CABLES CONFIDENCIALES Y SECRETOS SOBRE ARGENTINA Buenos Aires 01 de Diciembre de 2010 SEPRIN. Servicio Privado de Informacin S.A. www.seprin.

com

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SIPDIS

SIPDIS

STATE FOR WHA TOM SHANNON, JOHN MAISTO, AND CHARLES SHAPIRO NSC FOR DAN FISK TREASURY FOR DAS NANCY LEE

USCINCSO FOR POLAD

E.O. 12958: DECL: 06/28/2016 TAGS: PGOV PHUM PREL AR SUBJECT: ARGENTINA: THE K-STYLE OF POLITICS

REF: A. BUENOS AIRES 01090 B. BUENOS AIRES 01403 C. BUENOS AIRES 02974 D. 05 BUENOS AIRES 00141 E. 05 BUENOS AIRES 02835 F. 05 BUENOS AIRES 00115

Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (B) and (D).

-----------------------SUMMARY AND INTRODUCTION ------------------------

1. (C) This cable is designed to examine President Nestor Kirchner's unique operating and decision-making style that has become known as the "K-Style." Given Kirchner's control over all aspects of GOA policymaking, knowledge of Kirchner's motivations and methods in arriving at decisions is essential to understanding GOA actions.

2. (C) President Nestor Kirchner's personalistic, often erratic operating and decision-making style defines current Argentine policymaking and is characterized by an overarching focus on the short-term and politically expedient accumulation and maintenance of domestic political power. Kirchner's domestic political style leaves no room for dissent and utilizes divide-and-conquer tactics to weaken the political opposition. While utilizing leftist, populist

rhetoric at times, in practice Kirchner has demonstrated that his ideological leanings are always less important than the practicalities of domestic politics. Studies show that Kirchner's psychological profile includes a need to always be in control, quick and decisive decision making, a constant struggle against perceived enemies, and a tendency to respond to challenges by lashing out, rather than negotiation. Foreign policy in the Kirchner government is always subservient to domestic political considerations. President Kirchner is not skilled at international diplomacy and often ignores basic protocol. Kirchner relies on an ever-shrinking group of long-time advisors to make key decisions, many of whom lack international, business and economic expertise. END SUMMARY AND INTRODUCTION.

-------------------------------THE K-STYLE IN DOMESTIC POLITICS --------------------------------

3. (C) President Nestor Kirchner's personalistic, often erratic operating and decision-making style defines current Argentine policymaking and is characterized by an overarching focus on the short-term and politically expedient accumulation and maintenance of domestic political power. Close Kirchner insiders have described Kirchner's decision-making process to Emboffs as one in which Kirchner consults with a small number of trusted advisors, generally one-on-one, and then makes all of the final decisions himself. The Argentine political system places a great deal of authority into the hands of the President, and President Kirchner is a strong president even in the Argentine historical context. As a result, the "K-Style" defines the GOA policymaking process and gives the policy process a short-term focus. As Legal and Technical Secretary Carlos

Zannini, a close Kirchner advisor, told the DCM, "The President and I get up every morning, look at the morning papers, and try to figure out how to survive the day." Another long-time Kirchner associate, former Santa Cruz Governor Sergio Acevedo told us that Kirchner focuses very much on day-to-day issues, but always with the long-term strategic goal of retaining political power. (COMMENT: Kirchner's focus on retaining political power leads us to discount speculation that Kirchner will step aside in 2007 and make his wife Cristina the presidential candidate. For 2011, assuming Kirchner's health holds, we would expect him to either modify the Constitution to allow him to run for a third term, or to pass the mantel on to his wife. END COMMENT.)

4. (C) Kirchner's domestic political style leaves no room for dissent and utilizes divide-and-conquer tactics to weaken

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the political opposition. Kirchner is quick to silence any opposition to his policies from within his movement, as when he recently expelled congresswoman Maria del Carmen Alarcon from the presidency of the Lower House Agricultural Committee and from Kirchner's Victory Front (FPV) after Alarcon criticized the GOA beef policy (See Reftel A). Kirchner has also proven adept at co-opting members of the opposition and exploiting divisions within opposition parties. Through the skillful use of his fiscal powers, Kirchner has been able to draw in the majority of the Radical Civic Union (UCR) governors, and many UCR mayors (See Septel on deteriorating provincial finances and Kirchner's use of fiscal power for political aims). He has also been able to co-opt the

political leadership from the now defunct center-left Frepaso and most of the Peronists formerly aligned in opposition to Kirchner with former President Eduardo Duhalde. Kirchner has exploited divisions within the UCR by heavily courting Mendoza Governor Julio Cobos, long-time rival of UCR President Roberto Iglesias, even encouraging rumors that Cobos may be Kirchner's running mate in 2007. Kirchner also does not accept criticism from those outside of the political arena, attacking the press, the Catholic Church and business leaders that have been publicly critical of the GOA.

5. (C) While utilizing leftist, populist rhetoric at times, in practice Kirchner has demonstrated that his ideological leanings are always less important than the practicalities of domestic politics. As Acevedo recently told us, President Kirchner has no true ideology. For example, the issue of human rights and his political affiliations in the 1970s were non-issues in the 20 years of Kirchner's political life as Mayor of Rio Gallegos and Governor of Santa Cruz province. Acevedo said Kirchner's recent support for the Mothers of the Plaza de Mayo and a renewed focus on human rights crimes committed under the last dictatorship was driven by his need to develop a core base of support within the left wing of the Peronist movement. Kirchner was also a big proponent of the 1990s privatizations at the time they occurred, but has since vehemently attacked them. This does not mean that Kirchner does not have left-wing sympathies, but rather that these are completely subordinate to his personal political interests and ambition (See Reftel B). Kirchner's left-wing sympathies have not stopped him from forming alliances of convenience with center-right Peronist leaders, such as Luis Barrionuevo of Catamarca, Cordoba Governor Jose Manuel de la Sota, or the largely conservative Peronist political machine in Buenos Aires province.

6. (C) Kirchner's style of policymaking has become more pronounced after the October 2005 elections and November 2005 cabinet changes left Kirchner firmly in charge of all aspects of GOA decision making (See Reftel C). Prior to the October elections, Kirchner had to consider former President Duhalde's opinion in making major decisions. Kirchner's resounding victory in Buenos Aires province in the elections left him in control of the Peronist Party (PJ) and banished Duhalde from the center stage of the political scene. Before Kirchner's November cabinet changes, Kirchner also had to contend with his independent-minded Minister of the Economy, Roberto Lavagna, in making economic policy decisions, and with then-Foreign Minister Rafael Bielsa, who occasionally exhibited an independent streak. Their replacements, Felisa Miceli and Jorge Taiana are loyal soldiers who follow presidential orders. For example, recently Miceli was give a copy of a communique that had been issued to a news agency by the Casa Rosada with Miceli's comments criticizing a recent speech by Lavagna before Miceli had actually spoken. As leading pollster Roberto Bacman told Poloff, "Never since the return to democracy (1983) has Argentina had a President that was also the Minister of the Economy."

--------------------------------------------KIRCHNER'S PSYCHOLOGICAL PROFILE SETS K-STYLE ---------------------------------------------

7. (C) According to recent studies, Kirchner's psychological profile includes a need to always be in control, quick and decisive decision making, and a constant struggle against perceived enemies. Kirchner does not delegate policymaking,

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making all of the important decisions himself. Kirchner only consults with a narrow group of long-time advisors, who are part of Kirchner's inner circle primarily because of their loyalty, not their technical abilities (See Reftel D). He often does not even consult or give warning to top GOA officials before making major policy statements in their respective areas of responsibility. According to Central Bank officials, for example, Central Bank President Martin Redrado found out that the GOA was going to use nearly 10 USD billion in Central Bank reserves to pay off the IMF when Kirchner publicly announced it. Casa Rosada insiders have described Kirchner as prone to making quick, sometimes even rash decisions. For example, Kirchner reportedly made a snap decision to institute a six-month ban on beef exports after learning that the price of beef had risen a significant amount the previous day in the country's most important beef market. Kirchner has lashed out at has perceived enemies, both domestic and foreign, throughout his presidency. Kirchner's targets have included the IMF, the U.S., the media, the Catholic Church, the Argentine military, the foreign and domestic business community, supermarkets, foreign gas stations, anything that happened in the 1990s, former Presidents Carlos Menem, Fernando de la Rua and Eduardo Duhalde. Kirchner often targets unpopular groups or individuals as a means to increase his own public approval ratings.

8. (C) When confronted with a problem, Kirchner's first instinct is to go on the offensive, rather than negotiate, upping the ante if his initial efforts fail to win the desired result. When Kirchner faced resistance from the business and agricultural sector on his efforts to control

inflation earlier in the year, Kirchner instituted a ban on the export of beef and appointed the unorthodox Peronist economist Guillermo Moreno to run the GOA's anti-inflation efforts through bullying and threatening individual producers to lower their prices. When Uruguayan President Tabare Vazquez did not respond well to Kirchner's insistence that Uruguay halt the construction of two paper plants on the Argentine border to conduct additional environmental studies, Kirchner's rhetoric encouraged the residents of the affected province to step up their blockade of the bridges connecting the two countries, resulting in millions of dollars of lost trade and tourism income for Uruguay. Faced with rising gas prices in early 2005, Kirchner called for a national boycott of Shell Oil and sent thousands of piqueteros to blockade Shell Oil gas stations until they agreed to lower their prices.

9. (C) Kirchner has a reputation for taking slights or any perceived lack of respect from others personally, but is also known for quick changes in temperament. Acevedo told the DCM that once then-Governor Kirchner became enraged with his Deputy Energy Minister for making a statement regarding Santa Cruz energy policy he did not personally approve. Kirchner called the Deputy Minister into his office and proceeded to scream at him at the top of his lungs, ultimately effectively throwing him out of his office physically. Everyone in the provincial government leadership expected the Deputy Minister to be fired. Kirchner did not speak to him for two weeks, until he unexpectedly called him asking for some trout for a dinner that Kirchner was hosting. Acevedo said this individual had a reputation for knowing where to get the best trout in Rio Gallegos. The Deputy Minister complied with the request, and two days later Kirchner invited him for coffee. Kirchner greeted him warmly, thanked him for the trout, and

proceeded to chat with him for a long period, as if the previous incident had never happened, to the shock of everyone else present, including the Deputy Minister. In the end, the Deputy Minister was not fired, and Kirchner did not raise the issue again.

10. (C) Kirchner's health condition exacerbates, and perhaps helps define, Kirchner's emotions and psychology. President Kirchner has reportedly suffered from irritable bowel syndrome for many years. According to the American Medical Association, the psychological effects of this condition leads those who suffer from it to be "often rigid, methodical persons who are conscientious, with obsessive-compulsive

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tendencies." Kirchner also reportedly works himself to exhaustion and needs to take frequent vacations to recover. The AMA further states "Psychologic and social stresses are often present in patients with irritable bowel syndrome, and may be related in a temporal sense to the exacerbation of symptoms." This may account for Kirchner's lack of attention to protocol that involves long ceremonies or tight schedules, where Kirchner would not have quick access to a bathroom.

----------------------------------FOREIGN POLICY NOT KIRCHNER'S FOCUS -----------------------------------

11. (C) Foreign policy in the Kirchner government is always subservient to domestic political considerations. Kirchner, at least initially, took a hard line on the paper mills dispute with Uruguay -- despite the damage to Mercosur and

regional relations -- because of the strong Argentine public concern about the paper mills, particularly in ruling-party-run Entre Rios province that is on the opposite side of the river from the plants. Kirchner's explicit and harsh criticism of the U.S. during his speech during the Summit of the Americas in Mar del Plata can only be understood in the context of dismal public perceptions of the U.S. and Kirchner's desire to appeal to his leftist political base (See Reftel E). Kirchner's hardball tactics during negotiations over Argentina's private sector debt and his criticism of foreign companies that run major enterprises that were privatized in the 1990s do not earn him any support from foreign investors, but are popular with the Argentine public. Likewise, Kirchner cut Argentine gas exports to Chile in 2005 to cover shortages in the internal market despite the existence of valid contracts between Chile and local gas suppliers.

12. (C) President Kirchner is not skilled at international diplomacy and often ignores basic protocol. Kirchner's gaffes with foreign dignitaries are legendary. In June 2004, Kirchner left Russian leader Vladimir Putin waiting at the Moscow airport for a meeting that never happened, reportedly because Cristina Kirchner wanted to spend more time shopping at their previous stop in Prague. The GOA claimed that "bad weather" had delayed their takeoff when weather reports showed sunny conditions in Prague. Later that year, President Kirchner failed to attend a state dinner he was supposed to host for visiting Vietnamese President Tran Duc Luong. In like fashion, Kirchner failed to attend a reception in honor of the State visit of Queen Beatriz of Holland in March of 2006. Kirchner also never receives new Ambassadors, as state protocol would dictate, relegating this responsibility to Vice President Daniel Scioli.

13. (C) Kirchner relies on an ever-shrinking group of long-time advisors to make key decisions, many of whom lack international, business and economic expertise (See Reftel D). No one from the Foreign Ministry is part of Kirchner's inner circle of advisors, and very few of Kirchner's close associates had overseas experience before Kirchner became President (See Reftel F). As a result, Kirchner often receives poor advice on international issues, such as when Legal and Technical Secretary Carlos Zannini reportedly convinced Kirchner that taking a tough line publicly on counter terrorism would, in the eyes of the USG, compensate for being critical of the U.S. in other areas and opposing the FTAA at the Summit of the Americas (See Reftel E).

-----------------------------------COMMENT -- IMPLICATIONS FOR THE U.S. ------------------------------------

14. (C) Kirchner's peculiar operating and decision-making style defines Argentine policymaking, and in the coming year, may lead to more challenges in the U.S.-Argentine relationship, as Kirchner focuses on shoring up his center-left political base for the 2007 elections. Given poll numbers that show Argentines have the least positive view of the U.S. out of all nations in the region, the U.S. will be a convenient target for Kirchner. As during the 2003 presidential campaign, Kirchner will likely portray himself

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as the lone true defender of Argentina in the world community. The Casa Rosada has reportedly already begun an

effort to link Roberto Lavagna to the U.S., for example by encouraging press articles that the U.S. approved and is sponsoring a potential Lavagna campaign for President.

15. (C) Kirchner has a history of using international disputes, like the paper mill conflict with Uruguay, to gain domestic popular support. We have been told by our British colleagues that relations between the U.K. and Argentina are at their lowest point in 15 years because Kirchner has chosen a confrontational attitude with the U.K. on the Falkland Islands dispute, thereby making political use of an issue that is at the core of Argentine national identity. As leading political analyst Rosendo Fraga told Poloff, "This year, Kirchner will use the U.K. and Uruguay as targets, and next year, it will be the U.S." Kirchner has been described to us by his close associates as someone who constantly focuses on the costs and benefits of his political decisions. During a recent trip to Spain, Kirchner criticized the U.S.'s "absence" and lack of significant assistance to the region. Former Minister Lavagna told the Ambassador that Kirchner did this in order to counter the image that he had been too forthcoming with Spanish multinationals during the trip. As the 2007 presidential campaign approaches, we cannot rule out occasional anti-U.S. diatribes by Kirchner in order to placate his leftist supporters.

GUTIERREZ

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SIPDIS

SIPDIS

STATE FOR WHA TOM SHANNON, JOHN MAISTO, AND CHARLES SHAPIRO NSC FOR DAN FISK TREASURY FOR DAS NANCY LEE USCINCSO FOR POLAD

E.O. 12958: DECL: 07/19/2016 TAGS: PGOV PHUM PREL AR SUBJECT: ARGENTINA: KIRCHNER AT THREE YEARS

REF: A. 05 BUENOS AIRES 02728

B. 05 BUENOS AIRES 03056 C. BUENOS AIRES 00293 D. BUENOS AIRES 01403 E. BUENOS AIRES 00097

F. BUENOS AIRES 01566

Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (B) and (D).

------SUMMARY -------

1. (C) Coming to power after one of the worst economic, political and social crises in Argentina's history, President Nestor Kirchner has had a successful first three years in office. He is seen as a strong and decisive leader and is credited with restoring governability to the executive branch and promoting Argentina's impressive economic recovery. Kirchner has high public approval ratings and has restored public optimism in Argentina. Despite these major successes, Kirchner continues to face considerable challenges in dealing with poverty, crime, inflation, and the need to attract more foreign investment and resolve Argentina's long-term energy shortage. Although Kirchner started his presidency by strengthening the independence of the Supreme Court, Kirchner has since then failed to strengthen Argentina's institutional democracy, and in many cases has weakened it. Kirchner's reliance on presidential decrees, manipulation of the electoral system, tightened control over the Judiciary, and pursuit of permanent "super" budgetary powers have enhanced presidential power at the expense of Argentina's already weak institutional framework. Kirchner campaigned in 2003 on a strong anti-corruption message and his first Justice Minister, Gustavo Beliz, championed the cause of rooting out official corruption, but the GOA has placed less emphasis on fighting corruption since Beliz was fired in 2004. On the foreign policy front, President Kirchner's lack of attention and understanding in the international relations arena has

resulted in an erratic GOA foreign policy. The Kirchner administration's most important foreign policy theme is the promotion of regional integration, which in practice has meant the strengthening of relations with Venezuela and Brazil. End Summary.

------------------------KIRCHNER'S MANY SUCCESSES -------------------------

2. (C) Coming to power after one of the worst economic, political and social crises in Argentina's history, President Nestor Kirchner has had a successful first three years in office. When Kirchner first took office in May 2003, many analysts doubted he would finish his term. Since that time, Kirchner has gained full control of the Peronis Party (PJ), asserted his authority over the military, largely co-opted the piquetero movement that threatened the stability of past governments, won control of Congress in the October 2005 elections and maintained high public approval ratings. Not only is Kirchner's survival no longer in doubt, polls show that Kirchner would easily win reelection if elections were held today. Kirchner controls Argentina's political system and faces a weak and divided opposition. Kirchner has also proven adept at the traditional Peronist art of co-opting key elements of the opposition, including a majority of the opposition governors.

3. (C) He is seen as a strong and decisive leader and is credited with restoring governability to the executive branch and promoting Argentina's impressive economic recovery. Polls show that the Argentine public views Kirchner as a decisive leader who was able to take charge and turn the country around during a difficult time in Argentine history.

The wave of public demonstrations that stemmed from the 2001-2002 economic crisis that brought presidential authority in Argentina to one of its lowest ebbs has subsided and Kirchner has adeptly managed relations with protest leaders. On the economic front, Argentina has strongly rebounded from the crisis, with GDP growth rates of 9 percent for the past

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three years. Through the GOA's private sector debt deal and by paying off Argentina's IMF debt, Argentina's external debt has been brought to a manageable level for the first time in a decade. Under Kirchner's watch, Argentina has amassed record budget surpluses. The tax collection system -- a perennial problem for Argentine governments -- has been significantly improved, albeit aided by the use of distortionary taxes like the financial transaction tax and the export tax. Argentina's move to a market-based exchange rate regime in 2002 has triggered an export-led boom during Kirchner's presidency that has been the driving factor behind robust growth, accompanied by significant declines in unemployment and poverty levels.

4. (C) Kirchner has high public approval ratings and has restored public optimism in Argentina. Kirchner's approval ratings stand at 65-75 percentage points -- depending on the poll and how the question is asked -- a historical high for an Argentine president three years into his term. Polls by leading Argentine pollsters show that Kirchner receives high marks for his handling of the economy and for promoting political stability. Argentines also have developed a renewed sense of optimism under Kirchner's administration. In recent polling by a leading opinion research firm, a

plurality of respondents -- 44 percent -- thought that conditions in Argentina would improve over the coming year, while only 12 percent thought things would get worse. In March 2003, the month Kirchner was elected, polling by the same firm showed that only 29 percent of the population thought things would get better in the coming year, while 30 percent thought things would get worse.

----------------CHALLENGES REMAIN -----------------

5. (C) Despite these major successes, Kirchner continues to face considerable challenges in dealing with persistent poverty and high crime. Poverty rates have been nearly halved from almost 60 percent of the population at the height of the economic crisis to 34 percent today. At the same time, however, reducing poverty in this traditionally affluent country continues to be a major social policy imperative for the Kirchner administration. The continued problem of inflation -- which stood at 12.3 percent in 2005 and is on track to maintain a double digit rate in 2006 -- is also of a top GOA concern. The GOA has resorted to price controls, bullying producers to lower prices, and even banned the export of beef as a means to control inflation. (See Septel on evaluating Kirchner's economic policy.) Crime continues to be a major public focus according to opinion surveys. Argentines accustomed to minimal crime rates, particularly in the Greater Buenos Aires area, have since the economic crisis faced a major problem with street crime, home invasions, kidnappings and other types of violent crime. The Capital has had several recent cases of shootings, robberies and rapes that have garnered a lot of media attention, giving the public the sensation of a surge in crime. Interior

Minister Anibal Fernandez recently stated that GOA statistics in fact show that crime is down, but this assertion is impossible to verify because the GOA has not published national crime statistics since 2004.

