[Senate Prints 110-48]
[From the U.S. Government Publishing Office]
110th Congress } { S. Prt.
2d Session } COMMITTEE PRINT { 110-48
_______________________________________________________________________
ARGENTINA: RUDDERLESS
__________
REPORT TO THE MEMBERS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
One Hundred Tenth Congress
Second Session
September 9, 2008
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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COMMITTEE ON FOREIGN RELATIONS
JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin NORM COLEMAN, Minnesota
BARBARA BOXER, California BOB CORKER, Tennessee
BILL NELSON, Florida JOHN E. SUNUNU, New Hampshire
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
ROBERT MENENDEZ, New Jersey LISA MURKOWSKI, Alaska
BENJAMIN L. CARDIN, Maryland JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia DAVID VITTER, Louisiana
Antony J. Blinken, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
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Page
Letter of Transmittal............................................ v
Introduction..................................................... 1
Background....................................................... 3
Analysis......................................................... 5
Conclusions and Recommendations.................................. 12
Appendix I.--Argentina: Agricultural Situation................... 17
Appendix II.--Discussions With Individuals in Argentina.......... 25
Appendix III.--Other Areas of Cooperation between the United
States and Argentina........................................... 33
(iii)
LETTER OF TRANSMITTAL
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U.S. Senate, Committee on Foreign Relations,
Washington, DC, September 9, 2008.
Dear Colleagues: I directed my senior Senate Foreign
Relations Committee (SFRC) staff member for Latin America, Carl
Meacham, to visit Argentina from August 5-7, 2008, to assess
the farm strike and its implications for the United States and
others in the region in order to develop policy
recommendations.
On March 11, 2008 the Government of Argentina (GOA) issued
a decree that increased export taxes on Argentina's main
agricultural export crops. This precipitated the worst
political crisis since 2003 of the administration of President
Cristina Fernandez de Kirchner and her predecessor and husband
Nestor Kirchner.
Argentina's four principal agricultural organizations
showed rare unity in organizing production stoppages and
blockades of Argentina's transport infrastructure for 20 days,
leading to nationwide shortages of such staples as beef,
chicken, dairy products, and vegetables.
Although initially a domestic Argentine issue, political
turmoil in Argentina could affect the economic stability of
surrounding nations with investments in Argentina, as well.
Argentina ranks third worldwide in production of soybeans,
fifth in corn (maize), and eleventh in wheat. Argentina is
world-renowned for its beef industry. An Argentina paralyzed by
a besieged government and a moratorium on exports bodes poorly
for United States or other foreign investment and could have
serious implications for the global agricultural market. With
rising world food prices this would be a negative development.
But there are also important regional implications.
Argentina is the main destination for Brazilian investment in
Latin America. It is estimated that 10 percent of Brazilian
capital invested abroad between 2001 and 2008 went to
Argentina. In addition, not only do many countries invest in
the Argentine economy, but some, like Chile, rely on Argentina
for its steady supply of natural gas. Continued fuel shortages
in Argentina as a result of economic slowdown or political
turmoil could mean an energy downturn in Chile, for example.
Argentina's political and economic stability, as well as
its food and fuel, are vital to the stability and growth of
Argentina and its neighbors. If the United States is serious
about its concerns regarding the resurgent trend of anti-market
leaders and natural resource nationalism in Latin America, then
the economic stability of a potential power like Argentina is
essential.
Mr. Meacham's report provides important insights into the
aftermath of the farm crisis, on Argentina's economy and
political environment, and policy recommendations relating to
developing a closer relationship between the United States and
Argentina.
I hope you find the report helpful as the U.S. Congress
considers how to advance U.S. interests and those of our
friends. I look forward to continuing to work with you on these
issues, and I welcome any comments you may have on this report.
Sincerely,
Richard G. Lugar,
Ranking Member.
ARGENTINA: RUDDERLESS
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From August 5-7, 2008 Senate Foreign Relations Committee
minority staff traveled to Argentina on an official visit.
During this trip, staff met with senior officials of the
Government of Argentina (GOA), executive and legislative branch
officials, representatives of the agricultural sector
Governors, and opinion leaders (see Appendix I for complete
list). At the request of Senator Lugar, the purpose of the trip
was to:
Understand the conflict between agricultural organizations
and the Government of President Cristina Fernandez de
Kirchner that began with the March 7th, 2008 strike;
Assess the implications of the farm strike for the United
States and regional actors; and
Develop policy recommendations for the United States
Government (USG).
Introduction
In the last 100 years, only six Argentine presidents
finished full terms.\1\ Unfortunately, this is a representative
statistic of Argentine politics and the unstable power base
upon which its economy and democracy rest.
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\1\ Excluding military juntas--of which there are plenty in
Argentina's political past--only five presidents have completed an
elected term of office, only one of them completing two: Jose Figueroa
Alcorta (1906-1910), Juan Hipolito Yrigoyen (1916-1922), Maximo Marcelo
Torcuato de Alvear Pacheco (1922-1928), Juan Domingo Peron (1946-1952),
Carlos Saul Menem (1989-1995, 1995-1999), and Nestor Carlos Kirchner
(2003-2007). It is far from certain that the current Argentine
President, Cristina Elisabet Fernandez Kirchner, will finish out her
term; she has lost much of her public support due to the agricultural
tax crisis and her government is divided.
