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08BUENOSAIRES1115 2008-08-09 12:39:00 CONFIDENTIAL Embassy Buenos Aires
Cable title:  

ARGENTINA: KIRCHNER INSIDER CARLOS ZANNINI ON THE

Tags:   PREL PGOV EAGR ECON EINV EFIN PHUM PINR AR 
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					  C O N F I D E N T I A L BUENOS AIRES 001115 

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E.O. 12958: DECL: 08/08/2028
TAGS: PREL PGOV EAGR ECON EINV EFIN PHUM PINR AR
SUBJECT: ARGENTINA: KIRCHNER INSIDER CARLOS ZANNINI ON THE
GOA'S POLITICAL STRATEGY

REF: BUENOS AIRES 991 AND PREVIOUS

Classified By: AMBASSADOR E. ANTHONY WAYNE FOR REASONS 1.4 (B) AND (D)



1. (C) Summary. "We must abandon pre-conceived notions
about each other...and work to identify new areas of
cooperation," President Cristina Fernandez de Kirchner's
(CFK) Legal and Technical Secretary Carlos Zannini told
Ambassador Wayne and Carl Meacham, Senior Professional Staff
Member of the Senate Foreign Relations Committee in a meeting
on August 7. Just back from a trip to Minnesota, Zannini
acknowledged enthusiastically that such exchanges help to
promote understanding between the U.S. and Argentina.
Zannini indicated that Argentina's strong macroeconomic
recovery under former President Nestor Kirchner (NK) had
generated public expectations that are difficult to fulfill,
especially in a "political culture not known for its
patience." As a result, CFK's domestic priorities focus on
"accelerating income redistribution" and the creation of
decent jobs. Zannini explained that CFK's political agenda
was also focused on improving institutional quality in order
to build civil society's respect for democratic institutions,
such as the Congress and the judicial system, all the while
"maintaining respect for the executive."



2. (C) On the agricultural conflict, Zannini acknowledged
that the Kirchner administrated communicated their political
aims poorly, but that CFK would never admit she was wrong out
of fear that she appear "weak". Zannini stated that the GOA
would not reintroduce a variable export tax proposal to the
Congress in the short-term, and indicated that Agriculture
Secretary Carlos Cheppi has been instructed to do a better
job of explaining the GOA's agricultural policy agenda. "Our
strategy is to communicate more and to be more open," Zannini
stated. Because Zanini is the surviving official closest to
CFK and NK, we are reporting his words in detail. End
Summary.



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


Zannini on Recent Trip to U.S


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





3. (C) On August 7, Ambassador Wayne, accompanied by Carl
Meacham, Senior Professional Staff Member of the Senate
Foreign Relations Committee, met with Legal and Technical
Secretary Carlos Zannini, a member of President Cristina
Fernandez de Kirchner's (CFK) inner circle. The meeting has
originally been set up to talk about Zannini's recent trip to
Minnesota, where his son had completed a one-year high school
exchange program. Zannini stated that he enjoyed visiting
Minnesota and meeting his son's host family. He was struck
by Minnesota's "independent spirit" and abolitionist history,
noting that Minnesota entered the union as a free state in


1858. In addition, he stated that he was impressed with the
entrepreneurial spirit of U.S. agro-business and was
surprised by the number of cereal factories located in
Minnesota. He said he was also pleased by how much his son
matured as a result of the experience, noting that he and his
wife had been "worried" that his son did not seem to have
much direction in life. Now, his son has developed a respect
for social and legal norms, for working hard at his studies,
and now values things that he had taken for granted in
Argentina, he said.



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

-
Zannini: "We Must Abandon Preconceived Notions"


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

-



4. (SBU) The Ambassador stated that exchanges such as these
help to promote understanding among our two countries.
Meacham added that since Argentines travel to the United
States frequently, they understand the U.S. better than
Americans understand Argentina. He explained that the
purpose of his visit was to increase understanding in the
U.S. Congress of Argentina's reality and to learn how the
Congress could help improve bilateral relations.



5. (C) Zannini agreed that more exchanges are needed to
improve mutual understanding, stating that "we must abandon
preconceived notions about each other." He referred to a
recent TV episode of "The Simpsons" where one of the
characters likened former Argentine President Juan Peron to
Hitler. (Note: According to press reports, the Simpsons
aired a TV episode where characters discussed their choices
of political candidates. One character stated that he could
"really go for some kind of military dictator, like Juan
Peron. When he disappeared you, you stayed disappeared.")

