ARGENTINA: SCENESETTER FOR ASSISTANT SECRETARY SHANNON'S APRIL 10-11 VISIT

C O N F I D E N T I A L BUENOS AIRES 000441

SIPDIS

SIPDIS

FOR WHA ASSISTANT SECRETARY SHANNON FROM AMBASSADOR TONY
WAYNE

E.O. 12958: DECL: 04/06/2018
TAGS: PREL, PGOV, PHUM, PTER, SNAR, ECON, EFIN, AR
SUBJECT: ARGENTINA: SCENESETTER FOR ASSISTANT SECRETARY
SHANNON'S APRIL 10-11 VISIT

REF: BUENOS AIRES 0439 AND PREVIOUS

Classified By: AMBASSADOR TONY WAYNE, FOR REASONS 1.4 (B) AND (D)

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Introduction
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1. (SBU) I warmly welcome you to Argentina April 10-11. Your
visit is being billed here as the strongest step yet in the
bilateral "rapprochement" since we mended fences over the
Miami case in late January. Domestically, CFK is emerging
from the deepest crisis of either Kirchner administration, a
nationwide agricultural strike triggered by a March 11 GOA
decree increasing export taxes on Argentina's main
agricultural export crops. The GOA is not yet out of the
woods, however, as agricultural producers committed April 2
to only a thirty-day truce.

2. (C) Your timing is therefore excellent. Down in the
polls, CFK needs help. She and her small team of advisors
are delighted with the opportunity your visit provides her to
appear statesmanlike in front of a domestic audience. (She
will have just returned from a trip to France, which included
a meeting with Sarkozy.) We hope that she will show her
appreciation by publicly demonstrating her commitment to the
importance of a constructive bilateral relationship. We
should also try to leverage CFK's gratitude to get her to
move in our direction on important regional issues. During
your meetings with CFK, Cabinet Chief Alberto Fernandez,
Foreign Minister Jorge Taiana, and others, you can stress
that we are working together in significant areas of mutual
interest and cooperation, and that we hope the list will
grow.

3. (C) You struck the right tone in response to a reporter's
question April 3, when you talked about Argentina as an
"important partner in the region" with which "we share
fundamental interests that we have been able to work in
important ways, whether they be counter-terrorism, whether
they be counter-narcotics, whether they be broader
non-proliferation issues, or working to enhance the
consolidation of democratic institutions and stability in the
Americas." Those are all points that merit reinforcement in
your meetings and media exchanges and that we hope your
interlocutors will echo and make on their own.

4. (C) More specifically, this is probably the most
propitious time since CFK's inauguration for us to raise her
consciousness regarding the kind of things we want from
Argentina. From our perspective, in the region this should
include:

-- the positive role we expect Argentina to play in avoiding
conflict and shoring up democracy in Bolivia;

-- influencing Ecuadorian President Correa to behave more
moderately;

-- taking a more mature, balanced, and constructive position
on the Colombian conflict; and

-- positively influencing her Venezuelan counterpart. (Note:
This is the same message CFK reportedly received from Sarkozy
during her one-on-one with him April 7.)

5. (SBU) On the economy, it would be worthwhile to discuss
steps Argentina could take to address a lack of foreign
investment. The AmCham board will share their specifics with
you. You can help set the stage for Secretary Paulson's
Friday a.m. meeting with Economy Minister Martin Lousteau by
stressing the need for a concerted and serious effort on
Paris Club, bilateral investment disputes, and eventually
bond holdouts. Your interlocutors are likely to raise the
GOA's desire to revive a 1997 U.S.-Argentina Memorandum of
Understanding calling for annual high-level bilateral
consultations; this could be useful to get a more concrete
GOA commitment to the importance of relations. End
Introduction.

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Up From A Recent Low Point
--------------

6. (SBU) You recall that it took seven weeks to work through
the discord over the Miami case surrounding the suitcase
scandal. On January 31, when I met with CFK, we agreed to
put the case aside and to work to strengthen bilateral
cooperation. CFK, her ministers, and other Kirchner
administration supporters have stuck to the agreement and

kept quiet about the court case. CFK received with much
publicity Codel Engel and senior intelligence official Kerr,
while Alberto Fernandez has publicly defended bilateral
relations. Still, everyone here is aware that the
investigations (in the U.S. and, less convincingly, in
Argentina) drag on, and that information may yet emerge that
some might find unwelcome.