---------------------------------------------------------------------------
Argentina, once one of the richest countries in the world,
has experienced much economic decline and political instability
over the last 70 years, culminating in a profound political and
economic crisis (2001-2002) that was comparable to the United
States Great Depression. A financial panic in November 2001 led
to bloody riots, forcing President De La Rua to resign on
December 21. Argentina defaulted on $88 billion in debt, the
largest sovereign debt default in history.
Many Argentines are at a loss to explain how their country,
blessed with rich natural resources, fertile land, and low
population density, fell so far short of its potential and
seems destined to repeat mini boom and bust economic and
political cycles, as it has done for so long. Some blame the
military dictatorships and a lack of strong democratic
institutions which predominated between 1930 and 1983; others
blame corruption and a series of populist measures taken since
1944; and a significant number of Argentines blame external
factors, particularly the International Monetary Fund (IMF) and
alleged U.S. insensitivity to their plight.
Despite its advantages, once again Argentina is
experiencing serious difficulties. This time it is because of
the political fallout due to a tax instituted by Argentina's
current president, Cristina Fernandez de Kirchner, on
Argentina's most prized agricultural exports.
As a result, Argentina's position near the top of global
food exporters and its primarily agrarian economy have been
compromised. The situation reached a boiling point when
President Fernandez de Kirchner put this tax proposal (referred
to as Resolution 125 in the Argentine Congress, see Appendix
II) to a congressional vote. A similar tax had initially been
imposed several years prior by executive decree. This new tax,
to the outrage of most Argentines, would have come on top of
that previous one.
The lower house narrowly passed the measure. But after
seventeen hours of debate in the Senate, Julio Cobos, the
Argentine vice president, voted against his own government in a
tie-breaker vote. Just days after the President's defeat, two
important and longstanding members of the Kirchner cabinet,
Alberto Fernandez and Javier Urquiza, chief of cabinet and
secretary of agriculture, respectively, resigned.
Many in Argentina's political opposition believe these
events indicate a loss of influence in the President's own
political coalition and a loss of confidence with the Argentine
people. Others believe the effects are far worse and are proof
of serious fissures in Argentine politics and its economy
signaling the beginning of a deeper, long-term political
crisis.
But, why should a seemingly internal problem in faraway
Argentina matter to the United States? For starters, some 500
U.S. companies are currently operating in Argentina and employ
over 150,000 Argentine workers. U.S. investments in Argentina
are concentrated in the manufacturing, information, and
financial sectors.
Argentina ranks third worldwide in the production of
soybeans, fifth in maize, and eleventh in wheat. Argentina is
world-renowned for its robust cattle industry--once the first
in the world, now second behind Brazil. All told, Argentina's
agricultural output in 2007 accounted for 11 percent of GDP and
over one-third of all exports. With worldwide food prices on
the rise, instability in the Argentine agro-sector could have
regional and global implications.
Argentina is also an exporter of natural gas to many
countries in the region. An economic slowdown could create fuel
shortages in neighboring countries and foster economic
instability.
And last, broadly speaking, many believe that if the United
States is serious about its concerns regarding the resurgent
trend of anti-market leaders and natural resource nationalism
in Latin America, then the economic stability of a potential
power like Argentina is essential. An Argentine economic crisis
could contribute to significant loss of investments for
investing countries and fuel shortages in the Southern Cone. In
addition, it could prompt a political crisis for a people that
have weathered far too much suffering in recent years.
Background
On March 11, 2008 the Government of Argentina (GOA) issued
a decree that increased export taxes on Argentina's main
agricultural export crops. This precipitated the worst
political crisis of either President Cristina Fernandez de
Kirchner or her predecessor and husband Nestor Kirchner since
2003.
Argentina's four principal agricultural organizations
showed rare unity in organizing production stoppages and
blockades of Argentina's transport infrastructure for twenty
days, leading to nationwide shortages of such staples as beef,
chicken, dairy products, and vegetables.
On April 2, agricultural producers decided to lift the
strike for thirty days out of fear that the food shortages the
stoppage prompted were undercutting their urban support and
decided to hold discussions with the GOA. The parties
negotiated but made little progress on the main issue of export
taxes. The few agreements negotiated with the farm
representatives were delayed or never implemented; they were
undercut by hard-line elements within the GOA.
On May 7, the farm groups decided to resume their protests,
this time with promises not to provoke food shortages. The
latest strike focused on blocking sales and exports of grains
and oilseeds, and was considered successful in its aims by
analysts. The impact of the strike expanded; however, rural
truckers joined the protest and started blocking all
transportation in numerous areas to pressure the GOA and farm
groups to reach an agreement to put them back to work shipping
grain.
On May 25, farm groups held a rally of an estimated 200,000
protestors in Rosario, one of Argentina's principal urban
centers and an agricultural stronghold. At the same time, the
GOA held a much smaller rally in support of the export tax
regime in Salta.
