ARGENTINA PROTESTS INVESTMENT CLIMATE STATEMENT

C O N F I D E N T I A L BUENOS AIRES 000404

SIPDIS

E.O. 12958: DECL: 04/04/2029
TAGS: ECON EINV PGOV PREL AR
SUBJECT: ARGENTINA PROTESTS INVESTMENT CLIMATE STATEMENT

REF: A. BUENOS AIRES 257

B. BUENOS AIRES 225

C. '08 BUENOS AIRES 56

Classified By: Amb. E.A. Wayne. Reasons 1.4 (B,D)

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Summary
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1. (C) Foreign Minster Jorge Taiana sent a letter to
Ambassador Wayne the evening of April 3 strongly protesting
our 2009 Investment Climate Statement (ICS) posted on April

2. The sharply worded message was apparently drafted by
Taiana and President Cristina Fernandez de Kirchner (CFK)
late April 3. The letter has not been given to the press,
which we suspect reflects Taiana's effort to contain the
issue. None of the local April 4 press addresses the ICS
except for a positive story reflecting Embassy's April 3
press release. We believe the President's anger was set off
by three April 3 local press items highlighting the more
negative points made in the ICS and neglecting the positive
points in it and in the larger Country Commercial Guide, also
posted April 2. This sharp GoA reaction reflects a long
pattern of thin skinned responses to annual U.S. reports.


2. (C) The Foreign Minister's letter condemns the USG's
practice of issuing "unilateral" and judgmental public
reports on third country economic policies and criticizes the
use of unidentified third party sources as calling the
report's objectivity into question. The letter puts the ICS
in the context of the international global financial crisis
as potentially damaging existing investments whose value is
already in jeopardy and questions the moral authority of the
USG to comment on Argentine corruption in light of recently
revealed U.S. financial scandals. Taiana's letter also
questions whether the ICS' documentation of comments by U.S.
companies operating here that they are placed at a
competitive disadvantage by acting ethically and obeying
Argentine law and tax regulations suggests that we believe
local companies are not acting ethically. The letter closes
with a call for renewed bilateral cooperation in the G20
context.


3. (C) Given GoA sensitivity to the release of earlier public
reports, including the prior year's ICS, the 2009 INCSR Money
Laundering Report, the TIP and Human Rights reports, the
Consular Information Sheet, and periodic economic updates to
our Country Notes, post had carefully reviewed the 2009 ICS
to ensure it met our legal obligations to inform U.S.
investors about the realities in Argentina but avoided
unnecessary controversy by attributing opinions on sensitive
issues (e.g. the GoA's widely acknowledged manipulation of
inflation and other economic statistics) to third party
sources. Post's ICS roll-out strategy included a decision to
delay its release until after the G20 Summit along with
pre-release notification to GoA officials and local media.
While we cannot discount the possibility that President
Kirchner or Minister Taiana will go public with the GoA's
protest letter in the coming days, we understand from our
Foreign Ministry colleagues that there are no plans to do so
at this point. Nor does the story appear to have legs in the
local media, but Taiana may raise it when he sees Secretary
Clinton Aril 7. End Summary

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ICS Rollout Strategy
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4. (C) In light of extensive local media coverage of the
release of a whole string of required U.S. public reports,
including on the 2008 Investment Climate Statement (Ref C),
the 2009 INCSR Money Laundering Report (Ref B),the economic
commentary in our periodic Country Notes updates, the TIP
report, the Human Rights report and the Consular Information
sheet, and given earlier GoA complaints about the content of
such reports, Post developed a roll-out strategy for our 2009
ICS. This included a line-by-line review of the ICS to
ensure the accuracy of all statements and to attribute the
most controversial of these (e.g. on the GoA's widely
acknowledged manipulation of inflation and other economic
statistics) to third party sources.


5. (C) The roll-out strategy included delaying the ICS
release from the original late February date when the bulk of
global ICSs are posted to the State website to an April 2
national holiday here after the G-20 meetings and the Vice
President's meeting with CFK in Chile. In advance of this
upload, Post gave prior notification (but not advance copies)
to responsible local media and to GoA contacts at the Foreign
Ministry, Production Ministry and office of the Chief of
Cabinet. Our heads-up to GoA media and local officials set
the ICS in the context of the broader 110-page Country
Commercial Guide (the CCG, of which the ICS is one chapter)
that is geared to helping U.S. exporters and investors
identify the most promising sectors of the economy in which
to engage. We noted that both the CCG and ICS are
longstanding reports prepared jointly by the U.S. Commerce
and State Departments and that the ICS is a technical
document (not a policy message) summarizing publicly
available information on a range of themes relating to a
country's foreign investment regime, positive and negative.