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A Government Against the Ropes
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6. (SBU) A GOA decree issued March 11 that increased export
taxes on Argentina's main agricultural export crops
precipitated the worst political crisis of either Kirchner
administration. Argentina's four principal agricultural
organizations showed rare unity in organizing production
stoppages and blockades of Argentina's transport
infrastructure for twenty days, leading to nationwide
shortages of such staples as beef, chicken, dairy products,
and vegetables. Agricultural producers decided April 2 to
lift the strike for thirty days and hold discussions with the
GOA.

7. (C) The agricultural strike is another telling example of
poor crisis management by CFK and her advisors. What began
as a miscalculation -- it's difficult to tell which straw
will break the camel's back -- became a full-blown crisis as
CFK first eschewed conciliation with agricultural producers
and then ignored the considerable proportion of Argentines
sympathetic to them. Instead, she reverted to the rhetoric
of class warfare, utilized government-friendly unions and
"social groups" (thugs) to intimidate protestors, and railed
about unfair press coverage and prejudice against her as a
woman. Now, during what is supposed to be a period of
negotiation, we are seeing things like unionized truckers
surrounding and blockading the offices of a leading soy
producer, and talk of new commissions to review press
coverage. Since producers vowed to block Argentina's roads
again if they are unable to reach an acceptable agreement
with the government, it appears this crisis is far from being
resolved.

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Possible Deliverable: A Revived Bilateral MOU
--------------

8. (SBU) In connection with your visit, the Argentines have
proposed reviving a 1997 MOU signed by Madeleine Albright and
then-FM Guido Di Tella during President Clinton's visit to
Buenos Aires. Under a "Special Process of Regular High Level
Bilateral Consultations," the agreement calls for yearly
meetings of delegationsled by the Secretary of State and
Foreign Minister -- or their designees. The agenda, to be
determined by both sides, should advance "reciprocal
understanding, existing cooperation and, whenever possible,
policy coordination between both states in foreign policy."
The agreement was used to convoke meetings in Buenos Aires in
1997 and in Washington in 1999, and reflected Menem's
pro-U.S. tilt. While we want to avoid promising high level
meetings we can't deliver, reviving the MOU now would
illustrate that relations are back on track, with both sides
committed to strengthening the bilateral relationship. We
could also use the MOU to encourage the MFA to broaden its
agenda with us and to speak more often to the importance of
the bilateral relationship.

9. (SBU) This MOU, and the GOA's plans to revive it, will be
the focus of your April 11 meeting at the MFA. As envisioned
by the MFA, the 90-minute meeting would occur under the
auspices of the 1997 Framework and emphasize the
intensification of the bilateral agreement. The focus at the
meeting would be reaching an agreement on a bilateral tempo
of work in 2008 in MFA/State-chaired meetings. We understand
the MFA seeks commitment to engage in one high-level
bilateral meeting in 2008 (probably involving new Deputy
Foreign Minister Taccetti, who has served before in
Washington and Houston). The MFA also seeks agreement on
two-three lower-level meetings in Washington or Buenos Aires
during the course of the year. The two sides could share
ideas on possible issues that each side may wish to discuss
at later meetings, but we do not believe the MFA intends to
agree an agenda on April 11.

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Econ Issues: Paris Club, Bond Holdouts, ICSID Cases
-------------- --------------

10. (SBU) Paris Club (PC) is back in the news again this
week, driven by discussions on the subject with Economy

Minister Lousteau during the April 4-7 Miami IDB conference
and also by CFK's April 7 meeting with French President
Sarkozy in Paris. Lousteau will see Secretary Paulson April
11 in Washington and his Finance Secretary is seeking a
longer meeting with Treasury DAS O'Neil. GoA officials state
that resolving the PC is important but not urgent, continue
to push for generous restructuring terms, reject any IMF
oversight, and refuse to use Central Bank reserves to pay
down arrears. It is unclear whether CFK lobbied the French
to support this position with other PC member countries, to
take advantage of Sarkozy's direct interest in facilitating
the financing of French company Alstom's deal with the GoA to
build a US$3 billion high-speed train between Buenos Aires
and Rosario and Cordoba. (The financing for this contract
would be cheaper with support from France's Export Credit
Agency, which will not be possible without a PC agreement.)

