Scenesetter for Codel Engel Visit to Argentina, January 5-7

UNCLAS BUENOS AIRES 001414

SENSITIVE
SIPDIS
CONGRESSIONAL AFFAIRS BUREAU PLS PASS FROM AMBASSADOR MARTINEZ TO CONGRESSMAN ENGEL

E.O. 12958: N/A
TAGS: PREL OREP PGOV ECON ETRD ELAB PHUM PTER KTIP
SUBJECT: Scenesetter for Codel Engel Visit to Argentina, January 5-7


1. (SBU) Mr. Chairman, on behalf of Embassy Buenos Aires, I warmly
welcome you and your delegation to Argentina. I will have been in
the country for about four months when you arrive, and I am honored
to have you among my first Congressional visitors. The Government
of Argentina is interested in deepening relations with the United
States and values high level contacts with members of Congress. I
am especially pleased that you will have the opportunity to meet
with President Cristina Fernandez de Kirchner.




2. (SBU) I look forward to hosting you and the other members of
your delegation at a reception at my residence on January 5.
Please let me know personally if there is anything else we can do
to meet your needs while in the country. In the meantime, I have
asked my Embassy staff to make every effort to support you and your
delegation while in Argentina. I hope that your meetings will be a
significant success. I am providing the following background
material on Argentina to help you prepare for your visit.



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Political Context

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3. (SBU) You arrive in Argentina as President Cristina Fernandez de
Kirchner (CFK) begins the second-half of her four-year term. New
Members of Congress were sworn-in in early December, following June
2009 mid-term elections that were broadly perceived as a setback
for the President and her husband and predecessor, Nestor Kirchner
(NK). The Kirchners now face what is for them the novel challenge
of governing without majorities in either Chamber of Congress,
though their Peronist Party (PJ)-dominated Victory Front (FpV)
coalition remains the largest bloc in both chambers, and on some
issues they will likely be able to forge enough alliances to
approve some legislative initiatives.




4. (SBU) The FpV and other Kirchner allies won about 30 percent of
the vote nationwide in the mid-terms. In the province of Buenos
Aires, Argentina's largest and the home to millions of lower-middle
class and poor voters in the outer suburbs of Buenos Aires, NK led
the FpV ticket but placed second to "dissident" Peronist and
multi-millionaire Francisco de Narvaez.

Ruling party candidate lists also placed second or worse in major
provinces like Santa Fe, Cordoba, and Mendoza. The opposition
victories were shared among different national coalitions and
provincial movements.




5. (SBU) In a bid to regain political momentum, the CFK
administration launched a number of controversial measures before
the outgoing Members of Congress stepped down in December 2009.
One expensive measure was to purchase the rights to broadcast
national soccer league games on public television (games had
previously been made available under a pay-per-view contract).
Another, launched in August 2009, was to reform the country's
antiquated media laws.




6. (SBU) The new media law restricts the number of television and
radio broadcast channels that single groups may own. This was
perceived to be a blow against the large Clarin Media Group, which
has been consistently critical of the Kirchners. Of note, three
separate federal courts have ruled against the law since its
passage, putting its application on hold. One ruling in response
to an appeal launched by Clarin Group deems the law's requirement
that companies sell their excess television and radio broadcast
licenses as a potential infringement of property rights. The
Government will have to appeal the rulings, and it is anticipated
that the media law will ultimately be reviewed by the Argentine
Supreme Court.




7. (SBU) A final initiative, passed in December, was a political
reform bill that would require open primaries and participation
thresholds for all parties wishing to contest presidential and
national Congressional elections. The initiative was passed into

law under the outgoing Congress with virtually no opposition-party
support and with very little inter-party dialogue.




8. (SBU) CFK took office on December 10, 2007, succeeding her
husband. CFK is an experienced politician, having served in the
Chamber of Deputies and later in the Senate during her husband's
first term. She won the 2007 presidential election with 45% of the
vote over a divided opposition. Having campaigned on themes of
change and continuity, she retained most of her husband's cabinet
and agenda. During CFK's first year in office, however, she
suffered a sharp drop in popularity due to a four-month conflict
with the farming sector over agricultural export taxes, a conflict
that is still simmering. Since then other factors, including a
slowing of the economy in 2008 followed by a sharp recession in
2009, perceptions of rising crime, and political disillusionment
among certain segments of the population, have contributed to
continuing political difficulties for the President. Her approval
ratings now hover around 20%. One casualty of the agricultural
export tax vote was the President's relationship with her Vice
President, Julio Cobos, who cast a tie-breaking vote against the
government's proposal.