6. (C) On the economic front, sustained growth requires increasing infusions of foreign investment, dealing with the energy shortage and controlling inflation. Private Direct Foreign Investment has increased significantly since the crisis, particularly in the tradable goods and services industries. Nevertheless, other sectors (e.g. public services) are badly in need of investment in order to sustain continued growth. A strategic flaw in the economic equation continues to be the energy sector. The Kirchner administration has faced serious pressure from utility companies and the G-7 to raise utility rates that have been pesified and then frozen for residential users since the peso devalued in 2002. So far, the GOA has been unwilling to raise utility rates for residential users, but Kirchner recently said he is open to discussions on the issue, although he made no promises. Without a utility rate

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increase, it is doubtful that Argentina will see major new foreign investments in public utilities in the short-term. Argentina's gas and electricity production has not kept up with the rapid growth of demand due to the absence of market incentives (price) to invest or expand production. (Comment: Kirchner's unorthodox methods of controlling inflation, frozen utility rates and hardball tactics with the private sector may earn Kirchner short-term benefits, but they are not long-term solutions to Argentina's economic problems

because they scare away foreign investment that Argentina needs to sustain its economic growth. End Comment.)

--------------------------------------------- ------KIRCHNER WEAK ON SUPPORT FOR INSTITUTIONAL DEMOCRACY --------------------------------------------- -------

7. (C) Although Kirchner began his presidency by strengthening the independence of the Supreme Court, his record since then on institutional-democracy building has been poor. Upon assuming office, Kirchner moved quickly to clean up former President Carlos Menem's "automatic majority" Supreme Court that was widely regarded as corrupt. Kirchner and his supporters in Congress forced three Menem-era Supreme Court justices to resign and impeached two others. Kirchner then appointed four well-respected jurists to succeed them. However, since that time Kirchner has failed to fill the remaining vacancies on the high court -- a second vacancy opened up after another justice retired -- reducing the effectiveness of the court. (Note: Rulings still require the support of five justices, which is more difficult to achieve with only seven instead of nine on the bench. End Note.) A proposal by legal experts to reduce the number of Supreme Court justices from nine to five, as it was before Menem's 1990 controversial judicial reform, has not been pursued by the Kirchner administration.

8. (C) Over the past year, Kirchner has instigated a number of actions that have further debilitated Argentina's already weak democratic institutions. Kirchner has issued hundreds of presidential decrees during his presidency, preferring to avoid discussion or delay in Congress, and signed more decrees in his third year of his presidency than laws approved by Congress. A new law sponsored by his wife,

Cristina Fernandez de Kirchner, nominally is designed to regulate the presidential-decree-making process. The bill, which will likely be signed into law shortly, would authorize presidential decrees that are not voted down by both houses of Congress. The proposed bill does not set a time limit on when Congress is required to vote after a presidential decree is issued and allows decrees to remain in force pending a congressional vote. (Note: Senator Cristina Kirchner proposed a bill in 2000 designed to regulate presidential decrees when Fernando de la Rua of the Radical Civic Union (UCR) was President. Unlike her current bill, the 2000 Cristina Kirchner bill required Congress to vote on presidential decrees within 20 days of their issuance and made the decrees invalid if just one house of Congress voted against them. Senator Kirchner's bill was not approved in 2000, but UCR Senator Rodolfo Terragno reintroduced Kirchner's exact bill in the Senate earlier this year, to which Senator Kirchner responded with the current modified version of the bill. End Note.) (Comment: Congress' regulation of presidential decrees is a long-overdue action that was supposed to be addressed shortly following the 1994 constitutional reform. The current bill will serve to legitimate what has become an arbitrary use of presidential powers. Kirchner is not the first president to abuse the use of presidential decrees, but he has taken their use to new levels. End Comment.)

9. (C) Kirchner and his supporters' manipulation of the electoral system before and after the October 2005 legislative elections gained them more power in Congress, but sometimes ran counter to voters' wishes and the spirit of the Constitution and electoral law. In the October elections, the ruling PJ party split in five of the eight provinces that were electing national senators, allowing them to gain all

three Senate seats in the five provinces. (Note: By dividing in several provinces, and in most cases reuniting after the

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election, the PJ circumvented a constitutional provision reserving a portion of the Senate seats to miniority parties. Electoral law further stipulates that those parties that cannot agree on a unified electoral list hold primary elections to choose candidates, which the PJ did not do in most provinces. See Reftel A. End Note.) Kirchner's allies in Congress also prevented right-wing Paufe leader Luis Patti from taking his seat in Congress due to as yet unproven allegations of human rights abuses when Patti was a police commissioner during the last military dictatorship. Patti was prevented from taking his seat despite a ruling by the National Electoral Committee prior to the election that there was nothing preventing Patti from assuming office and despite the nearly 400,000 people that voted for him in Buenos Aires province (See Reftel B).

10. (C) Kirchner and his allies have used other questionable tactics that contradicted voters' intentions and have supporting provincial allies in overturning term limits. Cabinet Chief Alberto Fernandez drew newly-elected congressman for the opposition Republican Proposal (PRO) Eduardo Lorenzo Borocoto over to Kirchner's bloc by offering his son a lucrative government job. Several Kirchner congressmen elected in October never assumed their seats, such as Jorge Taiana, who became Foreign Minister, and La Rioja Governor Angel Maza, who left his newly-won Senate seat to his sister, Ada Maza. Tucuman Governor Jose Alperovich, with Kirchner's blessing, recently changed his province's

constitution to allow himself to run for reelection. Kirchner is supporting similar efforts by friendly Governors in Jujuy and Misiones, and Buenos Aires Governor Felipe Sola is in discussions with Kirchner to allow him to change the Buenos Aires Constitution or ensure a favorable legal ruling so he also can run for reelection next year.

11. (C) Kirchner has achieved an unprecedented centralization of decision-making, but has weakened Argentina's system of checks and balances in the process. In February 2006, Kirchner and his allies in Congress succeeded in modifying the Council of Magistrates that regulates the Argentine judicial system, strengthening the Casa Rosada's control over the judiciary (See Reftel C). Congress is also likely to shortly approve granting Cabinet Chief Alberto Fernandez permanent "super" budgetary powers that will enable him to freely move funds from one area of the budget to another without approval from Congress. The opposition in Congress claim the proposed law will strip Congress of its fundamental democratic role of controlling the budget and that these powers are no longer necessary because the economic crisis is over. The opposition further argues that the measure is simply designed to allow the GOA to spend money however it wants during an election year, pointing out that Alberto Fernandez reassigned ARP 500 million to social and public works projects just two weeks before the October 2005 legislative elections using these same powers. The Kirchners have lashed out repeatedly at the press and the opposition for their criticism of the Casa Rosada's recent actions in Congress. The GOA claims these are necessary powers to ensure the smooth functioning of the government. Regardless of the opposition's objections, the Casa Rosada appears to have the necessary votes to approve the measure by early August. (Note: These "super" budgetary powers were

first granted by Congress to the GOA at the start of the economic crisis in 2001 and were re-approved every year through the 2005 budget. They were not included in the 2006 budget -- passed before the October elections gave Kirchner control of Congress -- because of opposition resistance. The current bill would make these special budgetary powers permanent. End Note.)

12. (S) Kirchner campaigned in 2003 on a strong anti-corruption message and his first Justice Minister, Gustavo Beliz, came with impeccable credentials and championed the cause of rooting out official corruption. Unfortunately, the GOA has placed less emphasis on fighting corruption since then. In fact, since Beliz was fired in 2004, Kirchner has avoiding speaking publicly about official corruption and the much-vaunted new Office of Anti-Corruption has failed to live up to its envisioned potential. There

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also have been credible allegations that Planning Minister Julio De Vido, a key Kirchner insider, has been involved in questionable federal and provincial public works contracts during Kirchner's presidency (See Reftel D).

-------------------------------------------KIRCHNER FOREIGN POLICY SUFFERS FROM NEGLECT --------------------------------------------

13. (C) President Kirchner's lack of attention and understanding in the international relations arena has resulted in an erratic GOA foreign policy. President Kirchner is not skilled at international diplomacy and relies

on an ever-shrinking group of long-time advisors who lack foreign policy expertise to make key decisions. Kirchner has touted Mercosur as a regional alternative to the FTAA, but his conflict with Uruguay over the construction of two paper plants has caused a crisis within the trading bloc. President Kirchner has recently sought closer relations with Spain, even as he is putting more pressure on Spanish companies with major investments in Argentina, such as Repsol and Aerolineas Argentinas. Kirchner has repeatedly thanked the U.S. for its support to Argentina during the crisis and sought to strengthen the bilateral relationship after short-circuits during the Summit of the Americas, but took the opportunity during a recent press conference in Madrid to criticize the U.S. and claim that the U.S. left Argentina to face the crisis alone (See Reftel E).

14. (C) The Kirchner administration's most important foreign policy theme is the promotion of regional integration, which in practice has meant the strengthening of relations with Venezuela and Brazil. Argentina's most important goal during its recent presidency of Mercosur was the integration of Venezuela into the trading bloc (See Reftel F). Kirchner's top officials have repeatedly told Embassy officials that the GOA's relationship with Venezuela is based on economics and Mercosur. Kirchner sees Venezuela as a solution for Argentina's energy and financing problems. Kirchner, who normally places a low priority on foreign relations, in the past 12 months has traveled twice to Caracas and hosted Chavez three times in Argentina. Kirchner will host Chavez again for the July 20-21 Mercosur Summit in Cordoba, Argentina. Kirchner has also sought to strengthen relations with Brazil, recently endorsing Brazilian President Lula's reelection and signing an accord on automobile sales between the two countries.

15. (C) To his credit, Kirchner has remained committed to OAS efforts to return Haiti to stability and constitutional democracy. Senior GOA officials assure us that Argentine peacekeepers will remain on the island for the long-term.

------COMMENT -------

16. (C) President Kirchner has numerous successes to show after three years in office. The economy is booming and Argentines feel a level of stability and dignity has been restored to their country which was lost in the political, economic and social disaster of 2001-2002. In Kirchner's first years in office, Argentina needed a strong hand to lead it out of the depths of crisis. History has shown that long-term, broad-based economic growth needs to be accompanied by a strong institutional framework. Now that the crisis has past, the country needs a leader that is willing to spend some of his built-up capital to strengthen Argentina's weak democratic institutions. To date, it is unclear whether Kirchner has the will or capacity to make this transition. End Comment

GUTIERREZ

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WHA FOR A/S SHANNON, DAS DUDDY, AND WHA/BSC P FOR HEIDE BRONKE NSC FOR JUAN ZARATE AND JOSE CARDENAS

E.O. 12958: DECL: 02/27/2017 TAGS: PREL PGOV ECON VZ AR SUBJECT: (C) U.S.- ARGENTINE RELATIONS: DR. JEKYL AND MR. KIRCHNER

REF: A. BUENOS AIRES 360

B. BUENOS AIRES 311 C. BUENOS AIRES 305 D. BUENOS AIRES 302 E. BUENOS AIRES 301

Classified By: Ambassador E. Anthony Wayne for reasons 1.4 (b)and(d)

1. (C) Summary and Comment: Argentina's President Nestor Kirchner is trying to stake out a position for himself close to Chavez yet still working well with the U.S. on issues important to Argentina. With domestic political advantage and 2007 elections in mind, we expect Kirchner to continue the balancing act. Kirchner will lash out with largely indirect criticism, he will cozy up to Chavez, and yet he will maintain a number of open doors to us. Kirchner recognizes the value of maintaining quiet, positive relations with the U.S. -- particularly on key strategic issues, e.g. non-proliferation and counterterrorism -- but sees no value domestically in aligning himself publicly with the U.S. or its policies. In fact, he gets a domestic boost from lashing out at perceived pressure and in striking an independent pose, a la Charles de Gaulle. Argentina's commercial and economic relationship with Venezuela is also of strategic importance (refs. a, b), the difference being that, domestically, Kirchner does perceive value, in particular electorally, in publicly linking himself to Chavez; he is bringing home the bacon. The meetings between senior GoA ministers and AG Gonzalez and U/S Burns and A/S Shannon were uniformly positive, recognizing an important common agenda in many areas (refs c-d and septels), and the press play from the visits was positive and profuse. In light of this dynamic, Kirchner's statements in Venezuela -- that Argentina will "not contain Venezuela" and his invitation for Chavez to

visit in March are indicative of the GoA's desire to maintain what they see as a "balance" in relations with the U.S. and Venezuela. End Summary.

2. (C) Attorney General Gonzales' February 6-7 visit, and U/S Nick Burns and A/S Shannon's February 8-9 visit to Buenos Aires and meetings with senior Kirchner ministers served to underscore improving bilateral relations, the breadth of that relationship, as well as highlight U.S. policy priorities in the region. Kirchner insiders, Cabinet Chief Alberto Fernandez and Planning Minister Julio De Vido, confirmed to Burns and Shannon the importance of the relationship to the GoA, the strong working-level cooperation on counterterrorism, counternarcotics, and international support for non-proliferation. Together with Foreign Minister Taiana, they shared concerns about the situation in Bolivia and Ecuador, and the need for strengthening stability in the region, including through joint efforts in Haiti. They also emphasized the importance they place on attracting U.S. investment (although a negative decision made public during the visit regarding a U.S. investment fund seeking a share of a local energy transmitting company, indicates that the actual message to potential investors, at best, is mixed). Cabinet Chief Fernandez publicly characterized relations as "good" the day after Burns' visit.

3. (C) The Kirchner style from the beginning, however, has been combative in the face of real, imagined and fabricated challenges from sources as varied as the Catholic church, neoliberalism and the "Washington consensus," the World Bank and IMF, parasitic foreign multi-nationals, the press and political opponents (whether from within or from outside the Peronist party) and -- indirectly stated -- the the U.S. This style has stood him in good stead. As the economy

boomed, buoyed by favorable external factors, his popularity ratings have soared, and have remained high, due in no small part to his pugnacious character.

4. (SBU) Kirchner demonstrated again over the last two weeks his willingness to attack external institutions for domestic political gain. He lashed out on several occasions at the IFIs and other international organizations, rejecting their latest gentle criticisms of GoA economic policies and blaming them again for the 2001/2002 financial crisis and also for current high poverty levels. His outburst followed mildly critical comments from the World Bank and World Trade Organization officials about the sustainability of the GoA's economic policies. He was also responding to an IMF spokesman's comment to the press that an IMF agreement was normally a prerequisite for Paris Club debt rescheduling. Despite the IMF's explanation that this was a Paris Club, not IMF, requirement, Kirchner blamed the IMF -- his favorite whipping boy -- for blocking a Paris Club deal. He and his Economic Minister, Felisa Miceli, also used the opportunity to pander to the public's extreme hostility towards the IMF by rejecting categorically any possibility of a Fund program with Argentina.

5. (C) This dynamic helps explain the two faces of Kirchner we see in our bilateral relations. Kirchner is essentially pragmatic but excessively focused on domestic issues and public opinion. The low point in recent bilateral relations, occasioned by the GoA performance at the Mar del Plata Summit of the Americas in November 2005, perhaps convinced Kirchner he had gone a bit too far down the populist route. Since then, we have seen a gradual and steady improvement in relations with an increasing willingness by senior-level officials in engaging in dialogue with us and in identifying

areas where we can strengthen cooperation.

6. (C) However, we do not expect to see a public embrace of the U.S. or many of our policies. The public image of the U.S. in Argentina is the lowest in the region. Kirchner's regular verbal assaults on policies and institutions linked in the public mind to the U.S., e.g. globalization and the international financial institutions, resonate very well here as long as they don't foretell a serious break (see latest INR U.S Image paper from the Oct-Nov 2006 Latinobarometro poll comparing Argentina with 17 other regional publics). Kirchner calculates -- with at least one eye always on the next election -- that there is little up-side to being linked too closely with the U.S., and little down-side to occasionally "standing firm" and "protecting the people's interests" before the hegemonic power.

7. (C) The press here eggs this on, couching many issues as the ideological struggle between the U.S. and Venezuela for predominance in the region. As a reflection of this, GoA actions are either portrayed as pro-Chavez or as a rapprochement with the U.S. Contacts inform us that Kirchner also sees himself as maintaining this balance between the two -- a la Charles de Gualle between the cold war powers U.S. and USSR. The Embassy has seen on several occasions, when the press appears to be too caught up in portraying the improving U.S.- GoA relations, that Kirchner will find an opportunity to publicly stick a pin in that balloon. In the aftermath of the Gonzalez/Burns/Shannon visits, Kirchner, while in Venezuela recently to sign a number of commercial agreements, may have felt compelled to "right the balance" and demonstrate his independence with his gratuitous remark that Argentina would not "contain" Chavez (ref. A). The media here has, in fact, tied Kirchner's comments in

Venezuela to Burns/Shannon remarks made here during their recent visit that the U.S. could work well with governments like Argentina and Brazil but that Venezuela was "another matter."

8. (C) Comment: It is clear we have foreign policy differences with the Kirchner administration, particularly over how we view Chavez and his actions in Venezuela and the region. Press reports here say Chavez will be paying a return visit to Kirchner next week, coinciding with President Bush's visit to Uruguay (septel - Senior GoA contacts tell us the visit is still unconfirmed). Ambassador has expressed our strong concerns that Chavez will use the occasion to organize another anti-U.S. rally (as is being reported in the press), and that such an act would negatively impact our bilateral relations. This, unfortunately, would be the type of gesture to be expected of Kirchner; one focused on short-term electoral political gain, with little thought for longer-term consequences. We should not expect significant changes in the GOA's foreign policy or GOA public statements in support of the U.S. Nor is Kirchner likely to change many of his interventionist economic tendencies. All of this is especially true in an election year. But on most of the key bilateral and multilateral issues important to the U.S., in fact, we believe we can continue to build strong cooperation in a quiet, deliberate way. WAYNE

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E.O. 12958: DECL: 09/21/2022 TAGS: PGOV PREL OVIP EFIN EINV EAIR AR SUBJECT: CRISTINA IN HER WORDS: WILL ARGENTINA'S PRESIDENTIAL FRONT-RUNNER BE A BETTER PARTNER FOR US?

REF: A. BUENOS AIRES 1883 B. BUENOS AIRES 1809 C. BUENOS AIRES 1777

Classified By: DCM Tom Kelly for reasons b, d.

1. (C) Summary. A well-briefed, confident Cristina Fernandez de Kirchner (CFK) described her policy priorities to the Ambassador on September 20, a few days before she departs for a five-day program in New York. Although she defended GOA positions on controversial economic issues, CFK expressed a strong desire to promote foreign investment, increase scientific and educational exchange with the United States, and "tell it like it is" with American policymakers. The discussion's conciliatory content and tone confirms our expectation that CFK will prove a more reliable, trustworthy,

and accessible partner of the United States than her husband, Nestor Kirchner. End Summary.

2. (C) CFK met with the Ambassador for 45 minutes at the Presidential Residence in Los Olivos on September 20. Argentina's first lady and presumptive next president was in full command of her brief, speaking without notes on a broad range of topics. At one point, noting that she and the Ambassador were reviewing topics that would resurface throughout her New York trip, she said (referring to her travels and speeches), "This is good preparation, but hey, I'm already prepared!" She was gracious and relaxed throughout, not rushing through any part of the conversation and listening as well as talking. The meeting was CFK's second with the Ambassador; in contrast, President Kirchner has never met privately with the Ambassador. She also went out of her way to ask the Ambassador to "send greetings to Shannon," whom she recalled meeting early on in Washington just before the Assistant Secretary was confirmed by the Senate.

Paris Club: Willing to Deal "Without Preconceptions" ------------------------------------

3. (C) After CFK previewed her schedule in New York (ref A), the Ambassador noted the great international interest in her policy views. He commented that CFK's interest in the world and willingness to countenance policy changes, especially in the economic realm, were well-received abroad, including in the United States, as is her evident openness to dialogue. The Ambassador also mentioned issues that may well draw questions from journalists, businessmen, and others during her program, including prospects for a deal with the Paris Club, the investment climate, prospects for inflation, and

the GOA's relationship with Iran and Venezuela.

4. (C) CFK replied in great detail on economic themes, but refrained from commenting on Iran and Venezuela. On the Paris Club (PC), she stressed Argentina's desire to reach an agreement, but reiterated the current government's insistence that a deal not be conditioned on a GOA accord with the IMF. She said that Argentina's attitude stemmed not from a anti-IMF bias, but from a conviction that IMF policies as currently constituted are anti-growth -- and therefore unacceptable. That is why, in her view, the IMF had experienced a "serious loss of prestige in Latin American societies." "If we don't grow," she continued, "we can't pay. You can't collect debts from the dead."

5. (C) CFK characterized debt agreements reached by previous Argentine governments as illusory, made by desperate governments that never intended to repay. The current government, and the one that she hopes to lead, sought to break what she called "a cycle of lies" and restructure Argentine debt without inhibiting growth. Such a negotiation, she said, would need to occur "without preconceptions," and both sides should come to the table with flexibility and an open mind. She claimed that, during his campaign swing through Argentina (ref B), French candidate for IMF Managing Director Strauss-Kahn had expressed sympathy for Argentina's approach and criticism of the IMF's track record in Argentina. She acknowledged, however, that "he's running for office, so maybe he was just telling us what we wanted to hear." The Ambassador said that the United States stands ready to engage constructively to move to a Paris Club solution.