Zannini indicated that many Argentines took deep offense at
this stereotyping, but that for him, it was illustrative of
how the typical American views Argentina. He said not to
worry, as "Argentina does the same thing with the U.S." The
Ambassador indicated that this is why the USG has invited
Argentine VIPs like Zannini to visit the United States. Such
visits, he said, help the U.S. understand what is going on in
Argentina. Meacham added that it is in the spirit of
enhancing mutual understanding that he would like to see more
senior GOA visits to the United States.



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


Importance of State-Province Relations


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





6. (SBU) Meacham highlighted the importance of
people-to-people exchanges. He pointed out that Chile has
worked very hard to cultivate relationships with various
states in the United States that share similar
characteristics with its provinces. The Ambassador noted
that promoting state-provincial partnerships was a central
theme for Western Hemisphere Affairs Assistant Secretary Tom
Shannon's visit to Argentina in July. Zannini agreed, saying
that the U.S. and Argentina agree on "the big issues" such as
the fight against terrorism and drugs and the importance of
peacekeeping missions. He said that now, the GOA and the USG
must identify new areas of cooperation.



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


Argentina post-2001 Crisis


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





7. (C) Meacham noted that Senator Richard Lugar (R-Indiana)
has a strong agricultural constituency and is interested in
learning more about Argentina's situation after the recent
controversy surrounding agriculture. Zannini began by
explaining Argentina's reality since the economic crisis of
2001-02. He stated that "the only good that came out of the
economic crisis is that it did not break democratic
institutions." When President Nestor Kirchner came to power
in 2003, Argentina had to resolve its macroeconomic
situation. The GOA had a very difficult time explaining its
situation to the rest of the world. He said that he
was ashamed ("me da verguenza") when he had to explain why
Argentina can not pay its debts. "We could pay off our
debts, but then we would all die of hunger. As a result, we
had to tell the world that we were not going to honor our
contracts. If we don't grow, we can't pay," he stated.
Regarding bond holdouts, he maintained that Argentina had
already offered a debt exchange which the majority of
bondholders accepted. He acknowledged that remaining bond
"holdouts" have launched collection campaigns against
Argentina, but insisted that many of them "bought Argentine
bonds (in secondary markets at substantial discounts) knowing
full well we could not pay." "And then, they call us
populist!", he complained.



8. (C) Meacham observed that that is how many in the U.S.
Congress see Argentina -- that Argentina does not pay its
debts. He stressed that this is the reason why public
diplomacy is so important. Zannini acknowledged that CFK's
main challenge now is the task of rebuilding its relationship
with the world, stating that "the world is an opportunity for
Argentina." Meacham reiterated that visits to the U.S. by
the President and others would send "an important signal" to
Washington, adding that exchanges help Washington better
understand Argentina's reality.



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


Doha


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





9. (C) "People claim that Argentina's position in the Doha
round is one of ideology, but that is not the case," Zannini
said. He argued that Argentina is simply protecting its
domestic industry until it is strong enough to take on
world-class competitors. "Our industry has to be protected
so that they can one day compete."



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


GOA's Challenge: Managing Expectations...


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





10. (C) Meacham then asked about the challenges that the
GOA faced after the agricultural conflict (reftel). Zannini
indicated that Argentina's strong macroeconomic recovery
under former President Nestor Kirchner (NK) enabled his wife,


CFK, to win the Presidential elections with 45.6% of the
vote. However, NK's stewardship of Argentina's recovery had
also generated new public expectations that are difficult to
fulfill, he indicated. Now that Argentina's macroeconomic
fundamentals are sound, CFK's domestic priorities focus on
"accelerating income redistribution" and the creation of
decent jobs. He noted that under NK, hundreds of thousands
of jobs had been created, employing one-third of the
workforce. However, it is easier to open a factory than to
ensure that labor has safe and decent work conditions, he
stated.



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



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


...In a Political Culture not Known for its Patience


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



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





11. (C) "Argentina's situation is not the same as Brazil's
or Chile's", Zannini continued. Argentina, historically, had
a strong middle class with "great equalizing forces" that
ensured socio-economic mobility. Immediately after the
2001-02 financial crisis, over half
of the population lived below the poverty line. The GOA had
to address immediate needs by providing the poor with food.
Now that the immediate crisis is over, they want jobs, he
said. The Kirchner administration is running up against the
expectations that these problems can be resolved quickly, he
explained. A great percentage of the population is still
poor, he noted, adding that if the government does not help
these people, they will despair. "Argentina's political
culture is not known for its patience," he quipped.