9. (SBU) Argentine politicians are already focused on presidential
elections in 2011. Conventional wisdom is that Nestor Kirchner
will stand for president as the FpV candidate, and his various
institutional resources will likely make him competitive. Much
will depend on how the main opposition currents in the country
coalesce. Leading potential candidates include CFK's estranged
Vice President Julio Cobos (former governor of Mendoza),Buenos
Aires Mayor Mauricio Macri, and Peronists Eduardo Duhalde (the
2002-03 caretaker president) and Santa Fe Senator Carlos Reutemann.
As in the past, one of many charismatic provincial governors may
also emerge as a leader.



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Bilateral Relations

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10. (SBU) Bilateral relations are good but sometimes delicate. For
example, in December 2007, two days after President Fernandez de
Kirchner was inaugurated, the GOA reacted negatively to news
reports concerning a federal case in Miami against three
Venezuelans and an Uruguayan who were arrested on charges of
operating in the United States as Venezuelan agents. Charges and
testimony in the case alleged events that were embarrassing for the
GOA. Both governments have since made efforts to improve the
bilateral relationship, in part by keeping the focus on the many
areas of practical cooperation between our governments such as
science and alternative energy, counter-drug cooperation, and
nuclear non-proliferation. The election of President Barrack Obama
also changed significantly the approach of CFK and her advisors
toward the U.S. Government, though areas of friction remain.




11. (SBU) Argentina cooperates with us and multilateral partners in
regional security, counter-terrorism, drug-interdiction,
nonproliferation and in contributing troops to U.N. peacekeeping
missions. The GOA has a strong international voice on arms control
and nonproliferation issues. In the International Atomic Energy
Agency, the GOA has voted consistently to refer Iran's
noncompliance to the UN Security Council. The GOA has also
endorsed the Proliferation Security Initiative (PSI) and the Global
Threat Reduction Initiative (GTRI). Recently, Argentina and the
U.S. co-hosted in Buenos Aires a gathering of all OAS States to
look for ways to better implement UN resolution 1540, which is
aimed at keeping WMD from terrorists. The USG and Argentina have
realized some of the best examples of bilateral cooperation under
the banner of science, and we have a long history of aerospace
cooperation with Argentina.



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Anti-Americanism and Public Diplomacy

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12. (SBU) The greatest overall challenge we face in Argentina is
the high level of anti-Americanism among the Argentine public.
Argentina consistently registers the highest levels of
anti-Americanism in the hemisphere in public opinion polls.
Working to change these perceptions is the Embassy's highest
priority. We believe we have found a formula for success through
substantially increased media outreach, focused attention on youth,
greatly expanded English language teaching program, and augmented
involvement with NGOs and community activities. We seek to use all
available resources, from visiting American rock groups and sports
heroes to Nobel Prize winners and U.S. companies, to carry the
positive agenda forward.




13. (SBU) The election of President Obama has given our public
diplomacy efforts a big boost. He rates very highly in opinion
polls and the President of Argentina has made clear her hope to
build a good relationship with him. Argentina maintains positive
political relations with the United States, but there is room for
further improvement. One of the major tasks facing the Embassy 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.



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Economic Context

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14. (SBU) Argentina, once one of the richest countries in the
world, has experienced much economic and political instability over
the last 70 years, culminating in a profound political and economic
crisis in 2001-2002 that was comparable to our Great Depression and
included Argentina's default on $82 billion in debt, the largest
sovereign debt default in history. Many Argentines are at a loss
to explain how their country, blessed with rich natural resources,
fertile land, and low population density, fell so far short of its
potential. Some blame the military dictatorships, which
predominated between 1930 and 1983. Others blame corruption and a
series of populist measures taken since 1944. Many Argentines
blame external factors, particularly the IMF and alleged U.S.
insensitivity to their plight for the last crisis.




15. (U) Argentina's economy sustained a robust recovery following
the 2001/2002 economic crisis, with five consecutive years of over
8.5% real growth in gross domestic product (GDP). Argentine GDP
reached US$ 320 billion in 2008, approximately US$ 8,150 per
capita. The economic expansion created jobs, with unemployment
declining from over 21% in 2002 to 7.3% as of the fourth quarter of

2008. Poverty levels also dropped. According to government
statistics, 15.3% of the population in the 31 largest urban areas
remained below the poverty line in the second quarter of 2008, down
from over 50% in the immediate aftermath of the economic crisis.




16. (U) Argentina benefits from rich natural resources, a highly
educated population, a globally competitive agricultural sector,
and a diversified industrial base. Argentina's post-crisis move to
a more flexible exchange rate regime, along with sustained global
and regional growth, a boost in domestic aggregate demand via
monetary, fiscal, and income distribution policies, and, most
importantly, favorable international commodity prices and interest
rate trends were catalytic factors in supporting renewed growth
between 2003 and 2008. A higher tax burden, improved tax collection
efforts, and the recovery's strong impact on tax revenues supported
the government's successful efforts to maintain primary fiscal
surpluses since 2003.