6. (C) The Ambassador mentioned the issue of bond-holdots

as another potential topic that CFK will face in New York, noting that the U.S. bondholders are carrying out a well-organized effort to win support for their cause. CFK indicated awareness of the lobbying resources holdouts bring to bear and their negative attitude towards the current

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government. She said that she had encountered their publicity campaign during her recent trip to Germany, and knew they were active in Japan, too. At the same time, she offered little hope that the holdouts would get a deal anytime soon, noting that a law circumscribes what the government can offer them. She told the Ambassador that "I know this isn't what you want to hear," but said that previous Argentine leaders would tell foreign Ambassadors what their interlocutors wanted to hear, not what they really thought or intended to do. She and her husband were different, she insisted; they told it straight. CFK said that she understood that Americans valued straight talk, and she hoped that this quality would earn her trust and respect in the United States.

Foreign Investment: Bring It On -------------------------------

7. (SBU) CFK said that the GOA's main motivation in striking a deal with the Paris Club was to entice foreign export credit agencies to go back on cover in Argentina, facilitating her plans to bring more foreign investment here. She noted that foreign investment in certain sectors was already booming. Auto companies, including Mercedes-Benz, Peugeot, Ford, and GM were pumping tens of millions of

dollars of new investment into their plants, with many adding new assembly lines and exporting much of their output.

8. (U) CFK reserved her greatest enthusiasm for Argentina's progress in attracting investment in the information technology sector as a means to expand Argentina's global economic role. She noted proudly that IT represented the fastest growing sector in the economy during her husband's presidency. She expected great things from the sector in the future. "We have great soccer players in Argentina because our kids play so much soccer," she said. "Now they spend all their time on computers, so I know that there's an Argentine Bill Gates out there. We just have to find him." The Ambassador agreed that this was an area of great potential. He noted the significant U.S. investment in this sector, including the fact that IBM is the largest U.S. employer in Argentina. He also made a pitch for quick approval of Turner Broadcasting's purchase of Claxion, a local audiovisual company, which will lead to Argentine creations being distributed throughout Latin America.

Playing Defense: Energy, Inflation ----------------------------------

9. (SBU) Despite her expression of enthusiasm for foreign investment, she was defensive about charges that the current government is attacking foreign investors in the Argentine energy sector (septel). She characterized Exxon's apparent exit from the Argentine market as the result of a regional draw-down in Latin America, and argued that "the energy sector is a problem everywhere right now." She said that private companies miscalculated domestic energy demand over the past few years, failing to anticipate the government's success in achieving extremely rapid rates of growth. Now,

there was little idle capacity in Argentina's energy sector. The GOA, she insisted, was doing its part, presiding over the construction of thousands of kilometers of new pipelines and seeking new sources of supply.

10. (SBU) CFK was also defensive when she responded to concerns that the GOA was manipulating economic statistics to keep Argentine inflation numbers down. She said that there were several biases in the way that the government's statistical institute (INDEC) had previously collected price data. She claimed that it did not account sufficiently for seasonal variations in price data; collected food data in posh food emporiums rather than in the modest groceries where most Argentines shop; and focused on private school costs, while the vast majority of Argentines sent their children to public schools. She said that Argentina had revised its inflation methodology six times since the 1930s. The political opposition, she said, was behind the claims that current methodological changes reflected a government plot to understate inflation. She also blamed the opposition for the growing warnings about electoral fraud in Argentina, which she dismissed as "bizarre." CFK did acknowledge that the GOA needs to settle with clarity the methodological issues as well as to resolve the union problems troubling the statistical institute.

Future Economic Goals ---------------------

11. (C) CFK returned to economic growth as the most

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important objective of the government that she intends to lead. She said that, if Argentina achieves positive growth in 2007 and 2008, it will represent the first time in a century that the country has grown for six straight years. If its economy continues to grow at rates of five to six percent for another decade, she continued, Argentina would become "unbeatable."

12. (SBU) A key sector for the country's future, she said, was tourism, an area in which her country had enormous undeveloped potential. With the rise in ecotourism, the wealthiest tourists were looking for unspoiled, safe venues, which Argentina had in abundance. She noted that Argentina experienced a travel boom after the Asian tsunami, as tourists sought safer places in which to experience nature. The Ambassador interjected that for the tourism sector to achieve its potential, Argentina needed to address its dysfunctional domestic aviation sector. She agreed, identifying reform of domestic aviation as "one of our great challenges." Without referring specifically to the strike-prone national airline Aerolineas Argentinas, she identified two specific problems in the sector: a need for more resources and a conflictive labor environment in which a handful of combative unions undermined all attempts to turn the sector around.

Other Issues: Exchanges, TIP ----------------------------

13. (SBU) The Ambassador raised trafficking in persons (the need to pass a federal law) and the importance of expanded educational and cultural exchanges, especially among youth. He asked for the Senator's support. CFK:

-- expressed strong interest in cultural and educational exchanges with the United States, including an upcoming Buenos Aires summit of hemispheric women leaders organized by U.S. NGO Vital Voices;

-- told the Ambassador that Argentina "must not fail to take advantage of your scientific resources; they're the best in the world".

-- reassured the Ambassador that legislation to criminalize trafficking in persons would pass the Argentine Congress after the October elections "without any great difficulty."

Comment -------

14. (C) The discussion's conciliatory content and tone confirmed what we have observed in CFK's speeches and gestures with increasing frequency: Argentina's presidential front-runner seeks a rapprochement with the United States. CFK seems to understand that a pragmatic, enmity-free relationship with Washington will buy Argentina leeway on a number of critical financial and geopolitical issues. At the same time, this forward-leaning attitude is unlikely to presage the next government's repudiation of the current regime's nationalist, populist policies. CFK's defense of GOA positions on the IMF, the investment climate, the energy sector, and inflation numbers during this private discussion suggests an unwillingness to break with the heterodox policies of her husband. But even if the charm offensive is calculated rather than heart-felt, there is no mistaking the opportunities that await the USG beyond the Argentine presidential election. CFK's conversation with the

Ambassador confirms our expectation that she will prove a more reliable, trustworthy, and accessible partner of the United States. That does not, however, take away from the challenges we will face in forging solutions to such issues as the Paris Club or bondholders' outstanding debt. WAYNE

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E.O. 12958: DECL: 12/14/2017 TAGS: PREL SNAR CJAN ECON ASEC KJUS VE AR SUBJECT: ARGENTINE FUROR CONTINUES OVER U.S. ALLEGATIONS THAT VENEZUELAN MONEY WAS INTENDED FOR CRISTINA KIRCHNER

REF: (A) BUENOS AIRES 2336 (B) MCWHIRTER 12/14/07

E-MAIL TO DS COMMAND CENTER

Classified By: Ambassador Wayne for reasons 1.4 (b) & (d).

Summary -------

1. (C) The GOA has repeatedly suspended Ministerial-level contacts and has cut off some law enforcement contacts with the USG in wake of the continuing furor (ref a) over DOJ allegations that $800,000 intercepted August 4 by Argentine officials was a BRV cash contribution for Cristina Kirchner's (CFK) presidential campaign. The press reports that the GOA is considering further responses, including the staging of a massive protest in front of the Embassy which could involve radical and sometimes violent groups. The Argentine Deputy Foreign Minister advised the Ambassador that he would be called in to the MFA on December 18. The Ambassador used a previously scheduled holiday reception for more than 100 journalists to roll out Washington-cleared guidance reinforcing the message that the recent arrests in Miami do not constitute a U.S. conspiracy against the GOA and that the United States wants a good relationship with Argentina. End Summary.

GOA Ire Against USG Dominates Headlines ---------------------------------------

2. (SBU) Argentine media on December 14 continued to give extensive coverage to the GOA's furious reaction (ref a) to FBI allegations that $800,000 intercepted August 4 by Argentine officials was a BRV cash contribution for Cristina

Kirchner's (CFK) presidential campaign. According to several sources, CFK was very angry and upset, interpreting U.S. arrests and charges as rejection of her overtures for better relations, an attempt to destabilize her new administration, and an effort to force her to distance Argentina from Venezuela. Following the lead of President Kirchner, her chief of staff and Justice Minister -- whose remarks (ref a) were broadcast and re-broadcast throughout the day and night -- a broad array of CFK's congressional, gubernatorial, and mayoral allies have accused the USG of slandering CFK and the GOA in premeditated fashion in its effort to get Chavez.

3. (SBU) Opposition leader and presidential candidate Elisa Carrio, who finished the October 28 polling in second place, ridiculed the GOA's attempt to portray the arrests as part of an anti-CFK conspiracy. "President Kirchner does not seem to understand that the justice system in the U.S. is autonomous. Thank God, (CFK) cannot stop the U.S. justice system. I am happy that the Americans are investigating, because they're the best guarantee (of an impartial inestigation). Not even the U.S. president can intervene." Leaders of other opposition parties questioned CFK's ties to Caracas and criticized the GOA for having let Antonini-Wilson leave the country before completing its own investigation.

GOA Gives the USG the Silent Treatment --------------------------------------

4. (SBU) The press is further reporting that cabinet ministers have been instructed not to meet with the Ambassador, and that all U.S. requests for high-level meetings with GOA officials must be coordinated through the

MFA. We are also hearing from our law enforcement contacts that they are being instructed by the GOA leadership to minimize contacts with us. Several bilateral meetings were cancelled under instruction on December 13. The Airport Security Police told Embassy they had been instructed not to meet with U.S. officials. On the afternoon of December 14, the GOA ended more than 24 hours of shunning contacts with the Embassy when Deputy Foreign Minister Garcia Moritan called the Ambassador. He advised the Ambassador that he should come to the MFA to meet Foreign Minister Taiana on the evening of December 18. We anticipate this will entail a protest and an explanation of the steps the GOA plans to undertake.

GOA-Organized Anti-USG Protest in the Offing? ---------------------------------------------

5. (SBU) "La Nacion," the newspaper of record, and other media have reported that CFK and her top advisers repeatedly huddled Wednesday night and Thursday morning on how to deal with "the worst moment of the bilateral relationship with the United States" in the last four and a half years. According to "La Nacion," "the Casa Rosada (presidential palace) Thursday considered ordering mayors, social organizations, and activists ("piqueteros") to organize a mass demonstration of protest in front of the U.S. embassy." The article quotes an unnamed official at Casa Rosada who said, "We have not ruled it out. There is a great deal of anger with the United States, but it has not yet been decided." (Mission ARSO sent a report on this development and Mission counter-measures to DS Command Center -- ref b.)

6. (SBU) The press reported remarks by WHA A/S Shannon that

the case was a law enforcement matter, not a political issue, and that it should not be allowed to affect bilateral relations. The press also quoted Department spokesman McCormack on the strength of the bilateral relationship and the independence of federal prosecutors, as well as similar statements by the Embassy's spokesperson.

The Empire Strikes Back: Mission PD Response ---------------------------------------------

7. (U) The Ambassador used a previously scheduled holiday reception for more than 100 print, radio, and TV journalists December 14 to roll out Washington-cleared guidance on the case. Several of the radio journalists used their cell phones to transmit the Ambassador's words on the air through their stations, and many rushed out after the Ambassador concluded to call in stories. Several stories reporting on the Ambassador's reception remarks have already hit the wires. We expect that the Ambassador's remarks will dominate Argentine headlines Saturday.

8. (U) We also gave the journalists recent quotes by Assistant Secretary Shannon, Secretary Chao, Dana Perino, and the Ambassador on the U.S.-Argentine relationship. We are posting the Ambassador's remarks on the Mission's web page.

Comment -------

9. (C) What began as a black day for the U.S. image in Argentina -- with headlines filled with attacks by CFK and others about our supposedly dark intentions -- is ending on a more hopeful note, as the quick work by State, Justice, and the FBI to review and clear our draft guidance on the issue

enabled us to get our story out to a captive group of Argentine journalists. As the first week of the CFK administration draws to a close, we have given pragmatists within the GOA material to work with in their effort to convince CFK to climb back from the precipice and re-engage with the USG as she begins the second week of her presidential term. We will see their reaction and response in the days ahead.

WAYNE

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FOR P - U/S BURNS, WHA - A/S SHANNON, EEB A/S SULLIVAN

NSC FOR DAN FISK TREASURY FOR A/S LOERY AND DAS O'NEILL DOD FOR DASD STEPHEN JOHNSON SOUTHCOM FOR ADM STAVRIDIS FBI FOR TOM FUENTES

E.O. 12958: DECL: 02/22/2028 TAGS: PREL CJAN KJUS EFIN SNAR MASS VZ AR SUBJECT: ARGENTINA: GETTING PAST SQUARE ONE WITH THE FERNANDEZ DE KIRCHNER GOVERNMENT

REF: A. BUENOS AIRES 124 B. BUENOS AIRES 172 C. BUENOS AIRES 178 D. BUENOS AIRES 188 E. BUENOS AIRES 216 F. BUENOS AIRES 225

Classified By: DCM Tom Kelly for reasons b, d.

1. (C) Summary: With a seven-week period of bilateral estrangement in our rear-view window, we have an opportunity -- again -- to build a more constructive relationship with Argentina. The warming trend in the bilateral relationship continues. President Cristina Fernandez de Kirchner and her government rolled out the red carpet for CODEL Engel and PDDNI Kerr, and the circle of GOA luminaries making positive statements about the United States is growing. Capitalizing on this opportunity, however, will be no easy task. Confidence must be rebuilt on our side and in Buenos Aires. The GOA must demonstrate its commitment to a constructive relationship, including through visits to the United States. But concerted effort is also needed from our side, including visits to Argentina by senior USG officials. The presence of

authoritative USG officials here, and the attendant positive media coverage it creates, feed the Argentine need for attention, directly attacking one of the main causes of anti-Americanism here -- the perception that the USG does not care enough about Argentina. The hard work will be worth the effort if we can make a dent in anti-U.S. sentiment and influence Argentina to stay out of the Bolivarian camp. Making Argentina a more cooperative interlocutor and receptive audience for U.S. ideas is achievable. End Summary.

An Austral Warming Trend ------------------------

2. (C) Three weeks have passed since the GOA signaled an end to its bilateral squabble with the USG via a highly publicized meeting on January 31 betweQPresident Cristina Fernandez de Kirchner (CFK) and Ambassador Wayne. (The U.S. Ambassador is the only Chief of Mission who has been received privately by CFK; she has now received him three times since her inauguration.) The change in how the United States is treated and portrayed by Argentine authorities is striking. As we had agreed beforehand, CFK insiders followed the January 31 session with positive and conciliatory statements from Cabinet Chief Alberto Fernandez, Foreign Minister Jorge Taiana, and others. From January 31 on, the Argentines have given prominent positive public play to each event involving a USG visitor, including the two (CODEL Engel and PDDNI) that occurred in the last week.

3. (C) The chorus of anti-U.S. recriminations has fallen silent. In their place, we are hearing positive pronouncements about our country. On February 20, for example, after a meeting between the Ambassador and Minister of Defense Garre, a hold-over from the first Kirchner

administration who had previously resisted close cooperation with the USG, the Defense Ministry issued an upbeat communique on its website noting that "the Argentine side expressed gratitude for American assistance." The statement then proceeded to detail several areas of successful bilateral cooperation that helped to train and transform Argentina's military.

4. (C) In the wake of the meeting three weeks ago with CFK, the Ambassador has had friendly and productive meetings with Cabinet heavyweights such as Cabinet Chief Fernandez, MOD Garre, Foreign Minister Taiana, Economy Minister Lousteau, and Justice Minister Anibal Fernandez (reftels A-E).

5. (C) More importantly, CFK herself has demonstrated her continuing personal interest in ties with the USG by hosting two meetings in her presidential office at the Casa Rosada with U.S. visitors in rapid succession: a positive, well-covered session with CODEL Engel on February 21, and PDDNI Kerr, who had a productive meeting with her on February 25. Privately, Rep. Engel described the CODEL's 90-minute

meeting with CFK as "a home-run." The meeting was covered intensively by the media, which characterized the event as a "Gesture of Detente" and "Improvement in Bilateral Relations" in leading daily headlines. PDDNI Kerr's meeting was equally positive. CFK warmly thanked him for his "important" visit, and repeated several times her commitment to the struggle against terrorism (saying, for example, that her government was "strongly committed to fight terrorism at home and internationally" and that her commitment to counter-terrorism was "absolute").

Argentina Is In Play

--------------------

6. (C) The about-face is striking, because it comes on the heels of a coordinated GOA effort, with the Kirchners and other GOA all-stars front and center, to impugn the motives of the United States in the Miami prosecution of Venezuelan agents connected to the matter of Guido Alejandro Antonini-Wilson's cash-filled suitcase. But the rhetorical course-correction is not surprising. CFK spent much of the latter half of 2007 telegraphing her intention to pursue closer relations with the United States, holding three meetings with Ambassador Wayne and spending a week in New York City wooing investors and the media, as well as meeting A/S Shannon. Just days before her inauguration, in a meeting with the Ambassador, CFK expressed her admiration for the United States and her desire to improve the bilateral relationship. Her Cabinet Chief Fernandez and new Ambassador to the United States Timerman argue forcefully that she wants to change past GOA practices and maintain good relations with the USG.

7. (C) Clearly, there is still hard work to be done to build mutual confidence and establish a basis for sustained "good" relations. To maintain and reinforce the recent positive momentum, we need more engagement, not less -- by both sides. The GOA certainly needs to demonstrate its commitment to this effort. But it is important to remember that we also have much to gain if things go well.

8. (C) The foreign policy orientation of the fledgling CFK government is very much in play. Moreover, in our view, the prevailing winds in the region favor our efforts to help Argentina evolve into a constructive partner. Hugo Chavez (whom CFK will visit in early March to ink an oil-for-food

deal -- septel) is being portrayed in the local media as increasingly on the defensive, and Fidel Castro's withdrawal from the Cuban political scene is being covered here as the end of a radical era. In contrast, neo-left politicians like Lula (who just visited Buenos Aires to sign a number of bilateral agreements) and Chile's Michelle Bachelet are well-regarded here as pragmatic leaders who are making progress on social justice while maintaining good relations with Washington. We read the tea leaves to indicate that CFK much prefers to follow Lula's path than Chavez's, and wants to diversify Argentina's good relations in the world.

9. (C) At the same time, there are countervailing forces that could push the new president in another direction. Influential figures within her government, such as Planning Minister Julio de Vido, espouse a close embrace of Chavez's Bolivarian project. Although de Vido's primary motive for tilting towards Chavez may be pecuniary, a Bolivarian approach to foreign policy would sit well with CFK's poor and working class political constituency, and probably appeal at a certain level to the Peronist/populist instincts of CFK and her husband. Nestor Kirchner himself was never as comfortable with the United States as his wife has proven to be. For example, he never received this Ambassador or publicized contacts with us, whereas CFK has met the Ambassador six times and played each meeting positively and prominently in the media. While Nestor Kirchner is still a powerful decision-maker, he is by most reports ceding foreign policy to CFK.

10. (C) In our view, the government's left-leaning, nationalistic heritage does not necessarily lead to chronic

confrontation with the United States. CFK seems more

interested in governance and the longevity of her family's political prospects than in gratuitous Yankee-bashing. Without U.S. engagement, however, our opportunity to develop a more constructive relationship with Argentina could be squandered. We need to stay on the field to win the game.

Why Visits Help Educate and Show Interest -----------------------------------------

11. (C) Engagement means, among other things, senior-level visits in both directions. This is true for symbolic and practical reasons. Like other geographically isolated countries, Argentines keep track of who visits them and who doesn't. The GOA's infatuation with the travel plans of Assistant Secretary Shannon reflects a deep-seated, society-wide insecurity about Argentina's relative importance in the world. Argentines obsess over the perceived indifference of other countries to their interests and concerns, especially that of the United States. Visits to the region by senior USG officials that seem to hopscotch over Argentina are always noted in the press and the corridors of power.

12. (C) CFK clearly shares this fixation. She told the Ambassador late last year that she faults the USG for not paying sufficient attention to Latin America (read: Argentina) over the past few years, and repeated that analysis to CODEL Engel on February 21 (ref F). This is not new, or confined to CFK and her constituency. It is a widely shared perception in Argentina that the United States has only rarely sustained positive interest in the Southern Cone. (At a recent lunch with prominent local analysts, businesspersons, and media figures for PDDNI Kerr, this was a recurrent theme -- and none of them were government

supporters.) High-level visits can be used to demonstrate our good intentions and sincere desires for stronger relations. For example, Secretary Chao's December visit to CFK's inauguration helped us to rebut accusations of a U.S. conspiracy against the GOA during the furor over the Miami court case.