When President Fernandez de Kirchner announced June 17 that
she was submitting the tax hike to the Congress for its
approval, farm groups suspended the strike and focused on the
congressional vote. The GOA quickly turned the issue into
something of a vote of confidence for the government.
In the immediate wake of the October 2007 elections, it
appeared that the Kirchners had two-thirds support in both
houses of Congress. In tandem with the Kirchners' sharp drop in
public opinion polls, they also seem to have lost support in
Congress and within their own ruling coalition. In the Chamber
of Deputies, the GOA proposal barely squeaked by on July 5 with
a 129-122 vote.
On July 15, Argentine farmers and pro-government forces
staged massive rallies in the Argentine capital of Buenos Aires
seeking to influence the Senate vote on the controversial
export tax regime scheduled for July 16. The farmers' protest
drew a crowd of 225,000 to 250,000 and the pro-government rally
drew 85,000 to 95,000.
On July 17, after 18 hours of debate, the Senate tied at 36
to 36, forcing Vice President Julio Cobos to break the
stalemate.
The Senate voted a policy that was already in place and
underway. On July 17 the Senate withheld its approval of the
decree but did not strike it down. The President had issued the
decree in March using the ``economic emergency powers'' that
the Congress had granted her at the end of last year and then
reauthorized in June 2008. Legally, the GOA could have
continued collecting export duties at the same rates after the
Senate vote, but politically that had become untenable. So the
President withdrew Resolution 125, restoring the pre-March 11
collection rates.
A few days later, Chief of Cabinet Alberto Fernandez
announced the repeal of Resolution 125, ending debate over the
export tax bill.
Though this is clearly a domestic Argentine issue, most
analysts (Argentine and foreign) consider the entire dispute a
significant setback for the government, with the vital
agricultural sector more united than at any time in a century.
During the conflict, the popularity of the government and the
president dropped significantly.
According to a July 27 poll published by a popular centrist
weekend paper, President Fernandez de Kichner's approval rating
was only 28 percent, a sharp drop from the 56 percent she
enjoyed in January. A poll published in early August put her
``positive image'' rating at 19-20 percent. That decline was
fueled not just by the agricultural problems but also by
inflation and public security concerns.
Shortly after Cobos's tie-breaking vote, Alberto Fernandez
stepped down July 23 after months of rumors of his impending
departure. Fernandez, who served since day one of the Nestor
Kirchner administration as cabinet chief and continued into
President Fernandez de Kichner's administration, was part of a
close inner circle of decision makers.
In a full-page spread, a left-of-center newspaper detailed
Fernandez's reasons for his resignation as reportedly relayed
to his inner circle. Among the nearly dozen reasons cited,
Fernandez expressed frustration with the Kirchners' (husband
and wife) inability ``to read'' and act on events, noting they
had a chance to make changes at zero cost but now the
government had to pay a high price. He indicated that while the
First Couple may believe he is ``soft,'' he does not believe in
permanent confrontation, which led them to squander the
potential for a great administration.
At the time of staff's visit, the Argentine press continued
to speculate that there would be more resignations, despite GOA
pronouncements to the contrary. Chief among the possible
departures is Commerce Secretary Guillermo Moreno with calls
for his exit coming from within the administration and
externally, according to leading daily Clarin. Fernandez has
since been replaced by Sergio Massa, the 36-year-old mayor of
suburban Tigre.
Also at the time of staff's visit, President Fernandez de
Kichner had just held the country's first presidential news
conference since 2003, and defended the farm and inflation
policies that have eroded most of her public support (August 2,
2008).
The president said her proposals were aimed at helping
redistribute wealth to poorer people and regions of the
country. She disputed criticisms that the country's inflation
index is inaccurate and backed her failed effort to impose new
export taxes on farm goods.
``If I could go back, I would do the same things I did,''
the president told reporters. Many Argentines viewed this as a
lost opportunity to reassure the Argentine people that the GOA
is strong and to offer new policies to complement her outreach
to the media. Instead she left her countrymen and women baffled
and the United States and the international community
confused--what would this mean for foreign investments and for
Argentina's political stability?
Analysis
the economic impact of the farm strike on investment in the argentine
economy
It remains difficult to separate the impact of the farm
strike on foreign investment from so many other contributing
factors, including Argentina's rising inflation (estimated to
be at 8 percent by the GOA but realistically believed to be
over 25 percent), worsening fiscal outlook, and general lack of
contractual and regulatory sanctity. According to some
economists, as a result of the farm strike, exported primary
products dropped 7 percent and agricultural exports fell 18
percent, each incurring price increases of 42 percent and 61
percent, respectively. Consumer confidence fell 11.6 percent in
May 2008 alone.
In general, the number of planned investments has declined
in the first half of 2008 compared to the same period in 2007,
though the total value of investments is on the order of 42.3
percent higher than for the first half of 2007, to make this an
even more complex picture.
As a result it is safe to say that probably many sectors
have been negatively affected by the farm strike in terms of
their investments, but it is still too early to identify them.
Regardless, staff believes that damage has been done to
Argentina's image as a stable and dependable exporter, severely
affecting the influx of foreign investment. The investment
climate in Argentina is bleak. Argentina had only received 5.4
percent of the $105.9 billion of foreign direct investment in
Latin America last year; Brazil received 33 percent, Mexico 22
percent, and Chile 14 percent. Projections for this year by
most accounts are worse. Foreign direct investment growth
depends on a country's stability and predictability; because of
recurring instability, long term planning horizons are not yet
possible in Argentina.