17. (SBU) Although Argentina continued its strong expansion in
2008, with GDP growth at close to 7%, 2009 saw a sharp deceleration
of economic activity, with most analysts projecting a contraction
of 2-3%. This recession was largely due to the impact of ongoing
global financial turmoil and the resulting slowdown in world
economic output. Due to a healthier international economic climate

and a rebound in commodity prices that is expected to continue in
2010, many analysts project growth in the range of 3-5% of GDP in
2010, as compared to government projections of up to 7%. Many
private analysts also expect inflation to accelerate somewhat in
2010 to the 17-20% range, up from the 12- 15% consensus figure for

2009. [Post Comment: The government economic statistics agency is
viewed by private analysts as having consistently understated
inflation and other economic measurements for the past several
years. The agency's inflation measure for 2009 is expected to come
in well under 10%. End comment].




18. (U) Argentina's exchange rate policy is based on a managed
float. Market analysts have considered the peso's real exchange
rate undervalued in previous years. The previous undervaluation,
along with historically high global commodity prices, helped lift
export volumes and values to record level, resulting in an
estimated $12.6 billion trade surplus in 2008. Foreign trade was
approximately 39% of GDP in 2008 (up from only 11% in 1990) and
plays an increasingly important role in Argentina's economic
development. Exports totaled approximately 21% of GDP in 2008 (up
from 14% in 2002),and key export markets included MERCOSUR (23% of
exports),the EU (19%),and NAFTA countries (10%).




19. (SBU) Two-way trade in goods with the U.S. in 2008 totaled
about $13.3 billion (according to the U.S. International Trade
Commission). Total two-way trade in services in 2008 was $3.4
billion, according to the Bureau of Economic Analysis, U.S.
Department of Commerce. Total two-way trade in services in 2007
(the latest data available) was $4.0 billion, $5.0 billion, $3.5
billion in U.S. exports to Argentina, and $1.5 billion in U.S.
imports from Argentina, according to the Bureau of Economic
Analysis, U.S. Department of Commerce. The production of grains,
cattle, and other agricultural goods continues to be the backbone
of Argentina's export economy. High technology goods and services
are emerging as significant export sectors.



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Promoting U.S. Economic/Commercial Interests

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20. (SBU) Around 500 U.S. companies are currently operating in
Argentina, employing over 155,000 Argentine workers. U.S.
investment in Argentina is concentrated in the manufacturing,
information, and financial sectors. Other major sources of
investment include Spain, Chile, Italy, France, Canada, Japan, and
Brazil. We expend a good deal of effort in support of U.S.
companies operating in Argentina, and encouraging the GoA to
maintain a more welcoming investment climate, with greater
regulatory, legal, and tax regime consistency. As an example of
the types of problems faced by companies operating in Argentina,
the government in late 2008 nationalized Argentina's private
pensions system, which affected two U.S. companies that had been
running pension funds. Earlier this month, at a roundtable with
US-based companies operating in Argentina, A/S Valenzuela heard
that 2009 was not as bad as anticipated, and that the outlook for
2010 was good. The company representatives mentioned that things
could be better with improvements to the business climate,
specifically in the area of rule of law. Valenzuela repeated this
comment to the press which gained widespread media attention and
the GOA's heated rebuttal.




21. (SBU) We are working closely with the GoA and the "Paris Club"
of sovereign creditors to resolve longstanding arrears to the USG,
and are encouraging the GOA to resolve claims of U.S. holders of
defaulted Argentine bonds. These continuing Argentine arrears to
international creditors and a large number of international
arbitration claims filed by foreign companies are legacies of the
2001/2002 economic crisis that remain to be resolved and adversely
affect Argentina's investment climate. Outstanding debts include
over $28 billion in default claims by international bondholders and
approximately $8 billion owed to official ("Paris Club") creditors.
The Government has initiated the process of making a new debt
exchange offer for those bondholders who did not participate in the
initial 2005 attempt to restructure Argentina's debt. The offer is
now scheduled to move forward in the second week of January. If
this offer succeeds, the government has indicated that it might

initiate discussions with the Paris Club and the International
Monetary Fund to resolve more of its debt issues.




22. (SBU) Regarding currently stalled WTO trade negotiations,
Argentina has staked out a 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 flexible approach. We have also
encouraged the GOA to uphold its G-20 pledge to refrain from
implementing protectionist measures in response to the
international financial crisis.