13. (C) Just as importantly, visits help GOA officials to learn. CFK and her husband know little about the way that our society and political system function. This holds true for most of their closest advisors and the Argentine political establishment writ large as well. The recent bilateral crisis, for example, reminded us how few of them (including those in the "pro-U.S." camp) really understand the extent of our justice system's independence. To our great advantage, Argentina is now headed by a President who wants to learn more about our country -- evinced, for instance, by the manner in which she pumps visitors for information about the U.S. presidential race. (Though she initially favored another woman candidate, it was clear by February 21 that she had absorbed much about all three leading candidates, and in both of her meetings with USG visitors in recent days she made positive comments about all three and about the vitality of our electoral process.) Alberto Fernandez told the Ambassador that he recently recommended that CFK accept Gordon Brown's invitation to travel to London for a gathering of international political party leaders precisely because it would be an excellent opportunity for her to learn more about the global scene through direct contact with other world leaders.

The Most Promising Areas of Focus ---------------------------------

14. (C) On the practical level, despite this Mission's renewed access to every level of the Argentine government, there are a number of concrete policy areas in which Washington-based agencies and their leaders need to engage, including via the personal contact that visits make possible:

-- (C) Finance: Achievement of a closer economic relationship, which CFK has told us she wants, will not

happen without a Paris Club deal to normalize the GOA's debt to official creditors. That in turn will require Treasury's engagement with CFK's capable young Economy Minister Martin Lousteau. A Paris Club deal would be a critical first step towards an economically resurgent Argentina's broader reinsertion into global capital markets. This, in turn, will lessen Argentina's reliance on Venezuela to help place new Argentine debt, a reliance that comes with Bolivarian political and ideological strings attached. It could also help Lousteau, who is engaged in an internal tug-of-war with less market-friendly forces on many issues critical to the 500 U.S. companies doing business here, establish his primacy within the GOA on economic policy.

-- (C) Defense Cooperation: The Ministry of Defense is more friendly to us now than it has been at any time since MOD Garre took office two years ago. The Army chief, who previously kept his distance from the United States, has reached out to us for contact. Argentina's Navy and Air Force are eager to work with us. To capitalize on this attitudinal shift, we need high-profile U.S. military leaders like Southcom Commander Stavridis (scheduled to visit in May) to come to Argentina. His visit could help us bring the military relationship to another level, advancing the ball on

issues like Argentine participation in exercises, exchanges, and regional security cooperation. Such a visit could also keep U.S. military suppliers in the race for important contracts like 3-D radars. MOD U/S Forti told the Ambassador last week that he hopes to get MOD Garre to the United States in the months ahead.

-- (C) Law Enforcement and Intelligence: Cooperation in this area was a bright spot in the bilateral relationship, even during the most difficult periods of the first Kirchner administration. The worrying freeze in cooperation that took place during the period of estrangement is over, and our cooperation is returning to normal. We need senior-level visits, such as the planned trip by Deputy FBI Director Pistole in May, to advance U.S. interests in intensified counter-terrorism work, and to resume our valuable partnership with the GOA to bring the Iranian-sponsored perpetrators of the 1994 AMIA bombing to justice. We also need to get leading GOA law enforcement officials to the United States for bilateral consultations.

-- (S) Intelligence: Argentine intelligence officials highly value their relationship with U.S. counterparts, as PDDNI Kerr's visit amply demonstrated. During a dinner with the PDDNI February 23, the GOA's Deputy Director of Intelligence recounted with pride that his service has shared high-value information with us and worked closely with us in support of U.S. goals. The PDDNI's visit reinforced our superb working relationship with Argentina's service (the National Intelligence Service -- SIDE), and we need to keep developing it through continued cooperation.

-- (SBU) Science and Technology: CFK has repeatedly cited this as an area where she hopes to expand contact and

cooperation with the United States.

15. (C) Visits by high-level U.S. and GOA officials to each other's country on these and other areas will advance our long-term interest in a friendly relationship with a populous, fast-growing country with considerable talent and resources. As importantly, such travel advances key U.S. interests in specific policy areas -- normalization of financial relationships between developing economies and creditors, amicable military-to-military ties, and cooperation on regional counter-terrorism issues -- that matter to our country's security interests.

16. (C) Finally, travel by prominent USG and GOA officials to each other's countries directly addresses one of the main causes of anti-Americanism here -- the perception that the USG does not care enough about Argentina. The positive media coverage created by such visits makes Argentines at all levels of society feel relevant in the world and taken into considerations by our powerful country. This cannot help but

chip away at this society's collective animus towards out nation, which stems to a large extent from its collective insecurity about itself.

Let's Make It Work ------------------

17. (C) Events over the past two years remind us that relations with the GOA are not easy. Nonetheless, we have a real opportunity to reach a more positive equilibrium in the bilateral relationship. In his January 31 meeting with CFK, the Ambassador deployed Department-cleared talking points that featured the proposal that both sides would demonstrate

interest in the relationship by engaging each other, including via visits in each direction. As reported in ref A, CFK agreed, and expressed interest in a steady stream of high-level visits. We therefore have a deal in place with the GOA on travel in both directions. The Argentines need to hold up their end of the bargain. Cabinet Chief Fernandez told the Ambassador February 21 that he had identified March 8-12 for travel to the United States. Foreign Minister Taiana, MOD Garre, and Economy Minister Lousteau also intend to travel to the United States soon. We should remain committed to our part in this effort, especially after several weeks of positive interaction with the GOA. KELLY

VZCZCXRO8303 RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC DE RUEHBU #0827/01 1961828 ZNY SSSSS ZZH R 151828Z JUL 09 FM AMEMBASSY BUENOS AIRES TO RUEHC/SECSTATE WASHDC 4069 INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC S E C R E T SECTION 01 OF 05 BUENOS AIRES 000827

SIPDIS

E.O. 12958: DECL: 07/15/2029 TAGS: PGOV PREL ECON AR

SUBJECT: NOW WHAT? THE KIRCHNERS' OPTIONS IN POST-ELECTION ARGENTINA

Classified By: Charge d' Affaires Tom Kelly for reasons 1.4 (B) and (D) .

1. (C) Summary/Introduction. More than two weeks have passed since Argentina's ruling first couple lost badly in mid-term congressional elections. It has taken President Cristina Fernandez de Kirchner (CFK) and her husband Nestor time to process the meaning of the debacle and respond. Though the GOA has taken some significant steps over the past two weeks, including a Cabinet shuffle, the signals that the Kirchners and their associates have sent have been decidedly mixed. It may be another month before their new strategy is fully discernible.

2. (S/NF) In the past two weeks, Mission personnel have talked to dozens of political analysts, economists, businesspersons, and politicians about the Kirchners' likely course. Most analyses posit three possible scenarios: radicalization, reform, or the status quo. While there are serious, smart people who believe that the government will lurch simply left or right over the coming months, we, and most of our contacts, believe that the government will behave in the future much as it has in the past. We think a tepid move toward reform is more likely than radicalization because the country's ascendant forces support the former, not the latter. At the same time, we doubt that Kirchner-led reform will be ambitious. The best that can be expected from this weakened government is a "reform-lite" agenda that seeks to recapture political space without significant policy concessions. This cable examines the three scenarios in depth; identifies evidence in support of each one, as well as

indicators to watch for that might clarify the Kirchners' future intentions; and evaluates the scenarios' likelihood. A separate message will critically examine another possible political outcome - that CFK will fail to reach the end of her term. End Summary/Introduction.

--------------------------The Radicalization Scenario ---------------------------

3. (C) In the first (and least likely) scenario, the Kirchners react by turning hard left, attempting to reverse their fortunes through a radicalization of their regime that would propel them unambiguously into the Bolivarian camp led by Hugo Chavez. This approach is referred to locally as "deepening the model." Key elements of this approach would include:

-- Economy: Further nationalization of private companies and/or intensified attempts to manage their behavior; a partial default on sovereign debt instruments; and a confirmation of Internal Commerce Secretary Guillermo Moreno as the executor of NK's dirigiste economic policy; increased influence by labor unions.

-- Governance: Abandonment of the Peronist party in favor of "transversality," in which the Kirchners consort with any and all who offer their fealty; use of the government budget and other means to punish Peronist governors and other politicians deemed disloyal; pursuit of restrictive media legislation; increased resort to executive decrees.

-- Foreign Policy: Closer identification with Hugo Chavez and his Bolivarian allies; increasing criticism of USG

policies.

------------------------------Evidence of a Shift to the Left -------------------------------

4. (C) There is a significant group of observers (including political analyst Rosendo Fraga and Deutsche Bank Managing Director Marcelo Blanco) who subscribe to this school of thought. They do not lack evidence. Erstwhile Kirchner allies in the private sector, including Bank Association chief Jorge Brito and Argentine Industrialist Association head Hector Mendez, tell us that they are disgruntled with the Kirchners and lack influence on them. Their loss seems to be union boss Hugo Moyano's gain. He flexed his muscles last week, compelling the GOA to withdraw a subcabinet nomination in the Health Ministry that threatened his unions' financial interests and installing the son of his attorney as head of Aerolineas Argentinas (septel).

5. (C) On the political front, Nestor Kirchner resigned his position as head of the Peronist Party the day after the June 28 election. Since then, rumors have proliferated of a new "transversal" approach that elevates Kirchner loyalists and hard-line ideologues like "piquetero" street activists and

BUENOS AIR 00000827 002 OF 005

the "Carta Abierta" intellectual group. Kirchner showed up last week at an open-air meeting of "Carta Abierta," his first public appearance since his June 29 resignation as Peronist-in-chief. Last week's cabinet shuffle only strengthened the hands of the loyalists, with no new blood

and the replacement of the reform-oriented Sergio Massa with Kirchnerista Anibal Fernandez as Cabinet Chief.

6. (C) Some of the GOA's post-election foreign policy moves can also be read to support the radicalization thesis. The most obvious was CFK's spur-of-the-moment trip to Central America (via the OAS in Washington) in a hastily conceived effort to restore Manual Zelaya to power in Honduras. Only Ecuador's Rafael Correa and Paraguay's Fernando Lugo accompanied CFK and OAS Secretary General Insulza on the ill-fated Mission. Wittingly or not, she seemed to side with hasty Bolivarian efforts to force the issue in Honduras rather than to wait for mediation to take its course. A more careful leader, Uruguay's Tabare Vazquez, let it be known that he declined CFK's invitation to join her aboard Tango One.

7. (C) There was one other foreign policy-related event that may suggest a leftward turn. Kirchner congressional ally Patricia Vaca Narvaja recently wrote a letter to U.S. Speaker of the House Nancy Pelosi asking for the USG to declassify all information at its disposal regarding the Argentine military dictatorship. The Kirchner government has often seemed obsessed with refighting the "Dirty War" of the 1970s and early 80s, and the request could be construed as a prelude to another rhetorical offensive against the USG for its "support" of military regimes in the region. (Alternatively, it could be a routine request consistent with the government's longstanding interest in settling Dirty War-related human rights cases.)

-------------------------------The Verdict: "Red Dawn" Unlikely --------------------------------

8. (C) Despite all of the above, we view the radicalization scenario as the least likely of the three paths that the government will take, with a probability of less than five percent. Even if the Kirchners prefer this approach in their heart of hearts, circumstances in the wake of the election give them virtually no margin to implement it. Immediately after the election, many of the most powerful forces within the governing coalition began clamoring for more moderate policies, a more inclusive approach to governance, and (especially) a larger share of government finances. These Peronist governors and mayors fared far better than Nestor did, and they are in no mood to take orders from the Kirchners. As a source close to Buenos Aires Governor Daniel Scioli told the CDA, "There are no captive politicians after these elections." The private sector is similarly emboldened. As Industrialist Association (UIA) chief Hector Mendez told us that "deepening the model won't happen. We just won't allow it." Finally, the anti-Kirchner opposition is clearly ascendant. These groups will fight GOA efforts to march Argentina further to the left. Given the current political climate, they should have the votes to hold the Kirchners at bay even before the new Congress is seated in December.

9. (C) Nor do we believe that Argentina's foreign policy is becoming more Bolivarian. The GOA has become much less eager to criticize the USG directly since Barack Obama became President. CFK wears her affection for our Commander-in-Chief on her sleeve. In addition, as mentioned in the next section (para 16), there is new evidence of concrete GOA efforts to support U.S. foreign policy objectives in multilateral fora, at least behind the scenes.

10. (C) There is another external factor that makes Argentina's embrace of Bolivarian politics unlikely -- the growing influence of Brazil here. The local IDB rep, Brazilian Daniel Oliveira, told econoff recently that "Argentina has become as important to Brazil as Mexico is to the United States." With a US$31 billion trade relationship and more than US$10 billion in Brazilian investment flowing into the Argentina economy since 1997, Brazil is strongly engaged here, and is not shy about defending its interests. The local press has reported that Lula worked the phones in July 2008 to prevent the Kirchners from abandoning power in the wake of their failed attempt to push a tax increase on agricultural exports through Congress. Lula and his associates will remain an important moderating influence on the Kirchners.

11. (S/NF) Although we think this scenario's likelihood is

BUENOS AIR 00000827 003 OF 005

limited, it bears mention that it is also the most likely to lead to political crisis, confrontation, escalating violence, and CFK's failure to reach the end of her term. We explore how such a downward spiral might play out, and the likelihood of this calamitous scenario, in a separate report.

------------------------------------------Scenario Two: The Kirchners Embrace Reform -------------------------------------------

12. (C) Some observers expect (and many more hope) that the Kirchners will reinvent themselves, pursuing a reform-minded agenda that mollifies Peronist governors, defangs the

opposition, and wins over new foreign friends. A larger group believes that a rebellious Peronist establishment will put them on that course, whether they like it or not. Key policy features of such an approach would include:

-- Economy: Interventionist-in-Chief Guillermo Moreno is dismissed, clearing the way for a normalization of the state statistical institute INDEC (and thus a return to methodological integrity in the national accounts); GOA makes deals with the Paris Club and private bondholders left out of the 2005 debt swap deal and normalizes its relationship with the IMF, starting with an Article IV Consultation; progress on outstanding ICSID judgments against Argentina.

-- Governance: CFK rules more inclusively, coordinating policies with governors and looking for common ground with the opposition in the current and next Congress. Government rolls back agricultural export taxes as a down-payment on its new conciliatory approach. NK reduces his public profile.

-- Foreign Policy: Concrete steps benefiting the United States and non-Bolivarian governments in the hemisphere, coupled with distancing from Chavez and his allies.

13. (C) Proponents of this scenario's likelihood have plenty of recent evidence to back them up. There is clearly ferment in the government's approach to economic policy, with a new Economy Minister on board, powerful (and heretofore pro-Venezuelan) Planning Minister Julio De Vido now reputed to be an advocate of pragmatic moderation, and prestigious, market-oriented advisors (specifically, former Central Banker and IMF official Mario Blejer) said to be poised to join the government. The government sacked its statist, corrupt Transportation Secretary Ricardo Jaime days after the

election, and rumors abound that Moreno, the icon of "market repression" economics, has become such a political liability that his days in the government are numbered. Well-placed sources within the government confirm that change is in the air. Top Kirchner aide Carlos Zannini indicated that the GOA would focus almost exclusively on changes on the economic policy front this month, and influential Buenos Aires Province Vice-Governor Alberto Balestrini told the CDA last week that the GOA would roll back agricultural export taxes on wheat and corn soon.

14. (C) Nor is there any doubt that the political center of gravity has shifted dramatically in Argentina since the election. Most of the country's 16 Peronist governors have reportedly expressed their desire for market-oriented changes, at least privately. Some former allies, like ambitious Chubut Governor Mario Das Neves, have broken ranks with the Kirchners and openly criticize them. Even loyalist governors like Chaco's Jorge Capitanich have publicly called for straightening out INDEC and other changes. Faced with this onslaught from ostensible allies, CFK announced on July 9 (as she has before) that she would convoke the country's main political and private sector leaders to a process of dialogue. The following week, she modified the proposed process to accommodate opposition demands.

15. (C) The GOA's political position is further weakened by the prospect that it will suffer defections from its ranks in the current Congress. Of course, the next Congress that takes office December 10 will be more independent, with the government losing majorities in both chambers. This will make it easier for reform-minded groups to push the Kirchners into accepting elements of their agendas. As Balestrini told us, the GOA will need to renegotiate and compromise in order

to rule.

16. (C) The GOA has taken a few subtle foreign policy moves that could be construed as harbingers of a closer relationship with the United States. After he received a call on the issue from Secretary Clinton, FM Jorge Taiana convinced CFK to change the voting instructions of the Argentine delegation to the International Atomic Energy Agency, which enabled U.S.-supported candidate Yukiya Amano

BUENOS AIR 00000827 004 OF 005

to win election after a month-long impasse. In a more prosaic but perhaps symbolically important development, the CDA received a warm note from CFK expressing regret for her failure to attend the Mission's Independence Day celebration and offering best wishes. We had never before received such a note from either Kirchner.

------------------------------------The Verdict: Don't Bet On A New Leaf -------------------------------------

17. (C) While the reform scenario has gained credence over the past week, driven primarily by economic policy news and rumors, we remain skeptical that Nestor and Cristina will turn into a latter-day incarnation of Ozzie and Harriet, dispensing moderation and good sense wherever they turn. Neither Kirchner seems inclined to admit error, even tacitly, by shifting course so abruptly. A senior official at the Central Bank told us that Nestor will resist reformist policies because they would be interpreted as a sign of his weakness and even irrelevance. If changes come, he argues,

they will come at a time of his choosing. A reformist path may also strike the Kirchners as politically risky, distancing them from their most fervent supporters in the working class, poor "villas," and intelligentsia in deference to sectors that are at best disloyal and at worst openly hostile to them.

18. (C) The "forced reform" variant of this scenario seems somewhat more likely, but not by much. For it to work, one of two things must happen. Either the Peronist governors will need to set aside their rivalries and effectively advocate for a more robust approach to reform than seems likely, or the bickering, often inept opposition will need to get its act together and engage the Kirchners as a united front. Much depends, for example, on whether dissident Peronists coalesce behind Senator Carlos Reutemann, who has emerged as a frontrunner for the Peronist presidential nomination in 2011, and whether Vice President Julio Cobos can gain some traction in pulling together support from the Radicals, Civic Coalition, and Socialists. If either of these two groups works cooperatively over the coming two months, it is possible that positive changes can come to Argentina before CFK leaves office in 2011. We don't think that will happen, however, and estimate the two reform scenarios' combined probability at no more than twenty percent.

--------------------------------Scenario Three: Muddling Through ---------------------------------

19. (C) In the third scenario, the Kirchners do not definitively opt for reform or radicalization. Maintaining the short-term focus that has characterized their six years

in power, they muddle through as best they can, trying to salvage their political futures or at least to reach the end of CFK's term in 2011. There may be some positive changes in this scenario -- one analyst dubs it "reform-lite" -- but the electoral setback does not ultimately result in a dramatic course correction. In the words of economist Nicolas Dujovne, the Kirchners will pursue a strategy of "minimum reforms, but without collapse." Under this scenario, the following might happen:

-- Economy: Lots of policy zigzagging without a clear direction; Moreno stays, or leaves and is replaced with another hard-liner; new, "reform-minded" Economy Minister Boudou changes little, like the Cabinet's previous reformist also-rans Martin Lousteau and Sergio Massa.

-- Governance: Cooption of some Peronist governors and mayors, punishment of others considered to be disloyal. Stalemate on legislation in Congress. Top-down dialogue process initiated without intention to compromise.

-- Foreign Policy: Some private gestures to the USG, but little movement towards resolution of long-term sources of friction; no palpable distancing from Chavez's camp or modification of the GOA's "independent" foreign policy.

--------------------------------------------- --------For Evidence That Nothing Has Changed, Buy a Newspaper --------------------------------------------- ---------

20. (C) This status-quo scenario is the clear frontrunner among our contacts. There is fresh evidence to support it in every day's harvest of newspapers. The two dominant news stories since the election, CFK's botched trip to Honduras

and the GOA's response to the H1N1 epidemic here, both

BUENOS AIR 00000827 005 OF 005

suggest that the government's improvisational style and closed decision-making process remain intact. This in turn will mean that GOA policies are more likely to develop in response to the first couple's whims than to a coherent design. It also means that the government bureaucracy is unlikely to save the Kirchners from the consequences of their impulses. For example, CFK went ahead with her ill-advised trip to Washington and Central America earlier this month against the advice of her Foreign Ministry. She ended up achieving no more than Nestor did in December 2007 when he participated in the Chavez-organized "bungle in the jungle" in Colombia, in which Nestor and others sat helplessly in the jungle for days in the futile hope that the FARC would deliver hostages to them.

21. (C) The opacity of decision-making at the GOA's apex means that the government will continue to meander hither and yon, regardless of whether or not it has definitively chosen a particular direction. The GOA's performance in dealing with H1N1 flu is a case in point. Although many public health officials in the GOA are working around the clock to contain the challenging problem, the government's lack of internal communication made it look hapless. For example, upon alighting on Argentine territory after her Central American jaunt, CFK denounced "fear-mongering" media reports of 100,000 flu cases in Argentina -- information that had come from her own health ministry. (The 100,000 number referred to all flu cases, not just H1N1 flu.) The poor coordination continues. Over the past weekend, the Mission

found itself in the middle of an unsightly (non-public) dispute between the federal Ministry of Health and its counterpart in the Province of Buenos Aires (governed by Kirchner ally Daniel Scioli) over the destination of CDC-donated Tamiflu doses, with each accusing the other of bad faith and subterfuge.