The hardest hit by an economic downturn in Argentina would
undoubtedly be Argentines, who would suffer political
difficulty in addition. And, while events in Argentina would
have little effect on the U.S. economy, the same cannot be said
about the rest of the Western Hemisphere, especially those
countries with heavy investments in Argentina. A downturn would
mean setbacks for these economies (among others) noted below.
Brazil
Brazilian investments in Argentina are mostly in oil,
cement, mining, steel, textiles, cosmetics, banks, food, and
beverages. Brazil looks south for opportunities to grow in
those markets. According to the UN Economic Commission for
Latin America and the Caribbean (ECLAC), Argentina has been
receiving an average of 4 billion US dollars a year in foreign
direct investment since 2003, nearly 40 percent of which comes
from Brazil. Argentina is the main destination for Brazilian
investment in Latin America. It is estimated that 10 percent of
Brazilian capital invested abroad between 2001 and 2008 went to
Argentina.
Examples of Brazilian influence in Argentina are many:
Petrobras, Brazil's state-run oil company took over the private
Argentine firm, Pecom, Argentina's major integrated energy
generation and distribution company; beer and soft drink
company AmBev recently bought out Quilmes brewery, the
omnipresent sponsor of the Argentine football and rugby teams;
Belgo Mineira of Brazil took control of the private Argentine
steel mill Acindar.
Interestingly, much of Brazil's Argentine purchases
occurred during that country's economic collapse (2001/2). This
is when six of Argentina's major corporations were purchased by
Brazil. With this, Brazil began an irreversible economic
embrace of Argentina. Such investment was important to
Argentina's recovery, and now Brazil's investments are
important to Argentina's stability.
Chile
According to General Directorate for International Economic
Affairs of Chile (DIRECON), Chile has invested $41 billion
internationally between 1990 and 2007. This represents 900
businesses and over 2,000 ongoing projects. Despite being
spread over three continents, Chilean investment has
overwhelmingly targeted Argentina. While 89 percent of all
Chilean investments remain in the Western hemisphere, Argentina
remains the first and foremost recipient at 37 percent. DIRECON
estimates that $16 billion Chilean investment dollars went to
Argentina between 1990 and 2007.
Although an economic downturn would be very troubling for
Chile, Chileans depend on Argentina mostly for its supply of
natural gas. The trans-Andean natural gas duct that links the
two nations supplies not only the vast majority of heating gas
for residential areas like Santiago but also supplies the port
city of Valparaiso. It is also essential to the continued
operation of the world's most important copper mines in the
mountains of northern Chile. Continued fuel shortages in
Argentina as a result of economic slowdown and/or political
turmoil could mean an energy downturn in Chile, as occurred in
2004.
Uruguay
Uruguay is the source of much of Argentina's energy, as the
Uruguayans sell unused units of hydroelectric power and natural
gas to their Argentine neighbors.
The bulk of the Uruguayan economy is agro-derived, much
like that of its larger neighbor. Argentine tourists flock to
the beaches on the Montevideo side (Punta del Este), and
Uruguayan banks are replete with Argentine offshore wealth. The
closeness of the two nations, however, could spell disaster for
Uruguay should the Argentine economy ``nosedive.''
Moody's Investors Service recently lowered Uruguay's
investment-grade rating because it is increasingly vulnerable
to macroeconomic shocks emanating from Argentina. Uruguay is
highly dependent on its large neighbors, Argentina and Brazil,
and is affected by Argentina's plight. Uruguay has already
experienced three consecutive years of economic contraction and
many analysts relate this to the Argentine economy.
MERCOSUR
Argentina has been a major player in the economic
development of the region and a leader in economic integration
efforts. Argentine-Brazilian leadership was seminal in the
creation of MERCOSUR (Southern Common Market). While MERCOSUR
may only be a regional trade agreement, it represents the
resurgent trend toward Latin American integration and the
global trend toward the creation of continental unions.
Argentina accounts for over a quarter of the GDP of
MERCOSUR and 13 percent of the world's corn exports. As all the
states in the Southern Cone are MERCOSUR members or associated
members, the impact of the Argentine economy and the inherent
hiccups of Argentine fiscal policy will be felt throughout the
region. MERCOSUR, as a highly integrated economic structure,
would only amplify these shockwaves.
Also, an Argentine economic downturn in combination with
the Argentine/Brazil split in the recent Doha Round debacle,
with Argentina refusing to join its MERCOSUR partner, Brazil in
agreeing to a ``breakthrough'' to save the round, may well mean
a less stable economic and political environment among MERCOSUR
member states. This certainly bears watching.
United States
The United States and Argentina enjoy a healthy trade
relationship, amounting to $9.3 billion in 2007, with a
positive American balance of $1.4 billion. An analysis of the
1985-2008 period shows that the dollar amount of Argentine-
American trade is expanding yearly. Argentina is the 32nd
largest export market for U.S. goods. The stock of U.S. foreign
direct investment in Argentina in 2005 was $13.2 billion, up
from $11.5 billion in 2004. U.S. investment in Argentina is
concentrated in the manufacturing, information, and financial
sectors.
