
members of the indigenous faction. Morales, Garcia Linera
and two Bolivian natural gas experts are scheduled to come to
Buenos Aires on January 17 and this will be the GOA's first
opportunity to meet with the Morales team.

--------------
Dependence on Bolivian Natural Gas
--------------


5. (C) DeVido said that Morales' most immediate policy is
to increase the price of the natural gas that Bolivia sells
to Argentina and Brazil. Argentina consumes 130 million
cubic meters of natural gas per day, exports 20 million cubic
meters per day to Chile, and imports 5 million cubic meters
per day from Bolivia. This is much different than Brazil,
which consumes 65 million cubic meters per day and imports 27
million cubic meters per day from Bolivia. As a result,
Brazil is much more dependent on Bolivian natural gas than
Argentina. Argentina also pays a little less for Bolivian
gas than Brazil because Argentina imports "dry gas" (i.e.,
natural gas after the more valuable liquid petroleum gas has
been removed) and Brazil imports "wet gas." The GOA is now
trying to negotiate the long-tern purchase of an additional
20 million cubic meters of natural gas per day from Bolivia
to supply the proposed USD 1.2 billion Northeastern Natural
Gas Pipeline (GNA). This pipeline would provide natural gas
for the provinces of Salta, Jujuy, Formosa, Chaco,
Corrientes, Misiones, Entre Rios and Santa Fe, including the
industrial center and port of Rosario. This pipeline would
take two years to build from the day the project is approved.
If Morales asks for a price that is too high, the project
will not be feasible. (Comment: DeVido told CODEL McConnell
on the previous day that President Kirchner would be visiting
President Lula in Brasilia January 18 and that the price that
Argentina and Brazil pay for Bolivian natural gas would be
part of their discussions. See septel. End Comment.)


6. (C) DeVido said that the GOA wants to propose the
establishment of a fiduciary fund that would facilitate the
exchange of Bolivian natural gas for Argentine industrial
goods and services. The fund would be similar to the
fiduciary fund that Argentina has established with Venezuela
to facilitate the exchange of Venezuelan fuel oil for
Argentine industrial goods and service and agricultural
products. DeVido explained that natural gas is the only
commodity that Bolivia has to trade and that foreign
companies are the only companies that have the necessary
technology to develop this resource. DeVido claimed that the
Argentina-Venezuela fiduciary fund has produced results,
causing Argentina's bilateral trade with Venezuela to
increase from USD 100 million to USD 900 million per year.
DeVido concluded that the GOA currently pays the GOB USD 50
million per year in the form of royalties for the purchase of
4.5 million cubic meters of natural gas per day. Ths amount
could be increased to USD 500 million per year with the
export of an additional 20 million cubic meters per day to
Argentina for the GNA pipeline and the export of an
additional 30 million cubic meters per day to Brazil. This
amount of annual revenue would put Bolivia on a sustainable
growth path.

--------------
Our Problems with Bolivia
--------------


BUENOS AIR 00000117 003 OF 006



7. (C) A/S Shannon responded that the U.S. currently has
two problems with Bolivia: the insults and the separation
that this creates between the two governments, and the
production of drugs. The nature of his personal attacks
against President Bush and Secretary Rice make it more
difficult for Morales to engage in a dialogue with the U.S.
Fortunately, Morales most recent statements in South Africa
suggest that he has lowered his tone.


8. (C) Regarding the production of drugs, Bolivia produces
coca leaf and pasta, and a lesser amount of cocaine. The
success of our anti-drug efforts in Bolivia had the effect of
pushing cocaine production into the FARC-controlled area of
Colombia. As a result, Colombia now controls the cocaine
market in the U.S., while Peru and Bolivia control the
cocaine market in Europe. If Colombian President Uribe wins
reelection and succeeds reducing cocaine production in that
country, the Colombian cocaine industry will be looking for a
place to go. U.S. anti-drug efforts are based on three
pillars: eradication, interception and alternative
development. It is difficult to separate the three, and
without foreign assistance, it will be difficult for the GOB
to accomplish the first two. If our anti-drug efforts fail
in Bolivia, the Colombian cocaine industry could move into
that vacuum. This would have consequences for democracy in
Bolivia and for drug trade, drug consumption and crime rates
in Argentina and Brazil.