--------------------------------------------- -----The Verdict: More of the Same, But Good Can Happen --------------------------------------------- ------

22. (C) Like most of our contacts, we think that this untidy scenario is the most likely outcome. We don't expect the Kirchners to change, but given the magnitude of their defeat in the mid-terms, we don't expect the Peronist establishment or the opposition to back down, either. The Kirchners may even be able to prevail if their rivals and opponents fail to unite. Prolonged stalemate on most of the "big" policy issues seems the most likely outcome of a collision between a closed, reform-adverse, and politically weakened regime and disparate political groups that believe that they have a mandate for reform.

23. (C) This does not mean, however, that no positive change in this scenario is possible. The Kirchners could take steps for ulterior motives that turn out to have beneficial consequences. This has already happened in the post mid-term era, when Transportation Secretary Ricardo Jaime departed office soon after the election. One of our contacts characterized the Kirchners' willingness to cut the notoriously corrupt official loose as the beginning of a purge designed to distance them from the shadiest elements of their regime in an effort to reduce the likelihood that they themselves could end up in prison. Whatever the reason,

Jaime's removal could lead to policy improvements in the transportation sector.

24. (C) Nor does it mean that the USG should ignore the Kirchner regime or give up on it as hopeless. CFK may not have a grand scheme in mind for her remaining two years in power, but she clearly would like to associate herself with President Obama's star power. The intensity of this desire opens all kinds of opportunities for us, as it did in Argentina's decisive IAEA vote. As the Kirchners struggle for political relevance or at least survival, they will be looking for success stories -- and we should be on guard for opportunities to induce them to do the right thing. Even if the Kirchner government is unlikely to resolve every single outstanding bilateral issue to our satisfaction, we think that cultivation of the GOA -- CFK in particular -- can lead to beneficial outcomes for U.S. interests bilaterally, regionally, and multilaterally.

KELLY

VZCZCXRO3809 PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC DE RUEHBU #0853/01 2031647 ZNY SSSSS ZZH P 221647Z JUL 09 FM AMEMBASSY BUENOS AIRES TO RUEHC/SECSTATE WASHDC PRIORITY 4112 INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS RUEAIIA/CIA WASHINGTON DC RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

RUEATRS/DEPT OF TREASURY WASHINGTON DC S E C R E T SECTION 01 OF 05 BUENOS AIRES 000853

SIPDIS

E.O. 12958: DECL: 07/22/2039 TAGS: PGOV ECON AR SUBJECT: (S/NF) ARGENTINA: WILL CRISTINA FINISH HER TERM?

REF: BUENOS AIRES 0827

Classified By: CDA Tom Kelly for reasons b, d.

1. (S/NF) Summary/Introduction. The devastating setback dealt by Argentine voters to the government in the June 28 mid-term elections has restored to respectability last year's fashionable political forecast -- that Cristina Fernandez de Kirchner (CFK) will not reach the end of her term as President in 2011. Like last year, some of this conjecture is little more than wishful thinking by the government's opponents, but not all of it. The ruling couple's political weakness, erratic behavior, looming economic challenges, and Argentina's history of truncated presidential terms lead some serious observers to worry about the government's staying power. A larger group of observers, this Mission included, believe that CFK will probably make it to the end of her term, if only by muddling through (reftel). In this report, we evaluate the main arguments behind the proposition that the Fernandez de Kirchner government will fall and explain why we and others think that, at present, that scenario remains unlikely. End Summary/Introduction.

Kirchner Vulnerability: A New Phenomenon -----------------------------------------

2. (C) The Kirchners' political weakness is still a relatively new phenomenon, dating back to their mishandling of last year's farm protests. In the run-up to the October 2007 presidential elections, public approval ratings for outgoing President Nestor Kirchner (NK) went as high as 77%, as Argentines credited him for the country's remarkable economic recovery after its 2001-02 economic meltdown. Buoyed by her husband's popularity, Cristina Fernandez de Kirchner (CFK) easily won the presidency in the first round of the 2007 election. With 45% of the vote, she outdistanced her nearest opponent by more than twenty percentage points and doubled the vote received in 2003 by NK, who was then the little-known governor of remote Santa Cruz. The ruling couple's considerable political capital dissipated last year as a consequence of their confrontation with the farm sector. CFK and NK's plummeting poll numbers, their sudden inability to stay ahead of the curve, and their abandonment by many of their allies set the stage for a humiliating Senate defeat of government legislation that would have ratified the export tax increase at the heart of the controversy one year ago.

3. (S/NF) This political rout led to speculation in 2008 that CFK might fail to reach the end of her term -- which would make her the first elected Peronist president since the restoration of democracy in 1983 to meet that ignominious fate. We even spotted the graffitied question "Se Kae?" (roughly translated, "Kollapsing?") on a few Buenos Aires walls last year. Much of the speculation was fed by the government's most bitter opponents. Diego Guelar, a foreign policy advisor to Buenos Aires Mayor Mauricio Macri, told a visiting congressional staffer last August that "this government won't last 60 days" -- just minutes after his boss had said that it would. But there was concern within

government circles. A former aide to Buenos Aires Province Governor Daniel Scioli confided to us recently that he and other colleagues had urged Scioli to break ranks with the Kirchners last year over the farm controversy. Scioli said he wouldn't because "If I do, they'll fall, and I'm no coup monger." During the farm crisis, the MFA even took the unusual step of registering its concern with the Embassy. Foreign Minister Taiana's Chief of Staff Alberto D'Alotto (protect) told a Mission contact in May 2008 that the MFA was "very concerned" about the government's staying power.

The Prophets of Doom --------------------

4. (S/NF) In the end, the Kirchner government survived the farm crisis and made it into 2009. With its defeat in the June 28 mid-term election, the speculation has returned, though it has not reached last year's fever pitch. (A large majority of analysts do not/not feel that it is the most likely scenario.) Those who predict an early exit for the Kirchners tend to stress to varying degrees the following factors that, in their view, make a Kirchner collapse more likely:

-- Political: The Kirchners' opponents smell blood after the June 28 election and are waiting for the right moment to remove them, abetted by a public that abhors weak leaders;

-- Psychological: The Kirchner psychodrama is contributing to a series of bad decisions that will lead to the first couple's political demise; and

BUENOS AIR 00000853 002 OF 005

-- Economic: The ruling couple's post-election turn to the left dooms them to botch an increasingly difficult economic situation, sweeping CFK from office.

Se Kae: Political Arguments and Scenarios -----------------------------------------

5. (C) There are some influential political analysts (Rosendo Fraga, and with less certainty, Manuel Mora y Araujo) who believe that this country's political volatility will cause CFK's fall from power. Mora y Araujo argues that Argentine society abhors weak political leadership. If Argentines sense that their ruler is enfeebled, he argues, they tend to collectively say "that's enough." The consequent withdrawal of support makes the damaged ruler vulnerable to overthrow by the scheming political class. The governor of Tierra del Fuego told the CDA that Argentines were "absolutists" in how they viewed politicians as either winners or losers, with no gray areas in between.

6. (C) Echoing a commonly heard refrain, pollster Doris Capurro adds that the Argentine press, particularly the dominant Clarin media group, often serves as "Coup Central." Clarin, she said, fomented Fernando de la Rua's departure from power in 2001, and its owners are fierce critics of the Kirchners. For their part, most politicians have focused on jockeying for future position, but a few important ones sometimes seem to be circling prey. Civic Coalition leader Elisa Carrio said soon after the GOA's mid-term loss that "if Cristina doesn't react within a week, she's going to have problems governing." Along the same lines, Radical leader Gerardo Morales said a few days ago that "if the (current)

dialogue falls apart, the Government will have so little margin for error that anything could happen." Over the weekend, dissident labor leader Luis Barrionuevo said plainly that "I see Julio Cobos finishing Cristina's term."

7. (SBU) Fraga argues that the history of Argentina's post-dictatorship democracy does not bode well for the Kirchners. Over that 25-year period, three elected governments lost mid-terms. The two that were led by Radicals (Alfonsin in 1987 and de la Rua in 2001) did not survive; the one headed by a Peronist (Menem in 1997) made it to the term's end. But Fraga thinks that the Kirchners should take little comfort from Menem's survival. Unlike the Kirchners, Menem never lost control of the Congress nor his hold over the Peronist party. Economist Carlos Melconian adds that in 1997 "the economy was doing fine, and economic policy remained on autopilot until the presidential elections two years later."

8. (C) Fraga thinks that the Kirchners will fail to change course, leading to the gradual deterioration of their already dire political situation. He pointed out that with Manuel Zelaya's overthrow in Honduras, CFK (with approval ratings around 28%) is now the elected Latin American president with the lowest popularity rating in her country. According to Fraga, the December 10 seating of the victors of the June 28 election will create a Congress with the power to remove CFK from office. (Note: Impeachment and removal from presidential office would actually require two-thirds support in each chamber of Congress, which the opposition -- even after December 10 -- will not have.) Fraga believes that Peronists and forces close to Vice President Julio Cobos will conspire to remove CFK from office to replace her with Cobos. Fraga describes the scenario as perfect for Peronists -- it

removes the Kirchners from the scene, follows the Constitutional line of succession, and saddles Radical Cobos with the burden of taking the tough political decisions needed to govern Argentina in an economic downturn. For the non-Peronist opposition, the scenario seems less attractive -- a senior Radical politician has described it to us as a trap -- but Fraga maintains that the ambitious Vice President has already decided to accept power in such a circumstance.

9. (C) As for the Kirchners, Fraga claims that they (especially Nestor) may see this scenario as their best long-term bet if their political situation deteriorates further. They would portray CFK's forced removal from office, in this view, as an illegitimate usurpation of the democratic order, enabling them to escape to a sympathetic foreign country as democratic martyrs. They would then hope that the situation under Cobos would degenerate into political and economic chaos, helping to set the stage for their eventual political comeback. For Fraga, this strategy explains CFK's deep interest in the coup against Manuel Zelaya, which took place on the same weekend as her electoral setback. It also, he says, means that she will not resign, regardless of how bad the political situation.

BUENOS AIR 00000853 003 OF 005

Psychodrama: Behavioral Arguments ----------------------------------

10. (S/NF) Other observers stress psychological factors in their prediction of an impending democratic crisis. This school of thought has two variants: that strongman NK is too

set in his uncompromising ways to adapt, or that he (or he and CFK) are becoming increasingly erratic and incapable of governing. As a well-connected banker told us, the Kirchners could recover by altering course and embracing a more moderate and consensus-driven course, but NK in particular is incapable of change. Instead, in this view, he will embark on a disastrous jeremiad against internal "traitors" whom he blames for the electoral defeat, leading the government off a cliff. In support of this view, Fraga argues that Nestor's personality "cannot change," but that Argentine public opinion has. It no longer wants an obdurate fighter as it did when NK took office in 2003; these days, Argentines want consensual leadership that the Kirchners cannot and will not provide.

11. (S/NF) According to the second variant, Nestor has indeed changed. In fact, he's gone crazy. Jorge Brito, once known as "Nestor's banker," seems to believe this theory, confiding to the CDA that NK appears increasingly obsessive and disinclined to listen to advice. "He used to listen to me," Brito recalled, "but now he doesn't bother." Another banker told us that "Nestor has basically had a nervous breakdown."

Economic Arguments: Surf's Up -----------------------------

12. (SBU) Some economists and financial market participants stress that economic factors are most likely to lead to the Kirchners' downfall. In the words of economist Carlos Melconian (a Macri ally), "whenever Argentine governments that came out weakened from mid-term elections faced a deteriorating economic situation, the result was an economic policy that aimed at 'surfing' the economic waves. However,

the surfing strategy may have to be aborted halfway: the economy may collapse before the date of the presidential elections, as was the case in the Alfonsin-Menem transition between 1987 and 1989." In other words, unless CFK's government raises its economic policy game, it may face the same bleak fate as the Alfonsin and de la Rua governments.

13. (C/NF) But the prospects for more sensible economic policies seem slim, prompting some to suggest that the GOA will be overwhelmed by the economy's many problems. The GOA's economic policy team is an object of derision among serious economists here. Miguel Broda complains that "there's not a single serious macroeconomist on the whole Economy Ministry staff." Banker Brito described the GOA to us as "made up of people who can't even add or subtract." He was particularly scathing about Guillermo Moreno, the Internal Commerce Secretary who serves as NK's Interventionist in Chief, whom he called a "psychopath" who "thinks he's a genius" but "is as dumb as the rest of them." Mario Blejer, a former Central Bank chief and IMF Officer who reportedly turned down an offer to take over the Economy Ministry a few weeks ago, told the CDA that the problem is Nestor's control over GOA economic policy. According to Blejer, "Nestor knows nothing about economics, and to make matters worse, he thinks he does, so he doesn't listen to advice." This leads to an economic policy framework described by another former Central Bank president as "autistic."

14. (C/NF) These economy-focused pessimists disagree on what the precipitating cause of a government collapse might be. The financial community's leading bear, Deutsche Bank Argentina's president Marcelo Blanco, focuses on the possibility of another sovereign default, noting that the GOA

faces several challenging payments in the near-term future, starting with more than US$ two billion in "Boden 2012" payments that come due in August. (According to Blejer, another US$10.5 billion in debt payments awaits the GOA in 2010.) Blanco told econoff that he thought there was a "high probability" that the economy will spin out of control post-election and the Kirchners will ultimately be unable to govern.

15. (C/NF) Political analyst Jorge Castro stresses the government's fiscal situation as the Kirchners' Achilles heel. The GOA, he argues, is ungovernable without a fiscal surplus. If the central government's fiscal accounts fall into deficit, he said, the government could collapse. The Kirchners, in particular, have relied on their discretionary

BUENOS AIR 00000853 004 OF 005

control of federal revenue sharing to keep governors and mayors in line. If the GOA starts suffering cash flow problems, it could encounter political turbulence and have to contend with rebellious governors. Brito worries that radicalization of the regime's economic agenda could be the straw that breaks the camel's back. If NK pursues more radical economic measures, such as pursuing new nationalizations, he told us, the GOA's core of support would shrink from 30 to 15% percent of the population, setting the stage for its abrupt demise. Another economist, Orlando Ferreres, suggests that in such a scenario the Peronists would be the ones who depose CFK, reasoning that "no one is more conservative than a frightened Peronist."

Why We Think CFK Will Make It to 2011

-------------------------------------

16. (C/NF) This recompilation of many arguments making the rounds about the durability of CFK's regime is not intended to create the impression that the government is doomed. At the Mission, we believe that CFK will remain president until December 2011, and that remains the opinion of most of our interlocutors here -- a motley crew that includes anti-Kirchneristas like Eduardo Duhalde and Mauricio Macri, press moguls like Clarin managing director Jose Aranda, and former Kirchner Cabinet chief Alberto Fernandez. We recently wrote a cable (reftel) on the reasons why we thought that a muddling-through scenario was most likely. Rather than recapitulating all of those arguments here, we outline the main political and economic factors supporting the contention that CFK will remain president until 2011.

17. (C/NF) Our best-connected contacts in the political establishment tell us that the focus is on the 2011 presidential election, not coup plotting. A key Macri aide tells us that the main contenders for the 2011 election -his boss, Carlos Reutemann, and Hermes Binner, to name a few -- have predicated their planning on CFK making it to the end of her term. None find taking the reins at a time of economic crisis particularly appealing, and CFK's premature departure could undermine their respective strategies for making it to the Casa Rosada in 2011, when the economy should be stronger. The preferences of these frontrunners are critical, because in the wake of the June 28 elections, they influence other political actors.

18. (C/NF) To further complicate the lives of would-be coup plotters, CFK is a Peronist. The fractious Peronist establishment, though undoubtedly disgruntled with the

Kirchners, is unlikely to end CFK's term if those efforts could redound to the benefit of non-Peronist politicians. Political analyst Mora y Araujo notes that, since 1983, Peronist presidents have proven far harder to dislodge from office before the end of their term than non-Peronists. We would also point out that the Kirchners' forte is tactical -they are generally more nimble and adroit than their rivals and opponents. That said, NK is also a high-stakes gambler, often betting heavily on the element of surprise in dealing with his adversaries. Given his penchant for unpredictability, he could easily over-play his hand one of these days, and one of his "surprise" moves may backfire on him.

19. (C/NF) The fear factor also plays in CFK's favor. Opposition politicians from both the right (Mauricio Macri) and center-left (Radical leader Oscar Aguad) tell us that Argentines remember the chaos that followed Fernando de la Rua's departure from office in December 2001, and are not anxious to repeat the experience. Macri told a visiting U.S. Senate staffer last year that Argentines would be "happy" for the Kirchners to fall ("if this glass of water was the Kirchners, everyone would fight to push it over") except for one thing -- they fear that the government's collapse would risk a return to bedlam. Argentines also seem impassive or unmoved by outrageous cases of corruption or other developments that elsewhere would have caused major scandals ("valijagate" comes to mind), making us wonder what it would take to get people into the streets.

Most Think that the Economy Won't Push CFK from Office --------------------------------------------- ---------

20. (C) Most of Argentina's best economists think that the

economic situation will not force the Kirchners from office. Many post contacts believe that the peso exchange rate is a barometer for popular confidence in the government. The fact that the GOA has been able to manage a deliberate, controlled devaluation of the peso for over eight months without a major run on the dollar, even after the June 28 electoral setback, argues for a stable outlook. The notion that the economy

BUENOS AIR 00000853 005 OF 005

will bring the Kirchners down ultimately rests on the premise that the government will lack the funds to meet its internal and external obligations. For over two years we have been hearing dire forecasts of an impending, overwhelming fiscal crunch just around the corner. However, two of our best contacts -- Javier Alvaredo, General Manager of BICE Bank, and Juan Carlos Barboza, the Central Bank's foreign exchange chief -- tell us with some confidence that the GOA will be able to meet its obligations. On the external debt payments front, both of them said independently that the GOA will have enough funds to meet debt payments in 2009 and 2010. They argue that 2010 will be easier than 2009 because no GDP warrant payment will come due (there is a big one in December 2009). The market, as measured by country risk ratings and bond indices, does not seem spooked.

21. (SBU) Our contacts also tell us that the GOA is unlikely to run out of money before CFK's term ends. A contact in the Economy Ministry's Finance Secretariat insists that the GOA will meet its 2009 financing needs from public sector resources (e.g., the recent nationalization of private pension funds, which gives the GOA a huge pile of money to work with); inflows from International Financial Institutions

like the World Bank and IDB; and liability management (buybacks, exchanges, etc.).

22. (SBU) There is also room for adjustment on the expenditure side. Economist Daniel Marx notes that the government's decision to move the mid-term election to June 28 means that its pre-electoral spending spree was relatively brief this year, which will make it easier for the new Economy Minister Amado Boudou to reduce outlays for the balance of this year and next. Marx thinks that social spending and subsidies will plummet now that the election is over, easing fiscal pressure on the government (though he admits that other pressures, such as transfer payments to the provinces demanded by increasingly assertive and desperate governors, will increase).

23. (C/NF) Ultimately, popular support for, or tolerance of, the Kirchners rides on Argentines' relative sense of well-being. Barring another bout of hyper-inflation or government confiscation of savings or sudden uptick in unemployment, many Argentines are disinclined to rock the boat for now. Argentina is no stranger to nationwide general strikes that have paralyzed the country; it is a huge boon for the Kirchners that, for now, the bulk of organized labor (historically co-dependent on the Peronists) remains in their pockets.

24. (C/NF) Finally, time is probably on the Kirchners' side. Though the economy is currently in bad shape, Argentina's impressive human capital and natural resources will drive an eventual rebound. Argentina's debt levels are manageable, its return on capital high, and it enjoys several strong sectors (agriculture, mining, high tech) as well as a relatively competitive industrial sector and decent market

size. This means that if the Kirchners make it to the middle of next year, with the external environment improving and some attractive presidential candidates in the mix for the 2011 race, the proximity of the post-Kirchner era may by itself reverse capital inflows and jump-start a robust recovery -- which paradoxically could significantly reduce the chances that CFK will be removed from office prematurely.