Imports from the United States largely comprise
intermediate capital goods which have contributed to
improvements in domestic productive capacity. CIA World
Factbook figures show the United States only receives 7.6
percent of Argentina's exports.
As was mentioned earlier, an economic downturn in Argentina
would have but a minimal effect on the U.S. economy.
other reactions and the broader role of the argentine economy in
attracting foreign investment
Major 2007 Argentine export markets were MERCOSUR (22
percent), the European Union (EU) (18 percent), and the member
countries of the North American Free Trade Agreement (NAFTA)
(11 percent). Argentine 2007 imports totaled $44.7 billion,
with the major suppliers Mercosur (36 percent), the EU (17
percent) and NAFTA (16 percent).
Other major sources of investment include Spain, Italy,
France, Canada, and Japan, apart from the farm strike fallout,
a range of economic experts have identified challenges to
sustaining high levels of economic growth and foreign
investment in the future. These include: capacity constraints;
the need for substantial new investment in primary
infrastructure; potential energy shortages in the face of high
growth and domestic energy prices kept below international
market levels; increasing scarcity of highly skilled labor;
inflation and the government's heterodox policies to contain
it, including price controls.
Continuing Argentine arrears to international creditors
(including roughly $30 billion in default claims by
international bondholders, including U.S. citizens, and over $8
billion owed to official creditors, approximately $440 million
of which is owed to the U.S. government) and a large number of
arbitration claims filed by foreign companies, including U.S.
companies, are legacies of the 2001/2 economic crisis that
remain to be resolved and adversely affect Argentina's
investment climate.
The GOA recently announced that Argentina will pay its
entire $6.7 billion debt to the Paris Club of lending nations
shoring up sagging investor confidence and opening the door to
needed new capital as its economy slows. Though important,
settling the Paris Club debt will have only limited impact on
improving sentiment about Argentina's financial health.
Though the GOA's initiative to settle its debt with the
Paris Club is a welcome step towards ending its international
financial isolation, staff believes that USG policies could be
helpful only if the GOA develops an economic consensus that
strengthens Argentina's economic fundamentals (controlling
inflation, its fiscal outlook, labor-wage disputes, and
contractual and regulatory sanctity, among others). It is
particularly important for the GOA to have a debt financing
strategy, which unfortunately it doesn't have yet. Providing
accuracy and confidence with the statistics bureau would have a
large impact, as well.
Once the GOA begins to deal with these pressing issues,
staff believes that one way of building on this progress could
be the creation of a framework between the USG and Argentina to
offer incentives for more plentiful U.S. commercial spending
patterns in sectors that speak to Argentina's comparative
advantages, such as agribusiness (e.g., production of value-
added agricultural equipment and high value-added end-products,
such as the wine industry produces), as well as sectors
exploiting Argentina's highly educated and capable workforce
(e.g., software and tourism).
In light of the magnitude of Argentina's 2001/2 crisis,
staff suggests that 10 years--from 2002 to 2012--is a
reasonable period of time to allow for such a solid recovery.
Staff believes that the upcoming 2011 presidential elections
are a natural inflection point to which one might reasonably
look and take account of the progress Argentina has made since
the 2001/2 crisis.
the political impact of the farm strike
A. Argentina's Executive Branch: Taking a step down from the pedestal
After the 2001-02 political and economic crisis, over half
of the Argentine population lived below the poverty line. The
GOA had to address immediate needs by providing the poor with
food. Now that the immediate crisis is over, they want jobs,
and the Kirchner administration is running up against the
expectations that these problems can be resolved quickly.
Argentina's strong macroeconomic recovery under former
President Nestor Kirchner has generated public expectations
that are difficult to fulfill, especially in a political
culture not known for its patience. As a result, President
Fernandez de Kirchner's domestic official priorities focus on
accelerating income redistribution, the creation of decent
jobs, and improving institutional quality in order to build
civil society's respect for democratic institutions, such as
the Congress and the judicial system, all the while
``maintaining respect for the executive.''
During the farm conflict, the President communicated her
political aims poorly, and with the August 2nd press conference
continued a stern posture and disposition; analysts concluded
that she did not choose to soften her tone out of a fear of
appearing politically weak.
During the trip, most sources informed staff that it was
unlikely the GOA would reintroduce a new version of the
variable export tax proposal to the Congress in the short-term.
From GOA sources, staff believes that the GOA understands
that it needs to do a better job of explaining its agricultural
policy agenda in the future, especially if it intends to use it
as a tool to redistribute wealth.
Though the GOA is weaker as a result of the farm crisis, it
will continue advancing its stated political agenda to improve
conditions for workers, the lower middle class, and the
unemployed. A GOA source told staff that Argentina aspires to
``the American Dream where just because you are poor doesn't
mean that you will remain poor.''
Government sources felt it was unfair for the rural sector
to claim that the GOA does not have an agricultural policy. For
example, many believe that Argentina's weak currency has made
expanding exports more attractive to domestic producers.