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Broad Argentine Media Coverage of ICS Upload
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6. (SBU) On April 3, three dailies gave extensive coverage of
the ICS, with leading circulation daily Clarin dedicating the
same full-page space to the ICS release as it did to a G-20
review, with the headline "Critical US Report on Argentine
investment Climate." Daily of record La Nacion ran the story
as its Economic and Business section lead, with the headline
"US Doesn't See (adequate) Investment Climate and Speaks of
Corruption in the Country." The three dailies highlighted
critical ICS comments on the current economic downturn, the
possibility of a further depreciation of the Peso, and the
potential inflationary impact of the Central Bank's strategy
of maintaining an undervalued currency and net negative real
interest rates. The dailies also highlighted the ICS'
documentation of complaints by foreign companies on lack of
GoA movement on outstanding ICSID international arbitration
suits, U.S. investor complaints that their adherence to the
letter of Argentine tax and regulatory codes places them at a
competitive disadvantage, and company complaints on the lack
of clear and stable GoA regulatory regimes including in
energy and mining sectors. Finally, media reports highlights
the ICS comments on company complaints of official GoA
corruption and on poor judiciary enforcement of corruption
legislation, citing recent World Bank and Transparency
International reports. Perhaps not surprisingly, the media
did not highlight positive points in the ICS or the Country
Commercial Guide.

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Embassy April 3 Outreach to GoA and Press Release
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7. (C) In response to media coverage, Ambassador, DCM and the
Economic Section were contacted April 3 by GoA officials on
the ICS release. This included a call to Ambassador from
Central Bank President Redrado complaining that the report
unfairly singled out his central bank's policies as
responsible for Argentine inflation whereas other GoA actors
(e.g. the Kirchner administration's excessive pro-cyclic
spending) are also to blame. In responses to senior GoA
officials, including to the Chief of Staff to Foreign
Minister Taiana, Embassy officers put the ICS in the context
of the broader pro-investment Country Commercial Guide. The
Ambassador passed the clarification to the President's chief
counsel and to the Interior Minister, both of whom are close
to CFK and her husband. Post also put out a press release
(see para. 8) detailing the Congressionally-mandated nature
of the ICS, putting it in the broader context of the CCG and
noting thee 500-odd U.S. companies who have found Argentina's
investment climate attractive enough to sustain and in some
cases expand their investments here. This led to a very
positive story April 4 in the largest web news portal
Infobae.Com.


8. (U) Begin April 3 ICS Press Release Text:

Our Country Commercial Guide (CCG) and the Investment Climate
Statement (ICS) included in the CCG were uploaded to the
Embassy and Washington websites April 1. The ICS is a
chapter of the CCG. Both replace prior versions which had
been uploaded early in 2008.

The CCG reviews business opportunities sector by sector and
is geared toward helping U.S. exporters and investors
identify the most promising sector of the economy in which to
engage. This year's CCG, for example, identifies a number or
sectors with significant market potential including
information/communications technology, agricultural machinery
parts, renewable energy equipment, and safety and security
equipment, among others.

Both the CCG and ICS are longstanding annul reports mandated
by the U.S. Congress for all countries. Prepared jointly by
the U.S. Commerce and State Departments, they present a
variety of themes related to a country's commercial
opportunities and investment regime. They are technical
documents that summarize publicly available information drawn
from a wide variety of sources including analyses by
government and non-government experts.

Based partially on information provided in these annual
reports, a number of U.S. companies have entered the
Argentine market. In addition, based on their own experience
here, a number of current investors have recently announced
their intent to expand their operations in Argentina, as the
U.S. Embassy has publicly released. According to Department
of Commerce data noted in our ICS, approximately 500 U.S.
companies have invested over US$ 14 billion in their
Argentine operations and currently employ over 150,000
Argentines. We are pleased that U.S. company investment
flows clearly demonstrate the attractive opportunities
Argentina offers today.

Both reports can be viewed on the following U.S. Embassy web
page:

End Pres Release

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GoA Response: Sharp Protest Letter to Ambassador
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9. (C) In the late afternoon of April 3, we were informed by
Foreign Ministry contacts that Foreign Minister Taiana was
meeting with President Cristina Fernandez de Kirchner on the
ICS and that the Foreign Minister would be sending a letter
to the Ambassador. At 20:30 local time, the following letter
from Foreign Minister Taiana to Ambassador Wayne was
delivered to the Embassy:

Begin Text: Informal Translation

Foreign Ministry Letterhead

April 3, 2009

Dear Mr. Ambassador,

Argentina considers that the practice of drafting unilateral
public reports about the development of third country
policies and passing judgment over them does not contribute
to the strengthening of relations with those countries.

In this opportunity, I want to refer to the "2009 Investment
Climate Statement - Argentina" which introduces value
judgments and negative comments, frequently from the mouths
of third parties. The biased use of information sources as
well as the invocation of unidentified third parties
diminishes the report's objectivity.