A Word on the Psychological Theory ----------------------------------

25. (C/NF) As for the argument that the ruling couple's precarious psyches will lead to their fall from power, suffice it to say that this argument is highly speculative and anecdotal. Few people maintain that the president and her husband, both well into their fifties, have changed much over the past two years. As Fraga notes, it is Argentina that has changed, not them. That seems like a good (partial) explanation for why the Kirchners fared poorly and misplayed their hand in the mid-terms, but it does not necessarily mean that it will prevent CFK from reaching the end of her term. After all, the Kirchners have been abrasive, impervious to outside advice, and even paranoid through more than six years of presidential power, and they're still in the Casa Rosada. As long as the political establishment remains focused on the next presidential race and the economy doesn't suffer a meltdown, we expect that's where the Kirchners will stay until December 2011. KELLY VZCZCXYZ0013 PP RUEHWEB

DE RUEHBU #1017/01 2531523

ZNY SSSSS ZZH (CCY ADAEBDBB MSI7235-695) P 101523Z SEP 09 FM AMEMBASSY BUENOS AIRES TO RUEHC/SECSTATE WASHDC PRIORITY 4324 INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY RUEAIIA/CIA WASHINGTON DC PRIORITY S E C R E T BUENOS AIRES 001017

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C O R R E C T E D COPY CAPTION

E.O. 12958: DECL: 09/10/2039 TAGS: PGOV PREL SNAR KCOR ECON AR SUBJECT: ARGENTINA: CFK'S NEW CABINET CHIEF

REF: A. TDX-315/090481-08 AND TDX-315/042493-09 B. TD-314/65216-07 C. TD-314/67647-07 D. BUENOS AIRES 0126 E. BUENOS AIRES 0750 F. BUENOS AIRES 0980 AND PREVIOUS G. TD-314/046516-08 H. 08 BUENOS AIRES 1550 AND PREVIOUS I. 08 BUENOS AIRES 1478 J. 08 BUENOS AIRES 0322 K. TD-314/08212-07 L. TD-314/043023-09 M. TD-314/054350-09

Classified By: CDA Thomas P. Kelly for reasons 1.4 (B) and (D).

1. (S) Summary: Argentine President Cristina Fernandez de Kirchner's (CFK) promotion of former Justice Minister Anibal Fernandez (AF) to Cabinet Chief puts in place someone with six years of experience working for the First Couple, first as former president Nestor Kirchner's Interior Minister and then as CFK's Justice Minister. By dint of his office's physical proximity to the President's as well as his portfolio's constitutional responsibilities, AF is in a position to wield significant power and influence, and is already playing a key role in shaping Casa Rosada politics, policy, and message.

2. (S) AF has been the most accessible member of CFK's Cabinet for the Embassy, but, unlike his two immediate predecessors, he has also not been shy about vociferously attacking the USG (or any other target) in order to defend the Kirchners. Like many Argentine politicians, he is dogged by corruption rumors, including ties to narcotrafficking, according to unsubstantiated press and intelligence reports (ref A). Additionally, he is suspected of directing intelligence teams to clandestinely monitor the emails of the administration's political opponents, according to separate intelligence reports (refs B and C), and he has been linked to reported CFK administration efforts to secure additional votes illegally in Buenos Aires and Cordoba provinces ahead of the June midterms. Despite the varied and persistent accusations of corruption lodged against him, however, there is no hard evidence. End Summary.

CFK Rewards Fernandez' Loyalty with Cabinet Chief Post --------------------------------------------- -----

3. (C) Former Minister of Justice, Human Rights and Security Anibal Fernandez (AF) became CFK's third Chief of Cabinet

since she assumed office in December 2007. A longtime Peronist and a close ally of former President Nestor Kirchner (NK), AF has worked over six years for the presidential couple, since the first day of NK's term. He has been one of the administration's most outspoken public defenders, first while serving as NK's Interior Minister and later as CFK's Justice Minister. Many viewed AF's promotion to Cabinet Chief as a reward for securing in his hometown of Quilmes one of the few significant Kirchner victories in the June 28 mid-term elections (ref E).

Origins of the Cabinet Chief Post ---------------------------------

4. (C) As Cabinet Chief, AF has considerable power and influence. The authors of the 1994 constitutional reforms intended the position to be a check on presidential power as a watered-down prime minister, although in practice the Cabinet Chief has become a presidential chief of staff, spokesman, and all-purpose firefighter. The Cabinet Chief is technically responsible for the collection of national taxes; submitting the executive's budget request to Congress; co-signing executive decrees; appointing administration employees not designated by the President; and overseeing the Cabinet's ministers. Additionally, the President's Cabinet Chief is expected to report at least monthly to Congress, alternating between the Lower House and the Senate. (Note: The last two cabinet chiefs, Alberto Fernandez and Sergio Massa, appeared before Congress less than once a year; Anibal Fernandez will make his first such appearance this week.)

Under the Ks, Cabinet Chief Influence Grew ------------------------------------------

5. (C) Under the Kirchner administration, the cabinet chief position has grown in influence beyond its constitutionally-proscribed powers. Since 2002, the Argentine Congress has annually authorized economic "superpowers" for the executive branch. Originally enacted to address the 2001 financial crisis, these controversial superpowers enable the Cabinet Chief to redistribute federal funds coming from export taxes and tax collections above and beyond budget estimates, at the President's discretion.

6. (C) The Cabinet Chief's influence ultimately depends on his relationship with the First Couple. AF's immediate predecessor, the media-friendly Sergio Massa, reportedly had differences with NK over style and substance. Their tense relationship soured even further with NK's poor showing in Massa's hometown in the June 28 midterm elections (ref E). Alberto Fernandez (not related to AF), who served as CFK's and NK's first Cabinet Chief, was one of the few capable of moderating the temperamental First Couple. But even he was unable to walk the Kirchners back from their take-no-prisoners approach to an extended conflict with the farm sector, and he resigned in July 2008 out of frustration (ref F). Amid a cabinet that does not speak much to the media, Anibal Fernandez has long been one of the most visible spokesmen for the Kirchners, and his influence over policy and political decisions will likely grow in his new post.

Embassy Interaction with Fernandez ----------------------------------

7. (C) AF has been for us the most accessible and forward-leaning member of CFK's Cabinet, welcoming USG law enforcement training and cooperation (ref G). Again and again, he has gone out of his way to rearrange his travel

schedule to meet with visiting U.S. officials and greet Embassy officials at diplomatic events. Although he has frequently told us that he is the most "pro-American" member of CFK's Cabinet, we think this reflects his deep-seated pragmatism rather than any abiding affinity for the United States. Our positive working relationship with Fernandez, for example, did not stop him from criticizing the United States to protect the Kirchners, as he did during the 2007-08 suitcase scandal (ref H). Nonetheless, he was one of the first Argentine officials to assure Embassy officials that the suitcase scandal was "water under the bridge."

8. (C) More political hack than diplomat, AF is a fiefdom-builder who loathes giving up control over strategic resources. When he moved from the Interior Ministry to Justice, for example, he took the internal security agencies with him. Many believe that even now, as Cabinet Chief, AF retains operational control over the law enforcement forces.

9. (C) Although AF confided to the Embassy's former LEGAT that he was not in a position to micromanage the Ministry of Justice at first, he said he immediately centralized control once he got the lay of the land. As Chief of the internal security forces, including the Border Patrol/Paramilitary Police (Gendarmeria Nacional), Coast Guard, federal police, and special airport police, AF quickly imposed a strict vertical hierarchy where he discouraged information sharing and commanded security chiefs to report directly to him. He has boasted to Embassy officials that while his predecessor at Justice, Alberto Iribarne, only signed a few ministerial decrees, he signed hundreds. Judicial contacts have told us that as Justice Minister, he even tried to pressure provincial judges to advise him of any judicial assistance requests from federal judges, but subsequently backtracked on

that position after judges complained that the directive interfered with judicial independence. His micro-management over even routine matters in his portfolio resulted in bureaucratic backlogs for us. Naming participants to U.S. training programs, the visits of Transportation Security Administration teams to conduct airport/air carrier assessments, and clearance for U.S. Federal Air Marshals all required his personal approval. Once, when the DCM visited Fernandez's Chief of Staff at Justice, Fernandez got wind of the meeting while it was in progress, got into a car, and stormed into the office, taking over the meeting while the chief of staff clammed up.

10. (C) A pragmatic and politically savvy interlocutor, AF prefers not to include his staff in meetings with Embassy officials. Although he is always well-prepared, his speech and demeanor can sometimes be crass. On more than one occasion, he has taken obvious notice of an attractive translator during a meeting with visiting U.S. officials. Additionally, he has referred to the existence of local "demand for young genitals" when explaining the challenges his Ministry faces in fighting human trafficking for the purposes of sexual exploitation.

AF Denies Drug Problem, Advocates Decriminalization --------------------------------------------- ------

11. (C) Although he has not interfered with USG CN activity here insofar as we can ascertain, AF has frequently denied that drug trafficking is a major problem in Argentina, despite evidence indicating that Colombian and Mexican drug cartels operate in Argentina, and that Argentina leads Latin America in cocaine consumption. AF insists that Argentina is merely a transit point and continues to deny the existence of

drug labs in Argentina. In an October 2008 workshop on Argentine narcotics policy, AF described press reports claiming that drug cartels had established production facilities in Argentina (ref I) as mere fiction. He is also a long-time advocate for the decriminalization of drug use, saying he dreams "of the day when drug addicts are sent to rehab instead of prison." AF argues that the government should stop focusing on small-time carriers in order to focus on dismantling large drug trafficking networks (ref J).

12. (S/NF) According to late December 2006 intelligence reporting (ref K), AF advised then Vice-President Scioli that he should not make counternarcotics his number one campaign issue when he ran for Governor of Buenos Aires province. Reasoning that the narcotraffickers are well-organized with the capacity to frame politicians, AF suggested that Scioli pay only lip service to counternarcotics efforts. He argued that Scioli should not assume the risks since drug-related crimes would never be resolved.

Ties to Drug Trafficking? -------------------------

13. (S/NF) Unsubstantiated press and intelligence reports (refs A and M) suggest that AF may be financially profiting from narcotrafficking. These reports state that AF's ties to narcotrafficking date back to 1994 when AF was mayor of Quilmes and allegedly directed a cocaine trafficking network. The Embassy's DEA section has heard similar allegations from contacts at the Argentine Counternarcotics Secretariat (SEDRONAR), which has been at loggerheads with AF. SEDRONAR contacts told poloff that AF personally called off an ongoing drug investigation in Salta province near the Bolivian border when he got wind of the investigation.

14. (S/NF) We have no information to corroborate these allegations, and we are unaware of any formal legal complaint against him on narcotrafficking charges. However, there are two formal legal complaints pending against former subordinates -- including Federal Police officials -- for protecting or willfully ignoring various illegal brothels in the Monserrat neighborhood (within a five-block radius of Federal Police headquarters) in Buenos Aires City where the sale of drugs is suspected.

Spying on the Opposition ------------------------

15. (S/NF) Intelligence reporting suggests that AF has not hesitated to resort to questionable means to keep tabs on political opponents. In mid-May 2007, AF, as Interior Minister, allegedly directed a private intelligence team composed of retired military and intelligence officers to clandestinely monitor the emails of provincial and federal government officials, business executives and journalists suspected of working against NK's administration (ref B). In September 2007, he reportedly used a private, unofficial investigative team to read the emails and collect derogatory information on then-gubernatorial candidates for Buenos Aires province, Francisco de Narvaez and Juan Carlos Blumberg, and Buenos Aires province Minister of Security Leon Arslanian (ref C). According to intelligence reporting in November 2007, AF used two computer technicians to hack into high-level email accounts, including Chief Justice Lorenzetti's email (ref G). San Isidro judge Sandra Arroyo-Salgado (wife of Alberto Nisman, the Special Prosecutor investigating the 1994 bombing of the Argentine Jewish Mutual Association (AMIA)) is investigating AF's

relationship with the two technicians, according to press reports. (Note: These technicians in the past have been associated with Argentina's State Secretariat for Intelligence (SIDE) and sought asylum in Uruguay.)

16. (S/NF) AF reportedly may have played a tangential role in illegally bolstering voter registration ahead of the June 28 midterms, according to a June 2009 intelligence report. He supported efforts -- led by Interior Minister Florencio Randazzo and Secretary of Intelligence Hector Icazuriaga -to illegally procure national registry identification numbers (DNIs) to register ostensible supporters and secure additional votes in Buenos Aires and Cordoba provinces (ref L).

Transparency ------------

17. (C) Although AF once bragged to the Embassy's former LEGAT that he has a "transparent and honest style," he did little as Justice Minister to fortify his agency's anti-corruption efforts or enhance governmental transparency. Admittedly, the MOJ's Anti-Corruption Office (ACO) was a weak unit to begin with, but it made no headway during AF's tenure. Contacts who work for the Cabinet Chief's government accountability and transparency unit have expressed concern that the GOA will become even less transparent under his watch. They note that since AF took over as chief of the internal security forces, criminal statistics are no longer public information. Indeed, despite public alarm over rising insecurity, AF refuses to acknowledge a rise in robberies and kidnappings and instead has argued that insecurity is only "a sensation fed by the media."

Corruption ----------

18. (C) Like many Argentine politicians, AF has been dogged by rumors of corruption. In recent years, some Embassy contacts have alleged that AF has a corrupt relationship with the Japanese computer company, NEC. When AF was mayor of Quilmes (1991-1995), he was charged with several counts of corruption, becoming a fugitive for 48 hours. Although he was later acquitted, he has continued to face accusations of corruption from the opposition, and the allegations remain fresh in the minds of some Argentines. When CFK named him Minister of Justice, one judicial contact told us that many in the judicial system considered the appointment "ironic" and called AF the "fugitive from Quilmes."

Bio Data --------

19. (SBU) AF began his political career in 1983, working first as an advisor to the budget committee of the Buenos Aires provincial Senate. From 1985 to 1987, he served as the administrative secretary for the Peronist party (PJ) in the Buenos Aires provincial Senate. He also simultaneously held positions in the municipal councils of Quilmes and Florencio Varela. In 1991, AF was elected mayor of Quilmes. In 1995, he won a provincial Senate seat where he presided over the Commission on Public Health and Control over Addictions. He was named provincial government secretary in 1997, labor secretary in 1999, and the province,s first labor minister in 2001. AF served in former President Eduardo Duhalde's cabinet as secretary general of the presidency in January 2002, and then as production minister in October of the same year. He switched allegiance to NK in 2004 when the Peronist

party split into two factions - one that supported NK and another that supported Duhalde. Since then, Duhalde supporters have called him a traitor and the "first Kirchner convert." In 2007, CFK tapped him to serve as her Justice Minister and on July 7 she named him Cabinet Chief.

20. (SBU) AF was born in Quilmes, Buenos Aires Province on January 9, 1957. A public accountant, AF received his law degree while serving as Interior Minister. Although the Kirchners stifled AF's ambitions to run for Governor of BA province in 2007 when they tapped then Vice President Daniel Scioli for the job, AF's power and influence within the Kirchner Cabinet has steadily grown. He accompanied CFK to the United States in July when she went to the OAS to discuss the political crisis in Honduras. He also accompanied her in May 2007 when she addressed the American Jewish Committee as Senator and First Lady. During that visit, he met with the U.S. Attorney General, FBI officials, and State Department officers on TIP-related issues. AF lives in the trendy waterfront Puerto Madero neighborhood in Buenos Aires City with his wife and one son. A fan of technology, he carries multiple cell phones and his office has six television sets permanently tuned in to every local news channel. He speaks limited English.

Comment: Handle with Care -------------------------

21. (S) For USG officials, Anibal Fernandez has long been the most readily accessible GOA cabinet member. That has continued since he became Cabinet Chief, assuming more importance than ever. Fernandez has far better access to the ruling first couple than any other member of the Cabinet; perhaps only reclusive Casa Rosada staffer Carlos Zannini has

more influence with the Kirchners. Given AF's importance, accessibility, and the absence of hard evidence to substantiate the allegations described above, we continue to meet and work with him. At the same time, there are enough rumors about Fernandez -- even in this rumor-plagued, conspiratorial society -- to approach interactions with him with some caution.

KELLY

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E.O. 12958: DECL: 2034/11/20 TAGS: PGOV PINR AR SUBJECT: (C) ARGENTINA: CFK'S FIRST TWO CABINET CHIEFS SAY KIRCHNERS' SHELF-LIFE WILL EXPIRE IN 2011

REF: BUENOS AIRES 1026; BUENOS AIRES 301

CLASSIFIED BY: Tom Kelly, DCM, DOS, EXEC; REASON: 1.4(B), (D)

1. (C) Summary: Over the past six weeks, we have held several conversations with President Fernandez de Kirchner's first two Cabinet Chiefs, Alberto Fernandez and Sergio Massa. Both believe that the Kirchners, despite their recent political successes, cannot win re-election in 2011. They disagree on whom is next in line: Fernandez thinks that the next President will be Vice President Julio Cobos, while Massa believes that Senator Carlos Reutemann will prevail. Both ex-Cabinet chiefs are (separately) plotting their futures in a post-Kirchner political landscape. Massa expanded on earlier comments to us (ref a) on life with the Kirchners, describing ex-president Nestor Kirchner as a "monster" and a "psychopath." End Summary.

2. (C) We have had several conversations with the first two Cabinet Chiefs of Cristina Fernandez de Kirchner (CFK), Alberto Fernandez and Sergio Massa. The Ambassador had an introductory meeting with Alberto Fernandez, who served as Cabinet Chief in both Nestor and CFK's administrations, on October 28, and DCM lunched with Fernandez on October 2. The Ambassador and DCM also had dinner with CFK's second cabinet chief Sergio Massa and his wife, city councilor-elect Malena Galmarini, at the home of Massa's former Casa Rosada aide, businessman Jorge O'Reilly, on November 12. In each of these conversations, the two prominent Peronists, who during their tenures in the Casa Rosada worked every day with the Kirchners to run the Argentine government, were quite frank in expressing their estrangement from the Kirchners and their pessimism about the first couple's political prospects.

Alberto and Massa Agree: Kirchners Will Lose in 2011

3. (C) Massa said that the Kirchners have no chance to capture the presidency in 2011. When asked to estimate their chances, Massa replied, "zero." He also discounted the view that the Kirchners would extend their rule through Chavez-style governance. Massa said that, for all of its problems, Argentina is not Venezuela. Its society remained too literate, too middle class, and too "temperate," and its economy is far more complex and diverse than Venezuela's oil monoculture. Argentina, he said, would not abide the Kirchner's attempts to consolidate power through more autocratic rule. The result of their hardball tactics after the midterm elections, he argued, was even more negative ratings in the polls.

4. (C) Fernandez predicted that Nestor would be the Kirchners' presidential candidate in 2011. He claimed that Nestor has a better reputation for competence than CFK. Fernandez told the DCM that his soundings on CFK's potential run for re-election invariably provoked reactions of alarm and exasperation.

5. (C) But Nestor cannot possibly win, continued Fernandez, comparing the former president to Carlos Menem circa 1999. He said that, like Menem ten years ago, Kirchner could hope for no more than 20 percent of the votes in the first round of the presidential election. These voters, he continued, are Kirchner "fundamentalists" whose votes reflect ideological affinity or

association with the various political machines (controlled by piqueteros, labor leaders, etc.) that remain loyal to the Kirchner project. Fernandez said that, because Kirchner at this point in his political career has zero attraction to independent voters, he could expect to win no more votes in the second round of elections than he would in the first. Fernandez predicted that Nestor would run and CFK would increasingly govern from the Left, as that "is the only constituency that remains to them." He added, though, that such a strategy was doomed to fail -- "the Left on its own can't elect anyone to the Presidency in this country," he said.

Alberto and Massa Disagree on Next President

6. (C) Massa identified Santa Fe Senator Carlos Reutemann as the likely presidential winner in 2011. He said that Reutemann's strategy of lying low was prudent, not a blunder or sign of indecision as often portrayed in the press. With Reutemann quiet, the Kirchner machine was focused on pummeling Vice President Cobos and Buenos Aires Mayor Mauricio Macri. The onslaught, he argued, would damage both of those potential opponents to a Reutemann candidacy. When the race really begins, Reutemann would be well-placed to obtain the Peronist nomination and steamroll the rest of the field. Massa said that the Peronist race would not begin in earnest until May 1, 2010, when he said five large Peronist rallies would mark May Day for the first time in years.

7. (C) Alberto Fernandez identified Vice President Cobos as the next president of Argentina. Fernandez noted that Cobos continues to be the most popular politician in the country, and is conserving

his advantage intelligently. He expected that Coalicion Civica leader Elisa Carrio, the runner-up in the 2007 election and a bitter rival of Cobos, would run in the first round and win a maximum of 12 percent of the vote, deflating the Vice President's first-round numbers, but Cobos would come out on top. "It's his election to lose," concluded Fernandez. He took issue with Massa's view that Peronists would prevail once they united behind a candidate. Fernandez, a long-time Peronist activist who headed the party apparatus in Buenos Aires city for many years, said that his party only controls the loyalty of 38 percent of the electorate. Given the Kirchners' continuing control over the party apparatus, the Peronist candidate, even if it ends up being someone with a last name that is not Kirchner, would not appeal to non-Peronist voters in 2011. The party's presidential prospects in the coming election were therefore, in Fernandez's view, poor.

Massa: Nestor is a Monster and Psychopath

8. (C) Massa was scathing in his criticism of the first couple, especially Nestor. Though he made light of press reports that he and Kirchner came to blows at the campaign bunker in the pre-dawn hours after their mid-term defeat last June, he called Nestor "a psychopath," "a monster," and "a coward" whose bullying approach to politics masks a deep sense of insecurity and inferiority. (Massa's wife registered such alarm at these uninhibited comments that he asked her to "stop making faces at me.") He disputed the argument that Nestor deserved credit as a savvy tactician, describing the ex-president as blunder-prone and so convinced of his own brilliance that he was certain to keep making mistakes. (We've heard similar comments from Fernandez on Nestor's faltering

political judgment -- ref b.) He said that Nestor could not relate to others outside the narrow gauge of his own political ambitions: "Kirchner's not a perverse genius," Massa concluded. "He is just perverse."