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The Labor Scene

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23. (SBU) Argentina has a strong and politically well-connected
labor movement. At the national level, the General Confederation
of Workers (CGT),headed by Hugo Moyano since 2004, is recognized
as the exclusive legitimate representative of trade federations and
trade unions. The International Labor Organization has rejected
Argentina's internal regulations granting exclusive authority to
one confederation as violating Convention 87 on Freedom of
Association. A smaller and more radical national organization, the
Argentina Worker Central (CTA),continues to petition for
government recognition, and while a December 2009 court ruling
determined that the government cannot provide exclusive authority
to one union, no changes have yet been implemented. At stake are
both influence and access to state resources, for example
government provided health benefits that are channeled through the
labor confederation structure. The CTA has a broad definition for
membership, including in its ranks the unemployed and informal
workers, which the CGT does not. The CGT is divided into several
factions. Moyano is a strong political supporter of the Kirchners
and their policies, a position not shared uniformly among CGT
affiliate federations in different sectors.




24. (SBU) At the factory level or occupational sector level,
Argentine law recognizes one union as the legitimate representative
for collective bargaining purposes, as well as for the mandatory
retention of dues by the employer. The Government will give a
basic legal registration to all other unions, but only the one
showing a plurality of membership will be given full recognition.
Often there is a contest at the shop level between CGT and CTA
affiliates, and this was one significant dynamic at the labor
action at a local food-processing plant owned by Kraft. The
initial demand for benefits and then the subsequent protests at the
plant were led by a smaller, unrecognized affiliate of the CTA.



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Trafficking in Persons (TIP)

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25. (SBU) Argentina is 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.
However, the legislature last year passed fairly comprehensive
anti-TIP legislation that makes TIP-related violations a federal
crime. Argentina is a source, transit, and destination country for
men, women, and children trafficked for the purposes of commercial
sexual exploitation and forced labor. According to the
International Organization for Migration, 80% of trafficking
victims in Argentina are Argentine, most of whom are trafficked for
the purpose of sexual exploitation. Bolivians and Peruvians are
trafficked into the country for forced labor in sweatshops and
agriculture. Argentine efforts to combat trafficking have focused
on prevention and training of security and government officials.




26. (SBU) One of our key goals in the Embassy this year is to
support a vigorous GOA implementation of the new federal law and

promote the prosecution of human traffickers. We supported this
with public statements in support for opening shelters for victims
of trafficking, funding a week-long conference for judges and
prosecutors September 21-25, and have dedicated resources for
continuing technical assistance. We will also encourage the GOA to
provide more uniform services to trafficking victims, an area of
weakness listed in the TIP report. Some NGOs have criticized this
new law as weak on the issue of adult "consent," but the Justice
Ministry has been vigorous in arresting traffickers and freeing
minor and adult victims.



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Human Rights

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27. (SBU) The Argentine government 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 between
11,000-30,000 leftist guerrillas, political dissidents and related
family members. It does not, however, focus on bringing to justice
armed guerrilla groups who also committed significant but smaller
scale human rights abuses during the same period (known as "the
Dirty War"). To date, the courts have indicted an estimated 526
persons for crimes against humanity, and sentenced 52 former
officials of the military regime, including a military chaplain.




28. (SBU) The USG and GOA generally cooperate on human rights
issues in international and regional fora. The GOA has not been a
strong advocate for reform in Cuba and has publicly pressed for the
United States to end its trade embargo and other restrictions.



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International Crime and Drugs

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29. (SBU) Argentina is a transshipment and destination point for
narcotics emanating largely from Colombia, Peru, Bolivia, and
Paraguay. With its large chemical and pharmaceutical industries,
Argentina is also a source and destination for precursor chemicals.
Argentine law enforcement agencies cooperate closely with their USG
counterparts on drug interdiction efforts, fugitive arrests, and
information sharing, which has resulted in increased drug seizures
and successes against trafficking organizations. This Mission is
focused on institutional capacity-building and expanding training
opportunities for law enforcement officials, prosecutors and judges
in order to improve internal security and decrease international
drug and criminal activity in Argentina. Cabinet Chief An????bal
Fernandez has repeatedly stated that he wants to put top priority
on attacking drug traffickers and less priority on arresting
individual users, and the Argentine Supreme Court in August issued
a ruling that suggested the decriminalization the personal
possession of small amounts of marijuana. One challenge to a more
effective policy against international crime is Argentina's
judicial system, which remains inefficient despite halting efforts
at reform.



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Terrorism

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30. (SBU) Under both Kirchners, Argentina has supported
counter-terrorism policies. 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 (where Argentina, Brazil, and Paraguay meet). In
November 2007, Argentina succeeded in getting Interpol's General

Assembly vote to issue international capture notices for five
current and former Iranian officials wanted in connection with the
1994 terrorist bombing of the Buenos Aires Jewish Community Center
(AMIA). The GOA issued sharp protests when one of those indicted,
Ahmad Vahidi, was named in August to be Iran's Minister of Defense.
President Fernandez de Kirchner repeated strong statements about
the Vahidi nomination and about Iran's obligation to surrender the
suspects for fair trial in Argentina during her remarks at this
year's United Nations General Assembly.



MARTINEZ
MARTINEZ