Domestic fuel prices are significantly below world prices which
have served as an effective subsidy to the agricultural sector.
Sources claimed that if the GOA allowed the market to set
prices, bread would be ten times more expensive and energy four
times more expensive in Argentina than it is now. Sources
asserted that the GOA's variable export tax proposal was
theoretically sound.
Staff believes that the GOA is concerned that high
international prices for soy had prompted agricultural
producers to shift production out of wheat and corn, which
Argentines consume, to soy, which Argentines don't consume.
According to this perspective, if the GOA were to allow fuel
and food prices to match world prices, Argentina's economy
would ``fall once again.'' In this regard, sources argued that
the GOA needs ``to do a better job at communicating these facts
in a transparent and technical way, to build a social consensus
on these issues, arguing that food and energy prices have to be
in line with Argentina's reality, not the world's.''
Staff believes that for the GOA, the tax proposal was
intended to encourage domestic agricultural producers to
increase their production of wheat and corn by increasing taxes
on soy and reducing taxes on wheat and corn. However, staff
believes that rather than explaining this proposal and finding
common ground, this proposal was pushed without building a
social consensus.
Regarding the GOA's defeat in the Congress, sources
asserted that the outcome was ``an advance in institutional
quality'' and that it was ``not a dishonorable loss'' for the
Kirchner administration.
Sources noted that the GOA won in the House and ``tied'' in
the Senate. Many political analysts pinned the loss in the
Senate to Senators who have a lot of bad blood with the
Kirchner administration and are looking to weaken the executive
branch, such as former Presidents and current Senators Carlos
Menem and Adolfo Rodriguez Saa.
In this regard, when staff asked about speculation
surrounding President Fernandez de Kirchner's ability to wield
influence or power as a result of the farm strike, government
sources dismissed these concerns, and optimistically predicted
a moderate electoral triumph for the Kirchners in 2009 mid-term
elections.
B. Argentina's legislative branch: No longer a rubber stamp for the
executive branch
Argentine Senate sources criticized the government's
handling of the agricultural sector crisis, and described a
changed political landscape in Argentina. Senators from diverse
camps anticipated new opportunities for a more assertive and
independent legislative role following President Fernandez de
Kirchner's defeat on agricultural export taxes.
In staff's meetings with opposition leaders they chastised
the Kirchners (husband and wife) for pushing their policies to
an extreme and spoke directly about concerns that President
Fernandez de Kirchner could fail to complete her mandate.
Sources believed that President Fernandez de Kirchner would
muddle through, if only because many fear the instability that
could follow her resignation. In addition, most analysts
believe the opposition is not in any condition to replace the
President if she were to resign, which strengthens the case for
President Fernandez de Kirchner to remain in power, but also
increases anxiety among regular Argentines who feel that their
political options are limited.
Nevertheless, the President's declining poll numbers and
rising public concerns over issues like inflation have changed
the dynamic for the opposition, also creating rifts within
Peronism and emboldening moderate Peronists to speak up
concerning their assertion of excessive presidential power.
Some Senators from the opposition as well as from the
Peronist Party expressed concern however, that President
Fernandez de Kirchner and what they called her ``hard-line''
advisors could resort to more radical and polarizing policies
in an attempt to recover power, with dangerous consequences for
Argentine democracy.
Other legislators said they are working to seize the
initiative, adding that the opposition is more united than
ever. They noted that former President Nestor Kirchner and
President Cristina Fernandez de Kirchner had, during their
respective administrations, notably concentrated executive
power, resulting in Congress being viewed by many Argentines as
merely a rubber stamp of the Kirchners' agenda. In the wake of
the Senate's defeat of the executive branch's agriculture
export tax proposal, the legislature is beginning to shake off
that particular label.
C. The Farm Sector: ``Breaking Through''
One of the outcomes of Argentina's extended 120-day-long
agricultural protest has been a paradigm shift for the
agricultural sector's interaction with the government. The
creation of a coordinating Liaison Table (``Mesa de Enlace'')
to act as a unified voice for the various interests of the
sector has enabled a unity among a normally fractious
agricultural community that has never before existed in
Argentina. The Liaison Table has emerged as a mechanism through
which competing agricultural interests will determine
priorities for the entire sector. According to a farm sector
activist those priorities determined by consensus will
supersede the interests of any one specific interest group
within the rural sector.
The four agricultural groups--the Federacion Agraria
Argentina (FAA), the Argentine Rural Society (SRA), the
Argentine Rural Confederation (CRA), and the Agricultural
Cooperative Confederation (Coninagro)--who form the Liaison
Table are committed to this new-found solidarity and intend to
lobby the GOA as a single voice.
According to a farm sector activist, internal polling of
farmers shows that 90 percent of their members have a positive
view of the Liaison Table and that it is perceived as an honest
broker of sector interests. Those farmers also indicate that
they want the Liaison Table to complement the four existing
groups and become a permanent fixture that will promote and
represent a unified sector stance. The source commented that
the Liaison Table began the process of creating 20 sub-
committees to discuss sector-specific interests, including
legislative affairs.
Before banding together in protest over the GOA's variable
agricultural export tax, the agricultural sector's interaction
with government officials was limited and largely
uncoordinated.
