ARGENTINA: VP COBOS VOTES AGAINST KIRCHNERS IN AG

C O N F I D E N T I A L BUENOS AIRES 000980

SIPDIS

E.O. 12958: DECL: 07/17/2033
TAGS: PGOV EAGR ECON EINV ELAB PHUM AR
SUBJECT: ARGENTINA: VP COBOS VOTES AGAINST KIRCHNERS IN AG
EXPORT TAX TIEBREAKER

REF: A. BUENOS AIRES 0973

B. BUENOS AIRES 0963

C. BUENOS AIRES 0943 AND PREVIOUS

Classified By: ADCM Doug Climan for reasons 1.4 (b) & (d).


1. (C) Summary: After 18 hours of debate, Argentine VP Cobos
broke a 36-36 tie in the Senate with his vote against the
government's bill sanctioning the increase in agricultural
export duties it had unilaterally announced March 11. The
agricultural sector welcomed the news, although the
congressional vote leaves in place the March 11 resolution.
The GOA is now under intense pressure to repeal or modify the
export tax regime, but it has not yet indicated how it will
proceed. Cobos's dramatic vote against the government's
proposal launched speculation about his prospects in the
Kirchner administration. A few hours after the vote, Cobos
announced that he did not intend to resign as he was elected
by the people to serve as vice president. The Casa Rosada,
meanwhile, has remained hermetically silent, although the
President is anticipated to address the Senate vote at a
previously scheduled airport inauguration in Chaco province
on July 17 at 1900 local. The Senate vote is a stunning
reversal for the Kirchners, who as recently as seven months
ago seemed to have two-thirds of the votes in both houses of
Congress. The congressional defeat, in tandem with the
Kirchners, sharp drop in public opinion polls as a result of
their handling of the farm crisis, has politically weakened
the Kirchners. With almost three and a half years remaining
in Cristina Fernandez de Kirchner's (CFK) administration, the
question remains whether and how CFK can rebuild her
political capital and recover momentum. End summary.


2. (SBU) The Kirchner administration's unilateral March 11
tax hike triggered a farm protest that over the last 127 days
has turned into the most serious challenge to the political
hegemony enjoyed by Nestor (NK) and Cristina Fernandez de
Kirchner (CFK) since NK took office in May 2003. When CFK
announced June 17 that she was submitting the tax hike to the
Congress for its approval, NK quickly turned the issue into
something of a vote of confidence for the government. This
may have seemed a safe bet at the time. In the immediate
wake of the October 2007 elections, it appeared that the
Kirchners had two-thirds support in both houses of Congress.
In tandem with the Kirchners' sharp drop in public opinion
polls (from a peak of 56% to a recent 20%),they also seem to
have lost support in Congress and within their own ruling
coalition. In the Chamber of Deputies, the GOA proposal
barely squeaked by July 5 with a 129-122 vote. The
conventional wisdom was that the Kirchners would have an
easier time in the Senate. On July 17, after 18 hours of
debate, the Senate tied at 36 to 36, forcing VP Julio Cobos
to break the stalemate after the bloc leaders, Senator Miguel
Angel Pichetto (Peronist Party-PJ) and Senator Ernesto Sanz
(Radical Party-UCR),rebuffed Cobos's request for adjournment
to reach a consensus on the main points of disagreement.
Earlier in the day, Cobos reportedly tried to convince Chief
of Cabinet Alberto Fernandez to adjourn the debate, without
success.


3. (C) Cobos, a former governor of Mendoza, is not a member
of the Kirchners' Peronist Party but a life-long activist in
the UCR. He was one of many "Radical K" governors and mayors
who have allied themselves with the Kirchners and was picked
as CFK's running mate in an effort to lend credibility to the
Victory Front's (FPV) claim that it was a cross-cutting
("transversal") alliance. In the seven months since taking
office, Cobos has occasionally expressed minor differences
with the Kirchners. As the farm crisis intensified, however,
Cobos's discomfort with the process and substance of the tax
hike, and his sympathies for the agricultural sector, became
evident. The weekend of June 15, he released a public letter
calling for the GOA to shift the locus of the farm conflict
to the legislature by sending Congress the tax rates for its
approval. It was Cobos's public invitation -- as well as
intimations that the Supreme Court might rule against taxes
that had not been authorized by Congress -- that seemed to
induce CFK into her June 17 announcement that she would seek
congressional approval.


4. (C) Argentine legislators have long been known for being
more responsive to their political bosses than to their
voters. The intensity of the nationwide uproar and the
insistence of farmers in opposing the tax hike apparently
forced many legislators to reconsider their priorities. In
the July 5 vote in the Chamber of Deputies, the government
managed a 129-122 victory with some last-minute bargaining
and concessions to congressional holdouts. It was widely

expected that similar tactics would ensure at least a narrow
victory in the Senate as well.


5. (SBU) All 72 Senators spoke during the 18-hour debate. At
4:25 in the morning, a weary-looking and nervous Cobos
announced his vote after speaking for 40 minutes. In his
emotional remarks, Cobos explained that he was expressing his
conviction and did not believe that the bill is a reason to
put the country's stability and social peace in danger. He
said he wanted to continue being the vice president of all
Argentines, adding that he believed CFK would understand him
because he does not believe that this law resolves the
conflict. In his final remarks before announcing his vote,
he said history would be the judge, begging forgiveness
should his vote be a mistake.

