ARGENTINA SCENE-SETTER FOR CODEL MCCONNELL

UNCLAS BUENOS AIRES 000023

SIPDIS

SIPDIS
CODEL

H FOR CINDY CHANG
WHA/BSC FOR DOUGLAS BARNES

E.O. 12958: N/A
TAGS: PGOV PREL ECON PARM AR SNAR
SUBJECT: ARGENTINA SCENE-SETTER FOR CODEL MCCONNELL


1. (U) INTRODUCTION AND SUMMARY: On behalf of Embassy Buenos
Aires, I warmly welcome your visit to Argentina on January
10-12. Your visit comes at a time of considerable ferment in
the Argentine political and economic arenas. On October 23,
President Kirchner won a resounding victory in mid-term
legislative elections. Based on these results, Kirchner has
tightened his already firm personal control of political and
economic policy. The Government of Argentina's performance
at the recent Summit of the Americas gained no new friends
for Argentina. As a member of the UNSC, Argentina has worked
closely with us on issues such as UN reform,
counterterrorism, non-proliferation, and regional issues such
as peacekeeping in Haiti. Argentina is seeking to
consolidate its impressive economic recovery from the
2001-2002 crises. It has successfully restructured over USD
81 billion of private debt, following the largest sovereign
default in history. Argentina also just canceled its debt
with the IMF by paying the remaining nearly USD 10 billion it
owed to the Fund. The debt restructuring will be a key
component in reintegrating Argentina into world capital
markets. END INTRODUCTION AND SUMMARY.

Background
--------------


2. (U) Argentina was once one of the richest countries of the
Hemisphere, achieving a GNP per capita that was among the
highest in the world in the early 20th century. However, the
history of Argentina over the last 70 years has been one of
economic decline and political instability. Many Argentines
are at a loss to explain how their country, blessed with rich
natural resources, a fertile land and manageable population
numbers, could have fallen so far. Some blame the military
dictatorships, which controlled events from 1930-1983; others
blame Peron and "Peronism;" and a significant number blame
external factors: the IMF, the U.S., and, to a lesser extent,
Europe. Gone are the "carnal relations" with the U.S. when
Argentina stood out as one of the top U.S. allies in the
world during the administration of former President Carlos
Menem during the 1990s. The 2001-2002 economic crisis, the
worst in Argentine history, changed all that. The election
of left-wing Peronist Nestor Kirchner in 2003 marked a
different approach in Argentine foreign policy, aligning
Argentina more closely with its MERCOSUR partners. That
said, Kirchner has cooperated closely with the U.S. on a
number of issues, including counter-terrorism and narcotics,
and regional problems like Bolivia and Haiti.

Political Landscape
--------------


3. (U) Kirchner won a major victory in the October 23
legislative and provincial elections. Kirchner gained a
strengthened mandate and beat out his rivals for control of
the ruling Peronist Party (PJ). Kirchner is politically
strong at home and faces a weak and divided opposition.
Argentines give Kirchner much of the credit for the country's
Phoenix-like recovery from its 2001-2002 economic crisis, an
event equivalent to our Great Depression. His already high
approval ratings climbed last year after the conclusion of an
audacious debt exchange offer that offered private creditors
just over thirty cents on the dollar.

Argentina Fumbles Summit of the Americas
--------------


4. (U) As chairman and host of the Summit, Argentina failed
to forge unity and achieve consensus where possible. On the
plus side, we reached our essential Summit goals in the
Declaration and Plan of Action and 29 of the 34 Heads of
State present voiced support for the launch of FTAA
negotiations. We do not expect Kirchner's public posturing
in Mar del Plata to affect the excellent cooperation we
continue to receive from Argentina on the key issues of
counter terrorism, counter narcotics, and nonproliferation.
Although many in Argentina have criticized the GOA's handling
of the Summit, we do foresee the GOA paying a domestic
political price as a result.

Kirchner's New Cabinet
--------------


5. (U) On November 28, the Casa Rosada named replacements for
several key cabinet positions. President Kirchner appointed
the Ambassador to Venezuela Nilda Garre as the new Defense
Minister. Kirchner also surprised local pundits by
appointing Banco Nacion President Felisa Miceli to replace
Roberto Lavagna as Minister of the Economy. Deputy Foreign
Minister Jorge Taiana was tapped to be the new Foreign
Minister. Taiana has been the intellectual powerhouse for
the left in the Foreign Ministry during the Kirchner
administration. Finally, long-time Alicia Kirchner associate
Juan Carlos Nadalich was announced as the new Minister for
Social Development.