9. (C) Massa described his twelve-month term as Cabinet Chief as an ordeal, as he struggled to deal with a controlling presidential spouse and a "submissive, withdrawn" President "who would be much better without Nestor than she is with him." He said that, during his tenure at the Casa Rosada, he decided to do the Oprah-like daytime TV show hosted by grand dame Mirtha Legrand. On the set minutes before the show's taping began, he received a call from Nestor instructing him to walk off the set because the apolitical Legrand "was an opposition figure." Massa told him he would do the show unless his official boss CFK, who was travelling abroad, instructed him otherwise. He then received three successive calls from Cabinet members pleading with him not to do the show. Massa did not follow their advice.

Both Focusing on Post-Kirchner Future

10. (C) As for his own plans, Massa confirmed that he plans to run in 2011 for governor of Buenos Aires province, which could pit him against midterm winner Francisco de Narvaez, incumbent Daniel Scioli and labor strongman Hugo Moyano. Massa said that he will

announce his candidacy on the third week of January, the week when

(largely vacationing) Argentines buy the most newspapers. Fernandez also commented on the Buenos Aires race, opining that Scioli's political moment had passed. Calling the governor "a nice guy," he observed that Nestor had used him (by grabbing him as his slate-mate in the province during the midterms) and then cast him aside. "Scioli is trapped, and he knows it," Fernandez said.

11. (C) Fernandez remains politically active as well. He told the DCM that he is talking to many political figures within and outside Peronism, including Cobos and the fellow would-be Peronist kingmaker, ex-President Eduardo Duhalde. Within the party, he expressed particular interest in the 40-year-old governor of Salta province Juan Manuel Urtubey. He said that, despite his belief that Cobos is likely to win the presidency, he is counseling Urtubey to throw his hat in the ring. He says that the campaign strategy would be to nudge Nestor out in the first round for second place, and then emerge as the Peronist candidate in the run-off against Cobos. (Comment: It appears that Urtubey, once regarded as a reliable Kirchner ally, is listening. He agreed to host Fernandez in a much-photographed visit to Salta on November 14, fueling speculation that the two were plotting a presidential run.)

Comment: Common Views, Divergent Paths

12. (C) Massa and Fernandez have much in common, from their unique experience in CFK's cabinet to their active roles in the burgeoning anti-Kirchner movement within Peronism. They are both

generally pro-American in orientation. They do not, however, work together very closely, and their futures seem quite different. Fernandez, 50, is low-key and content to operate in the background while others take the spotlight. The most that he seems to aspire to is success in behind-the-scenes political kingmaking, which could restore him to his former status as the country's most influential political consigliore. Massa, 37, the younger man by more than a decade, has more ambitious plans. He hopes to win the Buenos Aires governorship and, eventually, the Argentine presidency. MARTINEZ

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SIPDIS NOFORN

E.O. 12958: DECL: 2019/12/01

TAGS: PTER SNAR ECON EFIN PGOV PREL KCOR AR SUBJECT: ARGENTINA FACES CHALLENGING AML/CFT REVIEW

REF: BUENOS AIRES 313; BUENOS AIRES 1017; BUENOS AIRES 1212

CLASSIFIED BY: Martinez, Vilma, Ambassador, DOS, EXEC; REASON: 1.4(B), (D)

---------Summary ----------

1. (S/NF) The Financial Action Task Force (FATF) held a two week peer review of the Argentine anti-money laundering and counter terror finance (AML/CFT) regime. Although hoping to see some positive moves by Argentina, the FATF operational team leader is skeptical of the GoA's intentions to combat money laundering and terror finance. While most money laundering in Argentina conceals tax evasion and corruption, narcotics-derived funds are a growing problem. The Argentine statutory framework is relatively strong, but the bureaucracy working the issues is poorly led and starved of resources. Consequently, the FATF team leader views Argentine AML/CFT enforcement as largely ineffectual, with no meaningful prosecutions in recent memory. Some Embassy contacts argue that the current GoA leadership, including the President, stands to lose from honest and vigorous pursuit of money laundering. While the final FATF report is likely to embarrass the GoA, potentially provoking a harsh response, it is not likely to spur meaningful reform. Until now, terror financing and narcotics money have comprised just a small fraction of the illicit funds transiting Argentina. The near complete absence of enforcement coupled with a culture of impunity and corruption make Argentina ripe for exploitation by narco-traffickers and terrorist cells. For now, the most promising way to engage the GoA on the issue

seems to be through the new Justice Minister, with whom we have developed a positive working relationship. We will encourage him to engage on this set of issues. End Summary.

--------------FATF Review ---------------

2. (C) The FATF peer review of Argentina's AML/CFT laws, regulations and enforcement, and general compliance with FATF best practices and recommendations began on November 16 and continued for two weeks. FATF had originally scheduled the review for last year but delayed it at Argentina's request. In the interim, the GoA implemented a tax amnesty law to encourage the repatriation of funds held overseas and in the process lost most of the AML/CFT focus and momentum it had built up after the last FATF review in October 2003. Econoff met with numerous AML/CFT contacts over several weeks before the review began to assess the strengths and weaknesses of Argentina's laws and enforcement efforts and to evaluate perceptions of how it will fare in the review.

--------------------------------FATF Team Leader is a Skeptic ---------------------------------

3. (C) Fabio Contini, the Italian national who heads the operational review team, has spent over a year in Argentina as the Economic and Financial AttachC) at the Italian Embassy and is married to an Argentine. He has a sober view of the GoA's AML/CFT efforts, which he deems little more than a fig-leaf. The measures taken, he said, are calculated for minimal compliance with international standards and evince little real enthusiasm for cleaning up the financial system. In addition, he said that Argentina should take control of the informal economy as a first

step toward a serious AML/CFT effort. Contini summarized his views by noting that a substantial percentage of the Argentine economy is underground, with pure cash transactions comprising a disproportionate percentage of economic activity. Such an economic system, he observed, is inherently vulnerable to money laundering and other financial crimes. Contini said that Argentina will have to bring this black economy into the light of day before even the most robust AML/CFT regulations can be effective.

4. (C) While his views will be influential, Contini noted that he does not have the last word on Argentina's FATF peer assessment. Once his team makes its report, Argentina will have an opportunity to respond to the findings. A debate at next year's plenary will precede the issuance of the final report and any warnings. Contini said that FATF warned Argentina after the last review that a second warning could have a negative effect on Argentina's desire to rejoin the international financial system.

-------------------------------Money Laundering in Argentina --------------------------------

5. (C) Embassy contacts agree that most money laundering in Argentina is the product of tax evasion and political corruption. For the most part, they insist that terror financing is seldom, if ever, transacted in Argentina. Most maintain, however, that narcotics trafficking is becoming a real problem and that, increasingly, the dirty money sloshing through the financial system originates in the drug trade.

------------------AML/CFT System -------------------

6. (C) Embassy contacts, including Contini, have noted numerous weaknesses in Argentina's AML/CFT regime. Most tellingly, there have been only two convictions since the criminalization of money laundering in 1989, and there have been no convictions under the currently applicable statute enacted in 2000. While the substantive law is generally considered adequate, there are numerous loopholes to close and important areas that require clarification.

7. (C) Local AML/CFT experts agree that, with the exceptions noted below, Argentina has a solid legal and regulatory foundation for combating money laundering and terror finance. The failures of the system arise when it comes to applying the law. Inspections are superficial and do not examine actual accounts and transactions. According to Pablo San Martin, the head of SMS Latinoamerica, a local accounting firm, inspectors are often content in their interviews with banking executives to accept the predictable anodyne responses to their inquiries without further follow-up. Several contacts point to the Financial Information Unit (UIF) as the weakest player on the financial crimes enforcement team, but the consensus is that a failure of political will cripples the whole AML/CFT project.

--------------Self-laundering ---------------

8. (C) Several experts have highlighted the money laundering loophole for criminals who do their own banking as a probable focus of the FATF review. Argentine law defines money laundering as an accessory offense so that, for example, a narcotics trafficker cannot be charged for merely laundering the profits from his drug deals. Only a third party who aids and abets in hiding the origins of the money is subject to prosecution.

9. (C) According to Raul Plee, the state's attorney who heads the unit charged with investigating financial crimes, this exemption for self-laundering explains the lack of convictions. Plee noted that a bill in draft form would allow him to pursue much of the currently protected laundering activity, and he believes that FATF will recommend enactment of the legislation. Plee observed that some of Argentina's most embarrassing prosecutorial failures, e.g., when a judge dismissed charges against Pablo Escobar's widow who bought two properties under an assumed name, originate in the self-laundering exemption.

10. (C) In contrast, other contacts believe that if the FATF review fixates on the self-laundering issue it will be a failure. Marcelo Casanovas, a compliance officer with the Bank of Buenos Aires Province and a board member of a leading anti-money laundering association, said that self-laundering is a problem, but to focus exclusively on that one shortcoming is to miss the whole forest for one tree. The real problems, he insisted, are systemic. Contini himself observed that the central failure is an absence of political will to pursue laundering as a serious crime.

---------------------Repatriation of Funds ----------------------

11. (C) One substantive legal issue that now seems unlikely to trouble FATF reviewers is the tax amnesty law (Ref A) designed to encourage repatriation of funds held outside Argentina. According to commonly cited estimates, Argentines hide about $150 billion in assets offshore. In an effort to lure back the billions held outside the formal financial system, the GoA passed legislation in

December 2008 declaring an amnesty on repatriated funds that ran from March through August of 2009. Local experts and opposition political figures alleged that because it prohibited Argentine tax authorities from inquiring into the source of the repatriated funds, the law facilitated money laundering. FATF also expressed misgivings but was at least partially placated when then-Justice Minister Anibal Fernandez defended the law before the plenary in Paris. In May (after the amnesty had already been in effect for two months), the UIF issued rules requiring reports of suspicious transactions (STRs) arising from the capital regularization program.

12. (C) According to figures released by the GoA at the conclusion of the amnesty, Argentines declared only $4.7 billion. Of that, only 4.3 percent had been held abroad. The press reported that the program failed to achieve its goal of capital repatriation. According to Plee, requiring submission of STRs was a key factor in this failure and was at least one reason that very little money returned under this law. Plee and other contacts noted that the funds declared under the amnesty were not generally the product of criminal activity other than simple tax evasion. The Regional Advisor from the International Monetary Fund's Financial Integrity Group, Mariano Federici, observed that the repatriation was doomed from the outset because Argentines do not view the local economy as a stable place to invest, and they mistrust the government because of its history of economic mismanagement and capricious seizure of assets.

13. (C) Based on the requirement to file STRs and the insignificant scale of the funds repatriated, many contacts predicted that the tax amnesty issue will not draw much attention under the FATF review.

------------------------

Prosecutors and Judges ------------------------

14. (C) Another weakness that experts highlighted was the lack of judicial and prosecutorial understanding of AML/CFT issues. According to Federici, the prosecutors and judges who should take the lead in AML/CFT cases lack the financial sophistication necessary to direct investigations and mount successful prosecutions. Federici also noted that judges appear uninterested in acquiring the skills necessary to manage money laundering cases. When the IMF staged a training seminar, over 70 prosecutors participated, but of the dozens invited, only one judge chose to attend. Because judges directly manage investigations under the Argentine legal system, no money laundering case can proceed without active judicial engagement. Federici observed that, in the short term, judicial indifference limits the opportunities for money laundering convictions.

15. (C) Casanovas agreed that the judicial system suffers deficiencies, but he maintained that prosecutors and investigators bear more of the blame than judges. Failure to develop solid evidence is the root of the problem, he said. He observed that judges want to pursue concrete cases with predictable outcomes, not squander their limited resources on prosecutions doomed to failure.

---------------------------------FATF/GAFISUD Representative ----------------------------------

16. (C) The FATF Representative's Office, headed by Alejandro Strega, who has a master's in law from the University of Illinois, is responsible for coordination of AML/CFT policy and for developing national strategy and legislation. Under the leadership

of Strega's predecessor, Juan Felix Marteau, the office earned a reputation for foresight and action. Marteau drafted significant legislation and developed a national AML/CFT strategy that was endorsed by then- President Nestor Kirchner. In contrast, Strega's performance has been lackluster, and, with his weak background in AML/CFT and lack of resources, he has been largely ineffective. Strega is a congenial interlocutor, speaks English well, and is eager to engage with the Embassy, but he has little access to Minister of Justice Julio Alak, few staff, and almost no money.

17. (C) Marteau has insinuated that he lost the job to Strega as a reprisal for looking too closely into the casino business, where important Kirchneristas allegedly have interests. Federici conceded that casinos may be part of the story, but said the real

explanation lies in a personality clash and bureaucratic feud with Alak's predecessor and current Chief of Cabinet, Anibal Fernandez. According to Federici, when Marteau drafted his national strategy, he consulted all high government officials with an interest in money laundering except for Fernandez, who was Minister of Interior at that time. As Justice Minister, Fernandez became Marteau's boss and quickly dismissed him and brought in Strega. Federici also noted that suspicions of connections to drug trafficking and money laundering have sometimes wafted around Fernandez (Ref B), and Marteau may have distrusted him based on those rumors. Strega is the son of a labor lawyer who is a close Fernandez confederate from his time as Mayor of Quilmes. His father, Enrique Strega, has been an attorney for the bank workers' union headed by Juan Jose Zanola, a Kirchner ally who was also close to former President Menem. Zanola is now under indictment in a politically radioactive case involving adulterated medicine, illegal campaign contributions, and a triple homicide.

-------------------------

UIF: a Broken Institution -------------------------

18. (S/NF) Numerous Embassy contacts and press reports have fingered the UIF as the main agent of Argentina's AML/CFT failures. The UIF is an inept and politically compromised institution, according to Federici. It is led by Rosa Falduto, who won her position based on the patronage of the judge who oversees the electoral process, Maria Romilda Servini de Cubria. She has since quarreled with Servini. Her other benefactor, Anibal Fernandez, has also reportedly been keeping his distance. Federici said that according to a highly placed contact in the UIF, Falduto holds on to her position because she is useful to President Cristina Fernandez de Kirchner and to her husband, the former President, Nestor Kirchner. Federici told Econoff that Falduto is personally holding back STRs on the Kirchner inner circle and has refused to respond to requests for STRs on the Kirchners themselves from Switzerland, Lichtenstein, and Luxembourg. In July, according to Federici and consistent with information from other sources, Falduto also personally leaked information that the UIF had requested from FinCEN on Francisco de Narvaez, a Kirchner rival. According to Federici, Falduto did this by design to harm the reputation of this important opposition figure.

19. (C) The defects of the UIF, however, transcend mere politicization. According to Federici and confirmed by several other sources, Falduto's organization passes on raw intelligence that is useless for building criminal cases. Contini said that information is routinely forwarded to prosecutors so long after the fact that it is legally and technically impossible to accumulate evidence on suspicious transactions. In the UIF's defense, however, San Martin noted that the AML/CFT regulators have insufficient resources. The UIF and the Argentine Central Bank pay poorly, he said, and cannot afford to hire sufficient investigative

staff. San Martin agreed, however, that the UIF is likely to come in for pointed criticism in the FATF review.

-------------Political Will --------------

20. (C) Several contacts, including Strega himself, have asserted that the Argentine AML/CFT regime was never designed to catch or punish money launderers and that the absence of convictions is by design. According to Federici, Plee's office does not get the political support that it needs to do its job and the Ministry of Justice under Fernandez made it plain that it did not want him to be too aggressive. When the MOJ switched Plee's assistant Federico di Pasquale from a long-term to a short-term job contract, it was seen as a message that the office was on a short leash.

21. (C) According to Roberto Bulit Goni, an attorney in a private practice dealing with money laundering issues, too many people stand to profit from lax enforcement of money laundering statutes. Casanovas and San Martin agree that the changes that there have been in the AML/CFT system are mainly cosmetic. The GoA has enacted the recommended laws and regulations, but the problem, they noted, is hostility to even token enforcement. Congress, which will pass to a divided opposition's control in December, has not played a consistent role in pressing for enforcement or investigations, but there is some prospect that the Congress and specific committees will give it increasing attention in 2010.

22. (C) The Embassy sources noted above maintain that the MOJ, under former Minister of Justice Anibal Fernandez (now Chief of Cabinet), systematically frustrated progress on AML/CFT issues. The current Minister of Justice, Julio Alak, has brought energy and a fresh perspective to the job and has shown considerable

enthusiasm for collaborating with the United States on a wide range of law enforcement issues. While he has not yet focused on money laundering, the upcoming FATF report and the Argentine response and debate at next year's plenary give us an opportunity to engage him to focus more on AML/CFT issues. While a negative report will likely provoke a hostile response from some quarters of the GoA, it could well provide an opportunity and political cover for Alak to push for greater resources and for consequential changes in the law and enforcement. Alak appears to be serious about tackling Argentina's law enforcement problems (Ref C) and all Mission elements will continue to provide him with the information and, where possible, the resources to move forward with a positive agenda.

---------------FATF Outcome -----------------

23. (C) There are two views of the likely conclusions in the final FATF report. One view is that the FATF review will be so superficial that Argentina will pass with just a few areas for improvement noted. Casanovas and San Martin, for example, believe that the FATF review will be perfunctory. Reviewers will arrive with a checklist and conclude after talking to regulators that all the elements are in place. FATF will recommend some changes, but the review will be generally neutral. The other view is that the flaws are so glaring, i.e., no convictions and the problems within the UIF, that even a superficial review will come down hard on the GoA. Contini, as head of the operational team, seems inclined to issue a report highlighting a lack of political will to meaningfully combat money laundering and terror financing.

---------Comment

----------

24. (S/NF) Argentina will likely suffer some sharp criticism in the FATF review, blackening its eye when it is seeking to reenter the mainstream of the global financial system. The GOA would probably lash out publicly at a critical FATF review, with the government blaming the criticisms on external conspirators (including perhaps the USG). No matter the criticisms, and despite the apparent good faith of new players like Justice Minister Alak, it is probably unrealistic to expect that the GoA will funnel resources to prosecutors or make a concerted effort to pursue money launderers. The Kirchners and their circle simply have too much to gain themselves from continued lax enforcement. Although tax cheats and compromised politicians may still be the chief source of dirty money, continued GoA indifference to AML/CFT could offer an attractive local staging ground to narco-traffickers and international terrorists. If the GoA does not move to close loopholes and enhance enforcement, it may soon find its financial system contaminated by drug money and terror funds. MARTINEZ

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NOFORN

SIPDIS

EO 12958 DECL: 12/31/2034 TAGS PINR, PGOV, AR SUBJECT: (C/NF) ARGENTINA: KIRCHNER INTERPERSONAL

DYNAMICS (C-AL9-02612) Classified By: ELISSA G. PITTERLE, DIRECTOR, INR/OPS. REASON:

1.4(C).

1. (S/NF) WASHINGTON ANALYSTS ARE INTERESTED IN ARGENTINE LEADERSHIP DYNAMICS, PARTICULARLY WITH REGARDS TO CRISTINA FERNANDEZ DE KIRCHNER AND NESTOR KIRCHNER. DRAWING ON PREVIOUS REPORTING, AND BUILDING UPON OUR OWN ANALYTIC ASSESSMENTS, WE ARE CURRENTLY PREPARING A WRITTEN PRODUCT EXAMINING THE INTERPERSONAL DYNAMICS BETWEEN THE GOVERNING TANDEM. WE HAVE A MUCH MORE SOLID UNDERSTANDING OF NESTOR KIRCHNERS STYLE AND PERSONALITY THAN WE DO OF CRISTINA FERNANDEZ DE KIRCHNER AND WE WOULD LIKE TO DEVELOP A MORE WELL-ROUNDED VIEW OF CRISTINA FERNANDEZ DE KIRCHNERS PERSONALITY. AS POST,S TIME AND RESOURCES ALLOW AND TO THE EXTENT POST HAS ACCESS TO THIS TYPE OF INFORMATION, WE WOULD WELCOME ANY INSIGHT INTO THE FOLLOWING QUESTIONS. MANY THANKS, AND REGARDS FROM WASHINGTON.

A. (U) MENTAL STATE AND HEALTH:

1) (S/NF) HOW IS CRISTINA FERNANDEZ DE KIRCHNER MANAGING HER NERVES AND ANXIETY? HOW DOES STRESS AFFECT HER BEHAVIOR TOWARD ADVISORS AND/OR HER DECISIONMAKING? WHAT STEPS DOES CRISTINA FERNANDEZ DE KIRCHNER OR HER ADVISERS/HANDLERS, TAKE IN HELPING HER DEAL WITH STRESS? IS SHE TAKING ANY MEDICATIONS? UNDER WHAT CIRCUMSTANCES IS SHE BEST ABLE TO HANDLE STRESSES? HOW DO CRISTINA FERNANDEZ DE KIRCHNER,S EMOTIONS AFFECT HER DECISIONMAKING AND HOW DOES SHE CALM DOWN WHEN DISTRESSED?