11. (SBU) At the March 2008 PC meeting, creditors maintained
their common resolve to reject GoA arguments for special
treatment, particularly GoA claims that it does not have the
resources to pay PC debts over a short period of time. On
April 7, PC members reiterated that an IMF program is
required for any rescheduling, and without one Argentina
should clear its arrears on a voluntary basis. If CFK or
other GoA officials raise PC during your visit, you may want
to inquire about CFK's meeting with Sarkozy and latest
contacts with the PC Secretariat (Lousteau may see the lead
Secretariat official this coming weekend at the World

SIPDIS
Bank/IMF meetings.) You can also counsel that while U.S.
Treasury officials have consistently signaled a desire to
work constructively with the GOA, the Argentines need to put
forward serious ideas that reflect the realities of their
ability to pay and the PC members' points of view.

12. (SBU) The GoA -- and particularly CFK -- continue to
reject in public any accommodation with holdout bondholders
(of debt currently totaling about $28 billion),who continue
to seek compensation through U.S. and international courts
(so far without success in attaching GoA assets). Although
Foreign Minister Taiana and Economy Minister Lousteau have
acknowledged in private that this is an issue that the GoA
must deal with, there is no question that this is a low
priority. Eventually, the GoA will want to end the standoff
because it precludes it from issuing debt under international
law. During your meetings, you may want to acknowledge that
this is not a GoA priority, but highlight that U.S. holdouts
continue their lobbying of Congress and the administration,
so we hope that the GoA will see it in its own interest to
reach an accommodation with holdout bondholders.

13. (SBU) Finally, the GoA continues to stonewall on the
settlement of numerous ICSID international arbitration claims
by multinational firms, including many energy sector players
who argue that the GoA's "pesification" and later freezing of
dollar-based tariffs in the aftermath of the 2001/2 economic
crisis effectively expropriated their assets. While the face
value of U.S. company ICSID claims alone total totals over $4
billion, many U.S. companies have suspended -- but not
withdrawn -- their ICSID suits in order to win GoA
concessions on new business opportunities. One ICSID case
filed by U.S. energy company CMS was recently the first to
finish the tortuous 5-year ICSID arbitration and appeal
process. The GoA, however, has declined to pay the $150-odd
million award to CMS, claiming that CMS must now attempt to
collect through Argentine courts. CMS is considering whether
to seek more direct USG advocacy on its behalf, citing GoA
obligations to the USG under our Bilateral Investment Treaty.
CMS recently tried (and failed) to use NY courts to seize
some GOA funds. During your meetings, you may want to
suggest that a comprehensive resolution of outstanding
international arbitration claims will help get Argentina the
new foreign capital it needs to develop its overburdened
domestic infrastructure and that the USG is under increasing
pressure from U.S. ICSID claimants to encourage the GoA to
meet its final ICSID judgment obligations.

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Public Diplomacy
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14. (SBU) One of our major challenges is forging
relationships of trust with a government that has been
largely inward-focused and intent on maintaining an image as
independent from our country, often playing with local
anti-American sentiment. As you know, Argentina consistently
registers the highest levels of anti-Americanism in the
hemisphere in public opinion polls. I have made working to
change these perceptions the Embassy's highest priority.
That is why we have scheduled your social responsibility
event with underprivileged kids. We believe it is vital that

Argentines see that the U.S. has a positive social agenda as
well as creating win-win opportunities like enhanced science
or education cooperation.

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Security Issues
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15. (SBU) Argentina is, nevertheless, a Major Non-NATO Ally
and cooperates in regional security, counter-terrorism, drug
interdiction, and in contributing troops to U.N. peacekeeping
missions. The GOA has been a strong international voice on
arms control and nonproliferation issues. In the IAEA, the
GOA has voted to refer Iran's noncompliance to the UNSC. The
GOA has also endorsed the Proliferation Security Initiative
(PSI).

16. (SBU) Terrorism and Defense: Argentina was itself a
victim of international terrorist attacks in the 1990s and
has been a cooperative partner in countering terrorism,
especially in the Tri-border Area. We would like them to be
more active internationally to warn about Iranian-sponsored
terrorism, based on the 1992 and 1994 attacks. We assist the
GOA in capacity-building in the Financial Intelligence Unit,
within the restraints created by Brooke Amendment sanctions,
and to build the capacity of Argentine law enforcement
forces. We work closely with the Argentine military on
modernization, increasing interoperability, and training and
education focused on civilian control, respect for human
rights, defense resource management, strategic planning, and
science and technology. The Defense and Justice/Security
Ministers have been those most willing to publicly praise
U.S. assistance.