As a result, the agriculture sector's petitions to both
Kirchner administrations fell on deaf ears. This was
exemplified by President Fernandez de Kirchner's sending the
tax resolution to Congress only after there had been 100 days
of conflict.
Although the export tax was defeated in Congress, there
remain many unresolved agricultural sector issues.
Particularly, within the past 3-4 years, milk and beef
production have seen significant declines due to the lack of a
stable, long-term agricultural policy. In addition, exports are
impeded by overregulation, with numerous regulations created
just within the past few months. From meetings with the
agricultural sector, staff believes that those regulations will
need to be revised to provide positive incentives for the
agricultural sector and stimulate production.
It was also clear to staff that farmers have difficulty
making prudent decisions in a market where the GOA changes the
rules of the game from one week to the next. Added to that
uncertain policy environment is the farmers' lack of
negotiating position against the major exporters, who are
somewhat cartelized. It seems that all these issues will need
to be addressed for long-term commercial stability to return
between GOA and the agricultural sector.
Staff asked whether farmers would protest future GOA
actions by blocking roads or if they will change their
strategy. An agricultural sector source indicated that the
agricultural leaders realized that blocking roads was not the
best long-term approach to stimulate favorable changes and
support. Instead of creating the social unrest associated with
blocking roads that occurred earlier in the strike, the farm
groups have become much more organized and are better at
utilizing less confrontational tactics to get their message
across. For example, through the Liaison Table, they are
reaching out to a receptive press, as well as to lawmakers.
Although they would like to negotiate with the Secretariat of
Agriculture, they also recognize the necessity to work within
the Congress.
Staff believes that the agricultural sector has decided to
focus future protests in a more ``civic'' way by pressuring
legislators and chipping away at the current political
structure little by little.
D. The Farm Crisis, a symptom of Argentina's ``Broken'' Political
Machine? A view from the Provinces
According to some of the governor's staff met with during
the visit, one of the political problems confronting them is
the concentration of power within the executive and the
Peronist Party (PJ).
When staff asked one governor to explain Peronism, the
governor responded that it is difficult to explain and quipped:
``You have to guess it and feel it.'' He added that Peronists
are very proud and that the party is a broad and inclusive
movement.
The governor continued stating that the reason why
politicians and officials do not effectively represent the
interests of their constituency is because they are beholden to
the party structure and the executive branch.
Another governor explained that ``In order to have
political autonomy, you need economic autonomy,'' noting that
three of Argentina's strongest agricultural provinces, Santa
Fe, Entre Rios, and Cordoba, generate an enormous amount of
federal revenues through commodity export taxes. But according
to the same governor, the nature by which the central
government returns those contributions to the provinces is
arbitrary, very political and some allege that its application
can be partisan.
Regarding the farm crisis, one of the governors remarked
that the conflict's adverse impact on the GOA was quite strong,
but the GOA is recovering, adding that the country's economic
growth is not accurately reflected in newspaper headlines and
arguing that generating 3 million new jobs (as claimed by the
Nestor Kirchner administration) is not a modest accomplishment.
Another governor explained that though the country has
grown, the GOA needs to focus on the future by redistributing
wealth and dealing with inflation. He remarked that Argentina
has a history of fighting recurrent bouts of inflation, noting
that political stability rests on economic stability.
Conclusions and Recommendations
There is plenty of room for improvement in the U.S-
Argentina relationship. Both sides have complaints, from the
United States feeling slighted by the treatment allotted to
President Bush at the Fourth Summit of the Americas at Mar del
Plata (November 2005), to Argentines' feeling that the United
States could have done more to relieve the suffering of the
Argentine people during the 2001/2 crisis, or even further back
regarding the U.S. support of the United Kingdon over Argentina
in the Malvinas/Falklands War (1982). Regardless of the gripe,
it is clear that this relationship is in search of a clear
direction and a new beginning.
But as in any relationship, reconciliation takes trust--and
the willingness of both parties to build that trust. Recently,
the USG has demonstrated increased interest and commitment for
this relationship. As a result, the GOA has begun to
demonstrate a similar willingness to find areas of closer
cooperation. For instance, the U.S. Ambassador to Argentina,
Anthony Wayne, has met with the current Argentine President on
multiple occasions. The previous President (Nestor Kirchner)
refused to meet with the U.S. Ambassador.
But the GOA should also consider what more it could do to
build upon these developments and gestures from the USG. For
starters, it could build public support for this relationship
in the U.S. Congress, which helps define public opinion
regarding foreign policy matters and most importantly
appropriates funding for U.S. foreign policy endeavors. The GOA
should consider channeling official criticism of the United
States into a more constructive tone and purpose, though
Argentine officials often win public support for their strong
reactions against alleged USG transgressions. Argentina
consistently registers the highest levels of anti-Americanism
in Latin America in public opinion polls, which have been
fairly steady at around 60 percent.
Nevertheless, from staff's meetings, GOA officials appeared
to realize that they need better relations with the United
States, but they do not know what they want to get out of the
relationship for the medium- and long-terms. Though there are
hard feelings on both sides, a clear Argentine posture with
policy specifics would also help define expectations for the
USG and cement the foundation from which to develop the
framework for strong, long-lasting institutional relationships.