--------------
Bolivia's Land-Locked Status
--------------


9. (C) DeVido observed that Bolivia's land-locked status
carried considerable weight in the national mind-set. For
example, Bolivia has refused to export natural gas directly
to Chile. It also insisted in including language in its
natural gas export agreement with Argentina that "not one
molecule" of Bolivian natural gas will be re-exported to
Chile. Turning to the rest of the region, DeVido said that
the political situation in Peru was very uncertain. However,
the new president of Ecuador seems very "normal." DeVido
said he spoke to him at the Summit of the Americas in Mar del
Plata and had come away with a good impression.


10. (C) DeVido also recommended that A/S Shannon meet with
Andean Development Corporation (CAF) President Enrique
Garcia. Garcia is a Bolivian, is from the altiplano, and has
good relationships with all sectors of Bolivian society.
Garcia is reasonable and could be helpful in establishing a
dialogue with the Morales government. There are lots of
complaints in Bolivia. They have lots of natural gas, but
the people are not able to use it in their homes. The GOA
has a proposal that it would like to discuss with the CAF
that would use the monetization of Bolivian gas reserves to
finance development natural gas distribution projects in
Bolivia. The idea is to let Bolivians see the benefits of
natural gas production in their daily lives. If this can not
be done, there is little reason why they should want to
support the production and export of natural gas to Argentina
and elsewhere. DeVido said there is agreement that the U.S.
and Argentina should work together. "Until now," DeVido
said, "we have the same concerns that you have." Moreno
recommended the development of joint U.S.-Argentina
development projects using Argentina as "the point of the
lance."


11. (C) A/S responded that it would be possible to have
Argentina and Brazil work with the U.S. in Bolivia to avoid
the radicalization of the Morales government. The projects
in Bolivia should not be difficult. On the positive side,
Morales' election represents the inclusion of formally

BUENOS AIR 00000117 004 OF 006


marginalized groups in a democratic system.

--------------
The Argentine Economy
--------------


12. (C) A/S Shannon said he was interested in hearing about
the GOA's economic plans, especially as it related to the
participation of U.S. companies in the Argentine economy.
DeVido summarized the GOA's recent economic accomplishments,
noting that the GOA had renegotiated and reduced the
country's private debt and paid off its IMF debt.
Consequently, Argentina does not have to ask for help
anymore. "Some day we will do something with the holdouts,"
he said, "but publicly I would have to deny that I said
that." DeVido said that the Argentine economy had grown 9
percent per year for the last three years and Argentina
needed at least 6 percent in 2006. "We can not accept 3
percent," he explained, "because we have too many social
conflicts." For this reason, Argentina needs to attract
foreign investment to maintain high levels of growth.


13. (C) Turning to U.S. companies, DeVido reviewed his
ongoing efforts to encourage U.S. companies to invest in
Argentina. He said he had recently to New York in December
at the invitation of the Council of the Americas, where he
had met with an audience of 300 businessmen who were "very
interested in investing" in his areas of responsibility,
e.g., energy, mining, transportation, communications, and
infrastructure/public works. He had met separately with
Deutschebank, Fintech, ExxonMobil, and CMS. He is now
working with Argentine Consul General in New York Hector
Timmerman to organize a reverse visit for U.S. investors to
come to Buenos Aires in April. DeVido said he is also
working with U.S. Secretary of Commerce Carlos Gutierrez to
consider the U.S. digital TV standard for the digitalization
of TV in Argentina and Brazil. And Citigroup has offered to
finance combined-cycle thermal power products in Rosario.
Newly established state oil company ENARSA signed agreements
with Repsol YPF of Spain, Petrobras of Brazil and ANCAP of
Uruguay to explore for oil in two offshore blocks east of
Buenos Aires Province. He would like for U.S. companies to
participate in offshore exploration some day. (Comment: The
GOA has also invited PDVSA of Venezuela to explore for oil in
the offshore blocks, but no agreements have been signed.
U.S. oil executives are not optimistic about the possibility
of finding oil in these blocks. They note that over 50
offshore wells have been drilled in the last few decades and
the only significant discovery has been the offshore natural
gas deposits north of the island of Tierra del Fuego. End
Comment.)