17. (SBU) International Crime and Drugs: Argentina is a
transshipment point for narcotics emanating largely from
Colombia, Peru, and Bolivia. Our Mission is focused on
institutional capacity-building and expanding training
opportunities for law enforcement officials, prosecutors and
judges. Justice and Security Minister Anibal Fernandez made
an announcement a month ago at a UN drug conference in Vienna
that the GOA intends to redirect its counternarcotics efforts
from the pursuit and prosecution of drug users to free more
resources for going after traffickers. We will work with
Fernandez and the relevant agencies to try to limit
unintended, negative impacts onour bilateral and regional
counternarcotics efforts as this new policy coalesces.

18. (SBU) Democracy and Rule of Law: We work with the GOA,
media and civil society to strengthen democratic
institutions, fight corruption and reinforce civilian control
of the military. We promote key reform efforts such as
ending the election of representatives by party slate lists,
increasing governmental transparency, and limiting public
corruption and strengthening the political independence of
the judicial branch. We cultivate the GOA as a partner in
the defense of democracy and the observance of human rights
in countries like Cuba, Venezuela, and Bolivia, as well as UN
peacekeeping in Haiti. As noted earlier, this is an area
where we seek more Argentine initiative.

19. (SBU) Human Rights: The Government of Argentina
generally respects the human rights and fundamental freedoms
of its citizens. The Kirchner government's human rights
policy focuses on seeking justice for the human rights
violations committed during the 1976-83 military
dictatorship, which resulted in the disappearance of
11,000-30,000 political dissidents.

20. (SBU) Human Trafficking: There is a chance that
Argentina's Chamber of Deputies will pass an anti-trafficking
legislation on the day before you arrive. Argentina is
currently on the USG's Tier-2 Watchlist for lack of progress
in providing greater assistance to victims and curbing
official complicity in trafficking at the provincial level.
We have been working hard with NGOs, lawmakers, and
government officials for the past year in an effort to push
for comprehensive anti-trafficking legislation. If the
Chamber of Deputies does pass relevant legislation, we would
seek to take advantage of your presence to publicize that
milestone.

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Commercial Landscape
--------------

21. (U) Over 450 U.S. companies are currently operating in
Argentina and employ over 150,000 Argentine workers. U.S.
investment in Argentina is concentrated in the manufacturing,
information, and financial sectors, but covers many fields.

Other major sources of investment include Spain, Chile,
Italy, France, Canada, Japan, and Brazil. U.S. investment in
Argentina is concentrated in the manufacturing, information,
and financial sectors. A range of economic experts have
identified challenges to sustaining high levels of economic
growth in the future, including: capacity constraints; the
need for substantial new investment in primary
infrastructure; potential energy shortages in the face of
high growth and domestic energy prices kept below
international market levels; increasing scarcity of highly
skilled labor; inflation and the government's heterodox
policies to contain it, including price controls.

22. (SBU) In support of U.S. companies operating in
Argentina, we are encouraging the GoA to support a more
welcoming investment climate, with greater regulatory, legal,
and tax regime consistency. You will get an understanding
for how the U.S. business community feels about the local
climate during your April 10 coffee with the AmCham Board.
We expend a good deal of effort supporting and working with
U.S. companies. Regarding ongoing WTO trade negotiations,
Argentina has staked out a hard-line position that links
acceptance of developed economy agricultural sector proposals
with more developing nation flexibility on industrial tariff
cuts. We have been urging them to adopt a more constructive
approach.

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The Media and the GOA
--------------

23. (SBU) Both Kirchner administrations have had longstanding
disputes with various media over issues such as the
pseudo-censorship implied by the federal government being a
principal source of media advertising revenues. The farm
strike marked a new escalation in the GOA's media battles.
CFK issued frequent criticisms of the media during the
strike, alleging "discriminatory" commentary and singling out
one cartoon (in Clarin) for particular attack. The GOA then
announced that it plans to set up a new watchdog entity, with
the power to levy sanctions, to check for discrimination in
the media. That proposal, not surprisingly, has prompted a
flood of editorials and protests by media associations this
week.
WAYNE