Economic Situation
--------------


6. (U) Argentina has had an impressive economic recovery
since suffering the worst economic crisis in its history --
including the largest sovereign default in history and a
devaluation of its currency -- in 2001-02. An export-led
boom triggered an 8.7 percent surge in real GDP in 2003, 9
percent in 2004, and estimated growth of 7.8 percent in 2005.
The Kirchner Administration has ably managed the nation's
public finances and achieved large budget surpluses.
Investment has increased to 18 percent of GDP, but still is
below the OA's target. Unemployment declined to 12.1
percent in June, but has not fallen as fast as the economy is
growing, largely due to a slow recovery in the service
sector. Poverty has also fallen from the post-crisis level
of 60 percent, but remains stubbornly high. During the first
half of 2005, 38.5 percent of the population was living below
the poverty line and 13.6 percent was considered destitute.


7. (U) Argentina's robust economic recovery is the result of
major economic reforms in the 1990s, the adoption of a
market-based exchange rate regime in early 2002, and the
combination of high commodity prices and low interest rates.
Argentina has sound economic fundamentals and should continue
to perform well in 2006, but will need to lower its inflation
rate (6.1 percent in 2004, an estimated 11.4 percent in 2005)
and increase investment to sustain its growth, reduce
unemployment and poverty. Argentina negotiated a debt
exchange with 76 percent of its creditors in 2005. Argentina
canceled its debt with the IMF on January 3, 2006 by paying
the nearly USD 10 billion it owed to the Fund.

Regional Influence
--------------


8. (U) Argentina has played a positive role in promoting
human rights and democratic institutions in the hemisphere,
particularly in Haiti and Bolivia. Along with a number of
its neighbors, Argentina currently has 575 peacekeeping
troops in Haiti in support of MINUSTAH, reflecting its
traditionally strong support of UN peacekeeping operations
and commitment to Haiti. President Kirchner has been a
strong supporter of constitutional democracy in Bolivia over
the last year. Argentina sent a group of election observers
to the recent presidential elections in Bolivia, headed by
former Argentine Vice President and current Mercosur
President, Carlos "Chacho" Alvarez. Argentina's stated
policy on Bolivia mirrors the U.S. policy of supporting
Bolivia's constitutional democracy.


9. (U) In Venezuela, President Kirchner also played a
constructive role in pressing Chavez to hold a recall
referendum in 2004 and met with the Venezuelan opposition on
two occasions in 2004. More recently, Argentina has sought
stronger economic ties with Venezuela. President Kirchner
traveled to Puerto Ordaz to meet with Chavez November 22 to
discuss a proposed gas pipeline. In January 2005, Argentina
assumed a two-year seat on the UN Security Council.

Strong on Counter-Terrorism
--------------


10. (U) Kirchner's administration has strongly supported
counter-terrorism policies. The GOA has ratified all of the
12 international counter-terrorism conventions. Argentina is
a participant in the Three Plus One regional mechanism, which
focuses on possible terrorist-related activity in the
Tri-border region between Argentina, Brazil, and Paraguay.

Equally Strong on Non-Proliferation
--------------


11. (U) The GOA has been a strong international voice on arms
control and nonproliferation issues. On Iran, the GOA voted
to refer Iran's noncompliance to the UNSC at the September 24
IAEA Board of Governors meeting. The GOA has also endorsed
the Proliferation Security Initiative (PSI) and has offered
to host a PSI exercise. On the IAEA Additional Protocol, the
Argentines traditionally have followed the Brazilians, but
they may eventually sign the AP with or without the
Brazilians. Finally, the GOA has implemented the Container
Security Initiative (which scans containers for WMD
components) and is in the final stages of negotiating an MOU
on the Megaports Initiative -- which will passively detect
radioactive materials moving through the Buenos Aires seaport
-- the first such agreement in South America.

Military-Military Cooperation
--------------


12. (U) The U.S. military enjoys excellent relations with
their Argentine counterparts. Argentine forces participate
frequently in exercises with U.S. and regional forces
(outside of Argentina) and are currently contributing about
575 troops to the Haiti PKO. We are stymied, however, by the
lack of a political-level agreement on immunities, (i.e.
administrative and technical immunities, as defined in the
Vienna Convention on Consular Relations, which would be
extended to U.S. service members on exercises in Argentina).
The lack of this type of agreement precludes many bilateral
exercises on Argentine territory. The Argentines
unfortunately confuse the immunities issue with Article 98,
which deals only with the International Criminal Court.

GUTIERREZ