14. (C) Moreno said that the Ministry of Planning had
argued in favor of U.S. companies for the last two years. If
there was a problem in the 1990s, it was the lack of
transparency in the privatization of public services. As a
result, there are many companies that have high profit
margins that are not justified. U.S. companies were not
involved in the purchase of these companies because of the
U.S. Foreign Corrupt Practices Act. The only exception was
the "disgraceful" case of IBM paying bribes for a large
computer sales contract with the state-owned Banco de la
Nacion. U.S. companies are known for their entrepreneurial
spirit," he said, "and that is what we want." (Comment: IBM
Corporate Headquarters cooperated with the GOA in the
investigation of the local IBM management's payment of bribes
to state-owned Banco de la Nacion executives in a large
computer sales contract in 1995. IBM Corporate Headquarters
then changed the local management and removed anyone remotely
associated with the alleged bribery. IBM is now one of the
top five U.S. investors in Argentina and is the largest

BUENOS AIR 00000117 005 OF 006


investor and employer in the information technology sector.
End Comment).


15. (C) Returning to Argentina's investment climate, DeVido
admitted that "the investment climate is not like the U.S.,"
but he claimed that "it is improving each day." He said he
had good relationships with companies like AES, CMS, Pioneer,
ExxonMobil, Cargill and Citigroup. "There are always
differences," he said, "but not because they are U.S.
companies." He then praised a series of dinners that the
Ambassador had organized in late 2003 and early 2004 with GOA
officials and U.S. CEOs from different sectors of the
economy. These meetings had allowed the government to
establish constructive relationships with U.S companies
during its first months in office.

--------------
Don't Get Hung Up on Trade
--------------


15. (C) DeVido also urged the U.S. to avoid the
"FTAA-MERCOSUR debate and not centralize the bilateral
relationship on this one point." "We understand that the
U.S. and the EU have domestic political considerations and
can not solve this problem overnight," he said, "but if you
don't do something about agricultural subsidies, we can't do
anything." Almost half of Argentina's USD 40 billion in
exports in 2005 are agricultural, so it is a big issue for
Argentina. Nevertheless, the U.S. and Argentina should not
centralize the bilateral relationship on something that does
not have a solution.


16. (C) A/S Shannon concluded that the U.S. understands
that Argentina can be an important partner in Latin America.
"We want economic development to trickle down to all sectors
of society, not just some sectors," he said. Turning to the
Summit of the Americas, he said that the press had tried to
present the Summit as a conflict. The U.S. actually saw
broad support for free trade and economic integration as the
best way of achieving economic development and prosperity in
the hemisphere. The U.S. wants to open markets. The U.S. is
trying to eliminate agricultural subsidies, and President
Bush recently said so in New York.

--------------
Comment
--------------

17 (C) DeVido is one of President Kirchner's closest and
most trusted lieutenants. One of his top priorities is to
ensure that the Argentine economy has sufficient energy
supplies to continue to support Argentina's rapid economic
recovery. DeVido understands better than anyone else that
Bolivia is the key to obtaining the necessary supplies of
inexpensive natural gas without a dramatic increase in the
domestic natural gas prices. Consequently, he has devoted
more time than any other senior GOA official to the Bolivia
political stability/natural gas issue. DeVido is also the
chief advocate within the GOA for working with the U.S. and
Brazil to ensure that political stability is maintained in
Bolivia and that a pragmatic government is in place to
negotiate and sustain a major, long-term natural gas
agreement with Argentina. The negotiation of this agreement
and the construction of the related USD 1.2 billion GNA
pipeline would raise GOB revenues by USD 200-500 million per
year, or as much as 7 percent of GDP, depending on the
negotiated price of the natural gas. It would also be a win
for the GOA, the energy-starved provinces of northeast
Argentina, Argentina's energy-intensive industrial sector
centered around the city and port of Rosario, the builders
and suppliers of the GNA pipeline led by the Argentine

BUENOS AIR 00000117 006 OF 006


industrial company Techint, Chile, which would be less
vulnerable to an eminent cut-off of natural gas exports from
Argentina, and the U.S., which would no longer have to be
concerned about the perennial fiscal deficits of the GOB.
The Embassy will continue to work closely with the GOA to
assure maximum cooperation on Bolivia. End Comment.
GUTIERREZ