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


The Tango Effect


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





12. (C) Zannini recounted the visit of Google's President
to Argentina where he announced that Google would base its
South American headquarters in Argentina. According to
Zannini, when leading conservative daily La Nacion asked why,
he replied that the country's human capital, strategic
geographic position, high number of university graduates, and
economic potential made the decision to invest very easy.
Insisting, the reporter asked, so it's not because of the
dollar's favorable exchange rate with the Argentine peso.
Google's President said "no, we can't base investment
decisions on such temporal factors as a favorable exchange
rate." Zannini explained that "it is very difficult to
convince Argentines that there are positive things about
their country. This is what we call The Tango Effect." He
added that Argentines often have very negative expectations
for the future.



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


The K project defined?


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





13. (C) Zannini indicated that the GOA would continue
advancing its political agenda to improve conditions for
workers, the lower middle class, and the unemployed. He
asserted that Argentina "cannot return to an era
characterized by income inequality." He stated that
Argentina aspires to "the American dream where just because
you are poor doesn't mean that you will remain poor."
Zannini explained that CFK's political agenda was also
focused on improving institutional quality in order to build
civil society's respect for democratic institutions, such as
the Congress and the judicial system, all the while
"maintaining respect for the executive."



14. (C) Zannini added that "our goal is to continue to
improve conditions of the Argentine people; strengthen the
situation of the poor by providing direct assistance,
improving labor conditions, and promoting domestic
consumption. He noted that Argentina has great potential,
highlighting that Argentine labor is among the most
productive in the world. He stated that the GOA will
continue to pursue these same political objectives, but
through different means, focusing on alliances in the
Congress and reaching out to other sectors as well.



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


Lessons Learned from the Ag Conflict


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





15. (C) Turning to the agricultural conflict, Zannini
acknowledged that the Kirchner administrated communicated
their political aims poorly. "It was a mistake to think that

the situation is the same as in 2003," he said. He pointed
out that the agricultural sector did not balk when, in
November 2007, then-President Nestor Kirchner increased
agricultural export tariffs from 27%-35%. Thanks to this
policy measure, he said, Argentina is in a stronger fiscal
position today. The GOA decided to move forward with a
variable agricultural export scheme to capture a share of
record-high agricultural profits. He asserted that the irony
of all this is that the government wanted to be a partner
with the countryside, and instead "we got a political
dispute."



16. (C) Zannini stated that it is unfair for the rural
sector to claim that the GOA does not have an agricultural
policy. Argentina's weak currency has made expanding exports
more attractive to domestic producers. Domestic fuel prices
are significantly below world prices, which in effect served
as a subsidy to the agricultural sector. If the GOA were to
allow fuel and food prices to match world prices, Argentina's
economy would "fall once again." He indicated that the GOA
needs "to do a better job at communicating these facts in a
transparent and technical way, to build a social consensus on
these issues, arguing that food and energy prices "have to be
in line with Argentina's reality, not the world's."



17. (C) Zannini claimed that if the GOA allowed the market

to set prices, bread would be ten times more expensive and
energy four times more expensive in Argentina than it is now.
He asserted that the GOA's variable export tax proposal was
theoretically sound. The GOA is concerned that high
international prices for soy had prompted agricultural
producers to shift production out of wheat and corn, which
Argentines consume, to soy, which Argentines
don't consume. The mobile tax proposal was intended to
encourage domestic ag producers to increase their production
of wheat and corn by increasing taxes on soy and reducing
taxes on wheat and corn, he explained. He acknowledged,
however, that the GOA pushed this proposal
without building a social consensus. He stated that the GOA
is now working to get out f this mess, and that Secretary of
Agriculture Carlos Cheppi has been instructed to do a better
job of explaining the GOA's agricultural policy agenda. "Our
strategy is to communicate more and be more open," Zannini
indicated.



18. (C) Regarding the GOA's defeat in the Congress, Zannini
asserted that the outcome was "an advance in institutional
quality" and that it was "not a dishonorable loss" for the
Kirchner administration. He noted that the GOA won in the
House and tied in the Senate. He pinned the loss in the
Senate to Senators who have a lot of bad blood with the
Kirchner administration and are looking to weaken CFK, such
as former Presidents and current Senators Carlos Menem and
Adolfo Rodriguez Saa. Meacham asked why CFK did not
acknowledge that she made a mistake in her August 2 press
conference. Zannini explained that if she publicly
admitted to such a mistake, the people would view her as
"weak" and would ask why she allowed the conflict to go on
for 120 days. Meacham noted speculation surrounding CFK's
ability to wield influence or power. Zannini dismissed these
concerns, and optimistically predicted a moderate electoral
triumph for the Kirchners in 2009 mid-term
elections.