In the context of an international crisis that is destroying
the value of investments, that is causing job losses in the
world, and that had its origin in the United States and not
in Argentina nor in the other countries under analysis in
Investment Climate Statements, it is not appropriate and not
constructive to engage in these practices (i.e. practices of
drafting unilateral public reports),above all in light of
the multi-million dollar frauds and swindles that took place
in your country.

The inclusion of comments coming from unidentified sources
diminishes the seriousness and objectivity of the report. The
mention of the disadvantage at which American firms are
placed for fulfilling the law and behaving ethically, wrongly
suggests that local firms do not behave in the same way.
These statements from unidentified sources highlight the
existence of conflicting business interests.

In this context, and at this time when our countries in the
bilateral and G-20 framework seek cooperation to reactivate
and get the international economy back on track, it is
fundamental that our two countries work in a constructive way
to deepen our bilateral relations.

Closing Salutation
Jorge Taiana
Minister of Foreign Affairs

End Informal Translation


10. (C) On April 4, MFA contacts indicated that this letter
would not be passed in Washington by Ambassador Timerman and
that there are no GoA plans to release this to the media.
They confirmed that Minister Taiana will depart Buenos Aires
April 4 for Washington.

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April 7 Taiana/Clinton Mtg: Suggested ICS Points
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11. (SBU) In the likely event that Minister Taiana raises
this ICS issue during or on the margins of his meeting with
Secretary Clinton, Post offers the following points:

-- The Country Commercial Guide and its Investment Climate
chapter are Congressionally-mandated annual reports that
present an overview of Argentina's commercial environment
using public source economic, political and market analysis.
They are geared toward helping U.S. exporters and investor
identify the most promising sectors of the economy in which
to engage, and they identify areas for potential further U.S.
business.

-- Over 500 U.S. investors currently operating in Argentina
have voted with their capital -- over US$ 14 billion by 2007
according to the U.S. Commerce Department -- on the quality
of Argentina's investment climate.

-- The closing paragraph of your letter to Ambassador Wayne
spoke of the need -- in the context of the international
financial crisis -- for our two countries to work
constructively together. The far-reaching G-20 leaders
statement signed April 2 by Presidents Kirchner and Obama is
a compelling affirmation that we are and intend to continue
working together constructively.

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Comment
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12. (C) Foreign Minster Taiana's sharp protest letter appears
to have been drafted on the basis of local media reports on
the ICS read by President Kirchner and Taiana. Our hunch is
that Taiana spent several hours working to manage CFK's anger
at the press reports and to convince here to respond via
letter rather than in some public way. The letter's
denouncement of "unnamed third party sources" appears more
than a bit disingenuous, since the local media reports daily
on named analyst criticisms of GoA economic policies,
extensive GoA intervention in economic sectors, lack of tax
policy and regulatory consistency, and allegations of
corruption. Our extensive pre-release review of the ICS was
undertaken to ensure that the text was true to our legal
obligation to inform U.S. business but not to include
additional and potentially controversial material well
covered in other public analyses of Argentine economic and
investment policy.


13. (C) Post's decision to delay the Argentine ICS release
until after the G20 Summit -- it was last of 142 ICS reports
uploaded to the State website -- was made precisely because
we thought it could generate a sharp GoA reaction, and we did
not want it taken by a GoA exquisitely sensitive to perceived
foreign criticism as a policy signal about U.S. relations.
This thin-skinned sensitivity has been evident numerous times
over the past two years. Most recently was the GoA's sharp
public reaction (that included prime-time television remarks
by the Foreign Minister) to media reports in February that
CIA Director Panetta had questioned Argentina's economic
stability (Ref B). It was also displayed in the GoA's angry
reaction to the publication of an INCSR money laundering
report that did not reflect the most recent modifications to
Argentina's capital repatriation law; after a rapid Embassy
press statement, the president's ire was directed at the
media and she raised the example in her State of the Nation
speech to Congress (Ref A).


14. (C) While we cannot discount the possibility that
President Kirchner or Minister Taiana will go public with the
GoA's protest letter in the coming days, we understand from
our Foreign Ministry colleagues that there are no plans to do
so at this point. We also note that, as of this writing the
Argentine press is not pursuing the story. We hope that
President Kirchner has come away from the recent meetings in
Chile and at the G-20 Summit with a better understanding of
the USG's commitment to work constructively together with
Argentina. This is a point we encourage Washington to
emphasize in its follow-up discussions on this with GoA
officials, including in the Secretary's April 7 meeting with
Minister Taiana. But this incident is a reminder of how
sensitive CFK is to perceived criticism from the U.S.
WAYNE