2) (S/NF) WHAT IS THE STATUS OF NESTOR KIRCHNERS GASTROINTESTINAL ILLNESS? DOES IT CONTINUE TO BOTHER HIM? IS HE TAKING ANY MEDICATIONS? LONG KNOWN FOR HIS TEMPER, HAS NESTOR KIRCHNER DEMONSTRATED A GREATER TENDENCY TO SHIFT BETWEEN EMOTIONAL EXTREMES? WHAT ARE MOST COMMON TRIGGERS TO NESTOR KIRCHNERS ANGER?

B. (U) POLITICAL VIEWS:

1) (S/NF) WHEN DEALING WITH PROBLEMS, DOES CRISTINA FERNANDEZ DE KIRCHNER TAKE A STRATEGIC, BIG PICTURE OUTLOOK, OR DOES SHE PREFER TO TAKE A

TACTICAL VIEW? DOES SHE VIEW CIRCUMSTANCES IN BLACK AND WHITE OR IN NUANCED TERMS? DOES SHE SHARE NESTOR KIRCHNERS ADVERSARIAL VIEW OF POLITICS OR DOES SHE ATTEMPT TO MODERATE HIS HEAVY-HANDED POLITICAL STYLE?

C. (U) ON THE JOB:

1) (S/NF) HOW DO CRISTINA FERNANDEZ DE KIRCHNER AND NESTOR KIRCHNER DIVIDE UP THEIR DAY? ON WHICH ISSUES DOES CRISTINA FERNANDEZ DE KIRCHNER TAKE THE LEAD AND WHICH ISSUES DOES SHE LEAVE TO NESTOR KIRCHNER?

2. (U) PLEASE CITE C-AL9-02612 IN THE SUBJECT LINE OF REPORTING IN RESPONSE TO THE ABOVE QUESTIONS. CLINTON

P R 281848Z DEC 66 FM AMEMBASSY BUENOS AIRES TO SECSTATE WASHDC PRIORITY INFO USCINCSO CINCLANT AMEMBASSY RIO DE JANEIRO AMEMBASSY SANTIAGO AMEMBASSY MONTEVIDEO AMEMBASSY QUITO AMEMBASSY LIMA AMEMBASSY MEXICO AMEMBASSY OTTAWA AMEMBASSY LONDON STATE GRNC UNCLASSIFIED BUENOS AIRES 2481

Original Telegram was Confidential but has since been de-classified

--------------------------------------------- ----

Copy from the National Archives RG 59: General Records of the Department of state 1964-66 Central Foreign Policy File File: POL 33-4 ARG --------------------------------------------- ----

E.O. 12958: DECL: DECLASSIFIED BY NARA 09/02/2009 TAGS: EFIS PBTS AR SUBJECT: EXTENDED NATIONAL JURISDICTIONS OVER HIGH SEAS

REF: STATE 106206 CIRCULAR; STATE CA-3400 NOV 2, 1966

1.

PRESS REPORTS AND VARIETY EMBASSY SOURCES CONFIRM

NEW ARGENTINE LEGISLATION UNILATERALLY CHANGING SEAS JURISDICTION NOW UNDER ADVANCED REVIEW. REPORTEDLY LAW WOULD

ESTABLISH SIX MILE TERRITORIAL SEA, PLUS ANOTHER SIX MILES OF EXCLUSIVE FISHING JURISDICTION, PLUS ANOTHER EXTENDED ZONE OF "PREFERENTIAL JURISDICTION" FOR FISHING PURPOSES. DRAFT-

LAW UNDER CONSIDERATION IN ARGENTINE SENATE BEFORE JUNE 28 COUP WOULD HAVE DEFINED ZONE OF PREFERENTIAL JURISDICTION AS "EPICONTINENTAL SEA OUT TO 200 METER ISOBAR". IN SOUTHERN

ARGENTINA THIS ZONE SEVERAL HUNDRED MILES WIDE AND BLANKETS FALKLAND ISLANDS.

2.

NAVATT STATES ARGENTINE NAVY THINKING OF PREFERENTIAL

JURISDICTION OUT TO 200 MILES (AS IN PERU, ECUADOR, CHILE) RATHER THAN EPICONTINENTAL SEA. RPT NOT REACH FALKLANDS. 200 MILE LIMIT DOES NOT

ARGENTINE NAVY OFF TOLD NAVATT

"200 MILE LIMIT SOON WILL BE STANDARD THROUGH HEMISPHERE".

3.

FONOFF OFFICIALS REFERRING TO RECENT BRAZILIAN AND US

LEGISLATION HAVE INFORMALLY INDICATED DECISION ALREADY FINAL RE SIX MILE TERRITORIAL SEA PLUS SIX MILE EXCLUSIVE

FISHING JURISDICTION, BUT THAT "PREFERENTIAL JURISDICTION" STILL UNDER STUDY. TWO FONOFF MEN VOLUNTARILY AND INFORMALLY

SOUGHT EMBASSY REACTION TO POSSIBLE EXTENDED PREFERENTIAL JURISDICTION BY SUGGESTING THAT US IN FACT HAS ACCEPTED UNILATERALLY CREATED ECUADORIAN, PERUVIAN AND CHILEAN 200 MILE LIMITS. EMBOFF REJECTED IDEA US ACCEPTS THESE LIMITS IN ANY

WAY AND POINTED OUT 1965 AMENDMENTS TO AID LEGISLATION AIMED AT FURTHER PROTECTING US FISHING RIGHTS.

4.

FONOFF LEGAL ADVISOR CONCEDES DISTINCTION BETWEEN

"EXCLUSIVE" AND "PREFERENTIAL" FISHING JURISDICTION A SEMANTIC NICETY. HE UNDERSTANDS THAT IN ZONE OF "PREFERENTIAL" JURIS-

DICTION ARGENTINA WOULD CLAIM RIGHT TO TAX, LICENSE AND OTHERWISE CONTROL ALL ACTIVITIES RELATED TO EXPLOITATION OF RESOURCES OF SEA.

5.

DRAFT LEGISLATION ON SEAS JURISDICTION LAY DORMANT UNTIL

SUDDEN AND SUBSTANTIAL IN FISHIN ARGENTINE EPICONTINENTAL SEAS BY CUBAN AND EAST EUROPEAN (ESPECIALLY SOVIET) VESSELS PAST SIX MONTHS ALARMED ARGENTINE ARMED FORCES. (SEE NAVATT IR

5-804-0-140-66 OF NOV 18) NOT RPT NOT ALL SOVIET VESSELS WERE FISHING OR FACTORY TYPES. FONOFF SOURCES INFORMALLY STATE

ARMED FORCES PRESSURE MAKES EMISSION NEW LAW IMPERATIVE, QUITE POSSIBLY APPEARING WITHIN NEXT FEW WEEKS. WHEN ASKED BY FONOFF

MEN ABOUT "SECURITY PROBLEMS CREATED BY SOVIET TRAWLERS OFF US COAST", EMBASSY OFF REPLIED US DID NOT RPT NOT SEE THAT UNILATERAL ATTEMPT TO EXTEND SEAS JURISDICTION OFFERED ANY REALISTIC SOLUTION FOR POSSIBLE SECURITY PROBLEMS, WHILE SUCH ACTION COULD CREATE NEW SOURCES POSSIBLE MISUNDERSTANDING AND CONFLICT.

6.

RE PAR 3 STATE 106206 BELIEVE OUTLINED PROPOSAL MIGHT

FORESTALL UNILATERAL ARGENTINE ATTEMPT TO SUBSTANTIALLY EXTEND "PREFERENTIAL" FISHING JURISDICTION ONLY IF EMBASSY CAN BE

AUTHORIZED DISCUSS IDEA WITH ARGENTINES IMMEDIATELY. EVEN THEN CHANCES SUCCESS LIMITED BY (A) ADVANCED STAGE PROPOSED ARGENTINE LAW AND (B) PRIMACY SECURITY CONSIDERATIONS ARGENTINE THINKING. WE WOULD BENEFIT SOME FROM FONOFF LEGAL ADVISORS' QUALMS ABOUT UNILATERAL ACTION, AND FROM RESTRAINT OF RECENT BRAZILIAN LEGISLATION WHICH DID NOT RPT NOT GO BEYOND 12-MILE LIMIT.

7.

FOR DISCUSSION WITH ARGENTINES WOULD MODIFY TEXT IN STATE (A) MAKE ALL REFERENCES TO ARGENTINA, VICE

10942 CIRCULAR TO:

CANADA; (B) REFER TO PROPOSED ARGENTINE CLAIMS OF PREFERENTIAL JURISDICTION OVER WATERS WE REGARD AS HIGH SEAS; (C) ELIMINATE REFERENCES TO "TRADITIONAL DISTANT WATER FISHERIES", SINCE ARGENTINE COAST NOT RPT NOT TRADITIONAL FISHING ZONE (WHEREAS NO. 3); (D) ADD NOTATION THERE NO TRADITIONAL FISHING AND

CONFINE OPERATIVE AGREEMENT TO PROVISIONS FOR NON-TRADITIONAL FISHING; (E) ELIMINATE LAST THREE PARS OF AIDE-MEMOIRE HANDED TO CANADIAN AMB.

8.

IF AUTHORIZED, ENVISAGE TWO-STEP APPROACH TO FONOFF.

FIRST, INFORMAL AND ORAL, STRESSING OUR INTEREST IN FREEDOM OF HIGH SEAS, NOTING EARLIER FONOFF CONFIRMATION NEW LAW UNDER STUDY, OUTLINING OUR PROPOSAL IN GENERAL TERMS. ON BASIS

FONOFF REACTION, WE WOULD THEN COUCH AIDE-MEMOIRE IN TERMS WHICH WOULD APPEAR MOST LIKELY TO SUCCEED.

GP-3 SACCIO

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SIPDIS

EO 12958 DECL: 2019/12/31 TAGS PREL, OVIP, ECON, KPAO SUBJECT: (C) ARGENTINE GOVERNMENT TAKES UMBRAGE AT WHA A/S VALENZUELAS REMARK REGARDING BUSINESS COMMUNITYS CONCERNS

DERIVED FROM: DSCG 05-1 B, D

1. (C) Summary: The GOA responded with heavy artillery to a remark WHA A/S Valenzuela made during a December 16 press roundtable. Immediately after the press roundtable, Argentine media started focusing almost exclusively on A/S Valenzuelas remark that the American business community in Argentina had conveyed to him concern about rule of law and management of the economy in Argentina. The press reported that Valenzuela contrasted these concerns with the enthusiasm and investment intentions of the American business community in 1996. GOA officials also expressed their dissatisfaction with the remarks. The Ambassador and other Country Team members used a December 17 reception for journalists to stress our desire to work constructively with Argentina, and the Ambassador has reached out to GOA officials to urge a prompt end to their criticisms. Government press is beginning to report a softening tone, but we think that it is too early to tell. End Summary.

2. (C) Immediately prior to departure from Buenos Aires on December 16, WHA A/S Valenzuela met at the Embassy with about a dozen Argentine print journalists. He followed 20 minutes of remarks by taking questions for another 20 minutes, explaining his desire to introduce himself to his regional counterparts and undertake a dialogue with them on regional developments.

Media Zero In on Perceived Criticism --------------------------------------------

3. (C) Despite the broad range of issues addressed by A/S Valenzuela, Argentine media started focusing immediately after the roundtable almost exclusively on A/S Valenzuelas remark that the American business community in Argentina had conveyed to him concern about rule of law and management of the economy in Argentina. The press also reported that Valenzuela contrasted these concerns with the enthusiasm and investment intentions of the American business community in 1996. (A/S Valenzuelas first official meeting in Buenos Aires was with the Executive Board of the AmCham.) As an example of the sensationalist nature of much of the reporting, La Nacions banner front-page headlines on December 17 read, Clash with the U.S. over Rule of Law in Argentina and on December 18, Protest to U.S. over Obama Envoys Criticism.

Kirchner Allies Take Umbrage ------------------------------------

4. (C) The GOA response came swiftly. That same night, three GOA ministries publicly commented (in a clearly coordinated fashion) on the Valenzuela remarks. Interior Minister Florencio Randazzo said Argentina is enjoying a phase of complete institutional and legal guarantees. The country has left behind the times when a foreign official could come and say what needed to be done. There is no lack of rule of law. The difference now is that the Government protects the people, and in the 1990s it protected the companies interests that took millions out.

5. (C) Following the Randazzo statement, the Foreign Ministry issued a four-point communiquC) saying that: (1) the generalized nature of the Assistant Secretarys remarks about supposed concerns in the American business community made it impossible for the GOA to address the alleged concerns; (2) the MFA had already written Ambassador Martinez to clarify similar remarks that she had made the previous week in Cordoba but had received no reply; (3) Argentine authorities had received no complaints from American companies operating in Argentina; and (4) the GOA reiterates its disposition to analyze all aspects that allow us to promote reciprocal relations, especially economic, between the two countries. Open and consolidated channels are available to both governments for this dialogue.

6. (C) The GOAs third statement on December 16 came from Minister Julio Alak, who called Valenzuelas statements unusual

Justice

and unjustified. Alak claimed that rule of law is a fundamenta l asset in the country that has been protected and rescued from the more adverse conditions coming from the institutional and economic crisis in 2001 and 2002.

7. (C) After the initial salvos, the GOA officials Valenzuela chimed in. Vice Foreign Minister Victorio

who met Taccetti

with (who

received Valenzuela December 15 at the MFA and hosted him for lunch) said, Valenzuela is free to think as he wishes, but th e truth is that 1996 is the prelude of the most important crisis Argentina faced. It is possible that he felt glad in 1996, but that ended in the 2001 crisis that impacted many companies, including some American ones. Argentina doesnt want to set off sparks (sacarse chispas) with the United States; it is Valenzuela who opines without basing his statements on reality.

8. (C) Cabinet Chief AnC-bal FernC!ndez said, We are not talking about a statement that comes from American businessmen, but of (Valenzuelas) prejudices, and that is much more sensitive and what worries me most. I was concerned to find out that he was critical of many Latin American democracies, and one of the supporters of the Washington Consensus.

9. (C) Argentine Ambassador to the United States HC)ctor Timerman appeared on television and in the press to claim that he had urged A/S Valenzuela to meet with CGT labor leader Hugo Moyano and the opposition Radical Party (UCR), but that he met only with the political right: De NarvC!ez, Macri and Cobos. He is sending a message on who are, in his views, the people with whom he needs to have dialogue.

10. (C) Argentine press reported that FM Jorge Taiana, who was in Copenhagen for the COP-15 meetings, used a brief pull-aside with Secretary Clinton to complain about Valenzuelas remarks. Taiana told the press that Valenzuelas words were unfortunate and show his ignorance of the Argentine reality. His reference to the administration of Menem as a time of great growth, when it was precisely the time when Argentina was hurling headlong toward its worst crisis in history, like a train with no brakes, was even more unfortunate.

11. (C) Former president Nestor Kirchner said the statements by someone who should come with a different policy for Latin America are deplorable. Valenzuela belongs to the groups that participated in the Washington Consensus; the neo-liberal model that caused so much damage to the whole region. Kirchner ally Deputy AgustC-n Rossi (leader of the FpV bloc in the Chamber) said Valenzuelas visit was not encouraging. We thought the time when foreign officials came to lecture us was over. Regarding Valenzuelas comparison of the current reality with the one in the 1990s, he said: it is a fallacy to say we were better with Menems administration; the cracks of the convertibility plan were evident and led Argentina to bankruptcy. The leader of the FpV bloc in the Senate, Miguel Pichetto, said Valenzuela keeps adding mistakes to the U.S. relation to Latin America, because a diplomat visiting a country should be much more cautious when commenting on our domestic politics and the economic recovery our government achieved. A couple of days later, at a December 20 political rally, Nestor Kirchner said disrespectful viceroys should first criticize what was happening in the United States. He blamed Argentinas loss of rule of law on the U.S. crisis that l eft millions of Americans without their jobs, homes or savings.

Opposition is Divided -------------------------

12. (C) Reaction among the opposition was divided. Some, such as Santa Fe governor Hermes Binner, a highly regarded moderate Socialist and possible presidential candidate, said that Valenzuelas remarks tracked very closely with complaints that, they, too had heard from the business community. Others, such as Socialist Senator Ruben Giustiniani, who usually coincides with Binner, objected to any foreign official relaying any criticism of Argentina, while Radical congressional deputy Ricardo AlfonsC-n took issue with what he interpreted as Valenzuelas praise for Menem policies in the 1990s: We, the Argentines, know that during those years there was a looting of national assets. For us, it was a disaster. However, the head of the Radical Party (UCR), Senator Ernesto Sanz (who joined Valenzuelas December 16 lunch with Vice President Cobos) said it seems it was necessary that a foreigner come to say this. We have been denouncing the lack of rule of law from Congress for four or five years. With each law the Kirchnerists passed, (the country) moved one step towards a lack of rule of law. Another prominent opposition leader, Deputy Margarita Stolbizer (GEN), said, Unfortunately, Valenzuela is right. This government condemned us to isolation because of lack of rule of law, and Valenzuela only relayed how the world sees us. Leftist congressional deputy and film director Pino Solanas (Proyecto Sur Bloc Leader) said, I strongly repudiate Arturo Valenzuelas statements. He is the envoy of the empire whose government has legitimized the coup in Honduras. Mr. Valenzuela represents the government that keeps thinking the disastrous and tragic 1990s for Argentina are a model to follow.

Embassy Works to Smooth Feathers ------------------------------------------

13. (C) The Ambassador and other Country Team members used a December 17 reception for journalists to stress our desire to work constructively with Argentina, stressing our common interests and extensive cooperation. The Ambassadors conciliatory remarks received broad press play. The Ambassador called VFM Taccetti, who offered her a long explanation of why the GOA in the wake of the 2001-02 crisis had been forced to pesify contracts that had been denominated in dollars at a new exchange rate that was disadvantageous to foreign businesses. (Note: Pesification has been a common theme of many of the complaints that U.S. investors took to the World Banks International Court for the Settlement of Investment Disputes.) Those pesified contracts nonetheless continued to be profitable, Taccetti claimed. He said Argentinas current challenge, however, was to maintain employment levels, which explained the GOA position regarding Kraft and other labor disputes. Taccetti asked if Washington could issue a conciliatory statement. The Ambassador also requested a meeting with Cabinet Chief Anibal Fernandez to urge a prompt end to GOA public complaining about A/S Valenzuelas remar ks. Press reported widely A/S Valenzuelas clarification (delivered at his next

stop, Montevideo) that he was merely relaying some concerns expressed to him by American businesses operating in Argentina.

GOA Tones Down Its Commentary --------------------------------------------

14. (C) The GOAs Telam news service sent December 18 a story that led with Cabinet Chief Anibal Fernandez sought today to lower the tone on the controversy generated by (Valenzuelas) remarks. The wire story quoted Fernandez saying he had a very good conversation with Valenzuela on important topics, and Valenzuela never mentioned concerns about rule of law. Fernandez claimed that Valenzuela had several years ago made similar claims about Argentine rule of law, suggesting a predisposition to judge Argentina. But this man is not the United States, no matter how important he is. The United States is the United States. Another wire service reported that VFM Taccetti said This topic has already passed. Maybe (Valenzuela) knows why he said it. We think its absurd. We are looking straight ahead... I think the points of agreement between United States and Argentina were aired in the meetings we had. No one else in the region has been more firm on Iran. We are working in Haiti... The agreements are notable. In general, U.S. policies and ours on international matters are in agreement.

AmCham Pleased with Press Coverage ---------------------------------------------

15. (C) AmCham told posts Commercial Counselor that it was taking a positive response to press inquiries, talking up the positive contributions their members make to Argentinas economy and their desire for dialogue with the GOA on the business and investment climate. Subsequently, some AmCham members told us privately that they were pleased a high-ranking U.S. diplomat publicly relayed their concerns. The AmCham President said he intended to take advantage of the opening offered by the MFAs request for specific concerns about the business climate by sending the MFA letter requesting a meeting to review concerns in detail.

Comment ----------

16. (C) Once again, the Kirchner government has shown itself to be extremely thin-skinned and intolerant of perceived criticism. Concerns about the weakness of Argentinas institutions, and the rule of law in particular, are a dime a dozen in the Argentine press, voiced by academics, business leaders, judges, opposition politicians, pundits, and NGOs. Argentines are well aware that Argentina is not attracting as much

investment as are Brazil, Chile, and others in the region. The business communitys anxiety about arbitrary and capricious rule changes is well known to the Argentine public and the government. Only die-hard kirchneristas will agree with Randazzos assertion that Argentina enjoys full institutional and juridical guarantees, or the MFAs contention that it is unaware of any dissatisfaction on the part of any American company. For most Argentines, those are laugh lines or cynically disingenuous statements. That said, we hope that this contretemps will soon peter out, as has happened in similar such episodes in the past.

17. (U) This cable was cleared by WHA A/S Valenquela. MARTINEZ