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


Dirty War Legacy


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





19. (C) There is another important undercurrent to
understand about this crisis, Zannini explained. During the
1976-83 military dictatorship, 30,000 people were killed
without trial, without any rights. A large segment of
Argentine society consented to this. In 1982, a
reconciliation process began that resulted in silencing and
hiding this difficult past. Thirty years later, there had
been no justice or reconciliation. The Kirchner
administration believed that the solution to deal with this
was to overturn amnesty laws and allow the justice system to
judge those accused of human rights violations. We are
now embarking on a different kind of reconciliation -- this
time with justice, he said. Those who oppose this process
supported the agricultural sector, he asserted. "We must
learn to resolve our differences in democracy," he concluded.



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


Cobos


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






20. (C) Asked about Cobos's future, Zannini opined that
Cobos's decision was a political mistake and predicted that
the people who support him now will not continue to do so
over time. The Kirchner administration, however, will not
impede him from carrying out his duties as Vice President,
because it wants to respect the institution of the Vice
Presidency. He said that he believed that Cobos's vote
weakened the institution of the Vice Presidency, noting that
when Cobos decided to be CFK's running mate, he had chosen to
support the Kirchners' political agenda.



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

--
GOA Won't Reintroduce Ag Bill in the Shrt-Term


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

--



21. (C) Asked whether the GOA would again introduce a
variable export tax proposal to Congress, Zannini indicated
that the GOA would not do so in the short term, but said
"there are other possibilities." He asserted that those who
objected to the variable export tax proposal later realized
that the proposal presented by the Chamber of Deputies is
better than the current situation. He explained that one
reason why soy commanded $600 a ton is because the market had
already calculated that Argentine soy exporters would have to
pay the tax. After the vote, the price fell to below $400
due in part, he thought, to development in Argentina. He
claimed that soy exporters would have earned more had they
accepted the tax and sold soy at $600. He said that now that
the market is at $360, they are earning less. He mused at
the realization that "the market did what the government
couldn't do."



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


Aerolineas Argentinas: "Let Congress Decide"


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





22. (C) Turning to investment matters, Zannini jokingly said
that "we judge the success of U.S. Ambassadors by how much
U.S. investment is brought into the country during
their tenure." The Ambassador observed that U.S. investment
in Argentina had moderately increased in the 20 months he has
been in Argentina. Zannini acknowledged that U.S. investment
in high tech has been very beneficial for Argentina, and
lamented that U.S. companies had not earlier invested in
public services. He noted that European companies invested
heavily in the public services sector insisting on an absence
of regulations and real demands on service delivery.



23. (C) He stated that the GOA believes that these public
service companies should provide good service, and complained
that many of them did not live up to these expectations.
This explains why the GOA has proposed nationalizing
Aerolineas Argentinas, he said. Tourism is a key driver of
economic growth, contributing to 6-7% of Argentina's GDP;
however, Aerolineas Argentinas has treated tourists poorly,
he noted. Since Argentina is not like the American market
where an airline company can easily enter the market, the GOA
decided to submit a proposal to the Congress to renationalize
Aerolinas Argentinas. "Let them
decide whether the state should intervene or let the market
determine that the airline go bankrupt," he said.



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


Comment


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





24. (C) Zannini is the closest adviser to the Kirchners at
present. His words reflect CFK's attitudes closely. He
repeated the GOA party line on economic policy, indicating
that the CFK administration will not adress fundamental and
growing economic disequilibria
any time soon. Nevertheless, he struck us as an earnest
believer in social justice (and the Kirchners' political
agenda as a way to achieve it) rather than a hard-edged
ideologue. With Alberto Fernandez now gone, Zannini has
become the most accessible member of the minscule "mesa
chica" ("small table") where the key GOA decisions are made.
His interest in social opportunity -- stemming from his
history growing up in a lower class family and
receiving government assistance to attend school is a key
part of CFK's outlook too.



25. (C) Zannini's son's experience in Minnesota, however,
seems to be the key factor in his willingness to engage with
us. The favorable reports he got from the Land of 10,000
Lakes seem to have encouraged him to rethink his attitudes


towards our country, and over recent months when the
Ambassador has talked to him, Zannini has been noticeably
more relaxed and open. His recent travel to Minnesota seems
to have encouraged him to articulate admiration for aspects
of American society, despite his upbringing in the
anti-American milieu of Argentine leftism. His comments
about his experience in the United States underscores the
importance of exchanges in enhancing this government's
understanding of the benefits a closer relationship with the
United States could bring. End Comment.
WAYNE