BRAZIL-ARGENTINA COORDINATE ON G-20, DIFFER ON

C O N F I D E N T I A L BUENOS AIRES 001489 SIPDIS E.O. 12958: DECL: 10/29/2018 TAGS: ECON EFIN ETRD MARR MOPS PGOV PREL AR BR SUBJECT: BRAZIL-ARGENTINA COORDINATE ON G-20, DIFFER ON TRADE POLICY Classified By: Ambassador E. Anthony Wayne for reasons (B) and (D). Summary: -------------- ¶1. (C) On October 27, Brazilian Ambassador to Argentina Mauro Vieira (protect strictly) told the Ambassador that while Brazil and Argentina differed on the proper trade policy response to the current economic crisis, Brazil would be patient with its neighbor and would work to encourage a constructive Argentine role at the November 15 G-20 summit. Separately, a U.S. citizen told the Ambassador that President Cristina Fernandez de Kirchner said October 28 that she and Brazilian President Lula had agreed to meet before the G-20 summit to coordinate positions. ¶2. (SBU) The conversation with the Brazilian Ambassador also covered Argentina's protectionist response to the economic crisis, Argentina's proposal to nationalize private pension funds, bilateral military relations, Nestor Kirchner's UNASUR candidacy, and other topics. Protectionism and Argentine-Brazil Bilateral Relations: -------------- ¶3. (SBU) Argentina's response to the economic crisis is knee-jerk protectionist, straight out of the Peronist tradition, the Brazilian diplomat said. Vieira (protect) had held a long conversation with Brazilian Foreign Minister Amorim October 26 telling his boss to expect strong Argentine pleading in the October 27 Mercosur economic ministers meeting. Brazil would listen but would not adopt a protectionist response, he said. Argentina swings back and forth between seeing Brazil as its savior and fearing Brazilian dominance. Right now, the pendulum is swinging to fear. ¶4. (SBU) Argentine businessmen are afraid of cheaper Brazilian goods flooding the domestic market and of Brazilian purchases of more Argentine businesses. Many Argentines, including trained economists and senior officials, have approached the Brazilian Ambassador in recent days asking why the GoB devalued the real at Argentina's expense. When he tries to explain that it was the international economic situation that brought about the devaluation, not a GoB decision, they find that hard to believe. This is an indication that many Argentines just don't understand international finance or economic realities. ¶5. (SBU) Similarly, the Ambassador said, the Brazilians are being patient about the GoA targeting Brazilian and Chinese goods in its recent expansion of non-tariff barriers, but they are telling the Argentines quietly that, if Brazilian goods start being impeded at the borders, then Brazilian manufacturers will ask the government to respond. Brazil remains by far Argentina's largest market for its manufactured goods exports. "Does Argentina really want to endanger that?," he asked rhetorically. Vieira acknowledged a large and increasing Brazilian bilateral trade surplus with Argentina, which he said could grow by a billion or more dollars under some scenarios of the next year. But he said part of the surplus is a result of Argentina's own policies and decisions. For example, Brazil had to look elsewhere to buy wheat this year because of Argentine restrictions on exports put in place to maintain low domestic prices. While Brazil wants to be patient with its neighbor, there are currently no plans for bilateral ministerial meetings in the near future to address Argentina's trade concerns. Response to Economic Crisis and Upcoming G-20 Summit: -------------- ¶6. (C) Brazil will try to consult with the Argentines before the G-20 Summit on November 15. Its Ambassador characterized Argentine statements at the UNGA opening and since, as well as during the Doha Round, as "provincial" and "not constructive." Hopefully, the Argentines can play a more constructive role at the Washington meeting, the Ambassador said. A private U.S. citizen in recent contact with the top of the GOA subsequently told the Ambassador that Argentine President Cristina Fernandez de Kirchner (CFK) had said in a private meeting on October 28 that she and Brazilian President Lula had agreed to meet before the G-20 summit, including a possible meeting on November 14 in Washington, in order to coordinate positions for the summit. The U.S. citizen said that CFK seemed to understand the importance of the meeting, was clearly looking forward to it, and was quite clear about the need to be fully coordinated with Lula. The U.S. citizen noted that CFK is often much more reasonable in her statements in closed-door meetings than when speaking in a forum with the press present. (Comment: Ambassador has been quietly urging, through the Central Bank governor and others, that CFK deliver a responsible set of positions at the G-20 gathering and play a constructive role.) UNASUR Presidency: -------------- ¶7. (C) Uruguay's decision not to back Nestor Kirchner for Secretary General of UNASUR had been conveyed independently to Brazil and to Chile, at least, before it became public in the last few days, Vieira said. Peru and Colombia had privately indicated that they were not comfortable with Kirchner's candidacy, but they did not want to be out front about their opposition. Now, the Bolivian candidate may well emerge as the front-runner, the Brazilian speculated. The decision must be by consensus. Paraguay and Military Exercises: -------------- ¶8. (SBU) The Ambassador said that the Brazilians informed the Paraguayans, Argentines, and Uruguayans months ago of the military exercises underway in Brazil near Paraguay. Brazilian Ambassadors received a second set of instructions to tell host governments about the exercises five or six days before they began. In Paraguay, however, one newspaper in particular has tried to fan flames about this and this has played off against local concern about Brazilian farmers and workers in Paraguay. The Brazilian military conducts these types of exercises fairly regularly, Vieira said. It was not aimed at pressuring the government of Paraguay. Argentine Military Exercise Participation: -------------- ¶9. (SBU) Ambassador asked Vieira his views about the Argentine decision not to participate in the UNITAS combined exercise this year, allegedly because of budget constraints. The Brazilian said that budget could in reality be part of the reason. The Argentines canceled annual bilateral military exercises with Brazil this year, citing budget costs. The Argentine Navy decided not to send their submarines to Rio for repairs but asked the Brazilians to send naval engineers here to help maintain the submarines. The Argentines have cut back on naval aviation training on the Brazilian aircraft carrier too. (Comment: Southern Command offered over US$900k in DCCEP Exercise funding to offset costs associated with the UNITAS exercise. MOD Garre's animosity toward various aspects of U.S. policies could be a factor.) Embraer and the Lockheed Martin operation in Cordoba: -------------- ¶10. (SBU) The Brazilian Ambassador said that while the Argentines are clearly interested in having Embraer replace Lockheed Martin as manager of the aircraft production facility in Cordoba, Embraer will have to make its own decision based on its commercial interests. Right now, Embraer is not evincing great interest and has signaled only some minor interest in having a regional maintenance facility in Cordoba as part of a greater regional network. The company doesn't seem to have any interest in producing planes at the facility, he noted. Pension Nationalization: -------------- ¶11. (C) The GoA apparently took the decision to confiscate privately held retirement accounts in an unsophisticated way without consulting widely, the Brazilian said. Increasingly it appears that the political aspects were foremost in the thinking of the two main decision-makers, CFK and Nestor Kirchner, he noted. The GoA nationalization initiative will provide more funds for public works programs in the run-up to the 2009 and 2011 elections, and it will give the federal government additional and important leverage over the provinces as the private pension system has been an important purchaser of provincial bonds. If Congress approves the private pension system nationalization, the federal government can purchase bonds of favored governors, not buy bonds of others and be strict or not with repayment of bonds, etc., he noted. WAYNE