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What's Next on the Export Tax
--------------


6. (SBU) While a dramatic reversal for the government, the
Senate vote does not repeal the controversial variable export
tax regime implemented on March 11 (Resolution 125),which
the government has always insisted it had the authority to
implement under existing legislation. The variable export
tax regime remains in place until it is abrogated or modified
by the GOA or struck down by the courts, according to
constitutional law expert Daniel Sabsay. Given the Senate's
vote, he opined that the Executive branch should abrogate the
former resolution and return to the status quo before the
resolution took effect on March 11. Otherwise, he indicated
that farmers could easily seek redress in the courts
demanding reimbursement for the taxes paid in excess since
March 11. He rejected the possibility of a new debate of the
executive bill in the Congress, saying that the Senate's vote
implies a total rejection of the bill. According to Article
81 of the national Constitution, a bill that has been
rejected (as opposed to modified) by the Senate, loses
parliamentary status, and cannot be considered again by the
Congress in either chamber until next year, he explained.


7. (C) The GOA has not announced how it will respond to the
vote, however, it is highly likely that it will be forced to
repeal or modify the variable tax regime. NK announced
during the pro-government rally on July 15 that the
government would respect the decision of the Congress,
although the government at the time expected to win the vote.
Repeal of the measure would lower the export tax on soybeans
from the current rate of 47 percent (the rate changes every
day) to the 35 percent export tax in place prior to the
implementation of Resolution 125. The government may also
modify the measure to establish an export tax between these
two rates, although any move to maintain an export tax above
35 percent would provoke a major reaction from farm groups.


8. (SBU) Farm leaders welcomed the surprise victory, but have
been quick to emphasize that the variable export tax (which
covers soybeans, sunflower, wheat and corn) is not the only
issue they have with the government. They continue to be
concerned about government restrictions on export of beef,
dairy, wheat and corn, and will be seeking a comprehensive
policy to address support for other agricultural products.

--------------
Where Does Cobos Go From Here?
--------------


9. (SBU) Speaking to the press on July 17, Cobos appeared
relaxed and asked Argentines to remain calm. He denied
rumors that he would resign, and asserted that if CFK asked
for his resignation, it would not be good for the
institutionalization of Argentine democracy. Cobos called
the crisis a "social, not political" crisis, and expressed
concerns that the predicament had precipitated "threats of
civil war" and that "he wanted peace now." He stressed that
his decision was based on what is good for democracy. When
asked by the press if the Kirchners would understand his
decision, Cobos replied that he hoped the Kirchners
understand, and then appeared to correct himself when he
stressed that he hoped CFK understands the decision. He
said, "CFK has a chance to begin a new stage." Cobos also
indicated that he had not spoken with the President and was
going to Mendoza, his home province.

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


10. (C) The tie in the Senate caught most by surprise. Major
media outlets delayed publication of hardcopy papers to
rewrite their cover stories. Passage had been considered a
done deal for several days, with TV channels showing tickers
that forecasted a 37-35 vote in favor of the bill during live
coverage of the Senate debate. However, by 11:30 pm on 16
July, Argentine television was predicting a dramatic tie
would ensue. Although the Kirchners most likely believed the
vote would never come to this, they undoubtedly feared that
Cobos would break with the administration and vote against
the bill. In recent weeks, Cobos had angered both CFK and
her husband by speaking out in favor of the farmers, holding
unsanctioned meetings with provincial governors, and
suggesting that the Congress vote on the controversial
variable export tax regime in the first place. In addition,
he did not attend the July 15 pro-government rally organized
by NK. At the event, former Vice President and current
Governor of Buenos Aires Province Daniel Scioli noted "the
institutional responsibility of the vice president" which
many interpreted as a warning to Cobos to stay in line.


11. (C) Despite such warnings from the Kirchner camp, Cobos
appears to have made political gains in recent weeks for his
independent stance throughout the farm dispute, and it is
likely that his vote in Congress will further boost his
approval ratings. Just last week, Cobos's approval was
significantly higher than the Kirchners with 37.5 % in a July
9 poll indicating they viewed Cobos "positively," 23.5
percent "regularly," and only 6.8 percent "negatively." This
situation will likely earn him greater public support,
possibly helping to buttress him against any pressure by the
Kirchners to get him to resign. Earlier this month, Senate
Majority leader Miguel Angel Pichetto's publicly suggested
that Cobos resign if he voted against the administration.
Cobos's attempts to reassure the public that he would not
resign appear to be a move to preempt such calls for his
resignation. Nevertheless, his political future remains
unclear. Cobos was referred to as the "Satanic Doctor No" on
today's front page of Pagina 12, which is widely considered
to tout the official line.


12. (C) The vote represents a major defeat for the
government and could signal the beginning of greater checks
and balances on the CFK administration's power. The Congress
had been marginalized in recent years but unexpectedly found
itself at the center of attention in the last four weeks as
it took up the tax legislation. Emboldened by this
experience, the Congress may begin asserting itself on
questions of national policy, which would be good for
Argentina's democratic institution building. It is
interesting to note that Cobos, opposition leader Elisa
Carrio, and Senators who voted against the CFK administration
have emphasized that the vote does not represent a threat to
CFK's presidency. They insist that it is a positive
development in the institutionalization of Argentine
democracy and an opportunity for CFK to start anew. How CFK
responds to the defeat will set the direction for the
remaining three and a half years of her administration. The
GOA maintains the ability to restrict exports and could use
this power to punish the rural sector for the defeat,
although this would be highly risky and divisive for
Argentina. CFK is scheduled to speak on July 17 at 1900 local
time at an airport inauguration in Chaco province, where she
is widely anticipated to take this opportunity to indicate
whether she will seek the high or the low road.
KELLY