It is important to remember that the USG and GOA have
worked together successfully in the past and continue to do so
today. Below are some important areas of cooperation (see
Appendix III for other areas of cooperation between the United
States and Argentina):
The United States and Argentina signed a Bilateral
Investment Treaty (BIT) on November 14, 1991, (entered
into force October 20, 1994), the first with a Latin
American country. The BIT provides important
protections to investors and creates a more stable and
predictable legal framework for investment. Helping to
encourage U.S. investment in the economies of its
treaty partners, a BIT with the United States is an
important and favorable factor for U.S. investors.
The United States formally recognized Argentina's strategic
importance when on October 16, 1997, President Clinton
declared Argentina a ``major non-NATO ally'' (NATO
stands for North Atlantic Treaty Organization). Only 7
other countries and no Latin American nations had been
so named (Australia, Egypt, Israel, Japan, Jordan, New
Zealand, and South Korea) prior to Argentina.
The bombing of the Asociacion Mutual Israelita Argentina
(AMIA) building in Buenos Aires on July 18, 1994,
killed 85 people and injured hundreds. It was
Argentina's deadliest bombing, the first foreign
terrorist attack in the Western Hemisphere. Argentina
is home to a Jewish community of 200,000, the largest
in Latin America. Since the bombing, USG has been
assisting the GOA in capacity-building in the area of
combating terrorism finance and law enforcement, and
works closely with the Argentine military on
modernization, increasing interoperability, and
training and education focused on civilian control,
respect for human rights, defense resource management,
strategic planning, and science and technology.
Argentina's forces have served with Brazil in the UN
Stabilization Mission in Haiti since April 2004.
Argentina plays an important role in this operation,
which the USG supports.
Assistant Secretary of State for Western Hemisphere, Thomas
Shannon, was in Argentina (twice in August 2008) to
meet with President Fernandez de Kirchner regarding the
third round of high-level bilateral consultations
between the USG and GOA, which highlighted the USG's
commitment to work together with Argentina on
education, science and technology, human rights, and
law enforcement.
The farm crisis seems to have simmered down for the time
being, and cannot be resolved with a new U.S. policy for
Argentina. However, this event should be regarded by policy
makers on both sides as an opportunity to improve understanding
between the two countries, help heal some wounds and develop
policies to create long lasting institutional, political and
shared economic objectives.
In devising policies for Argentina, the USG should be
sensitive to charges of interfering in Argentina's internal
affairs; also there needs to be understanding regarding
historical differences, especially those associated with the
role of the USG and its involvement in South America during the
Cold War.
Examples of proposals that would be regarded as
constructive in the eyes of Argentine policy makers include:
offers of assistance in the aftermath of the farm crisis by
sending experts from the Chicago Mercantile Exchange
(commodities), expediting import processes in the United States
Trade Representative (USTR) and other federal agencies, and
sharing prospects and forecasts from the United States
Department of Agriculture (USDA). This would have been
interpreted by the GOA as the USG reaching out to offer
constructive assistance during a difficult moment for
Argentina.
The USG could encourage Argentina to work with
international rating agencies as a way to lower borrowing
costs, increase investment, and develop ways to bring the
informal economy into the mainstream. Working towards an
investment rating would also promote financial transparency and
a much needed increase of foreign direct investment.
Such efforts would demonstrate the seriousness of our
commitment to advancing our relationship with Argentina. As we
move forward, the next U.S administration will have an
opportunity to deepen this relationship and should consider
additional initiatives that can be done to cement this mutually
beneficial association. A good start might involve these three:
Invitation from the next U.S. President to President
Cristina Fernandez de Kirchner for an official visit to
Washington D.C.--During the first 18 months of his term, the
next President of the United States should consider inviting
President Fernandez de Kirchner to an official visit to
Washington DC. The visit should include a visit to the U.S.
Congress, as well.
The benefits of this for the United States and Argentina
could be substantial. First, it would signal the beginning of a
new chapter in the relationship and demonstrate a new level of
respect between the United States and Argentina. Second, it
would demonstrate a sophisticated understanding of Argentina
and continuing commitment by the United States to engage
constructively with a major Latin American nation, despite its
``love-hate'' relationship with the United States. Third, this
important gesture could refurbish efforts to formulate deeper
policy objectives with Argentina.
Enhance and reactivate the U.S.-Argentina Bilateral
Investment Treaty (BIT)--The GOA has announced that Argentina
will pay its entire $6.7 billion debt to the Paris Club of
lending nations, shoring up sagging investor confidence and
opening the door to needed new capital as its economy slows.
This ought to be viewed not only as a sign of Argentina's
need for investment. The USG would do well to treat this also
as an effort by the GOA to reach an accommodation and play by
the rules of the international lending system.
In response to GOA reform in the direction of developing a
financing strategy, particularly regarding accuracy and
confidence with the Argentine statistics bureau, the USG could
consider amending the BIT by providing incentives for more
plentiful U.S. commercial spending patterns in sectors that
speak to Argentina's comparative advantages, such as
agribusiness (e.g., production of value-added agricultural
equipment and high value-added end-products, such as wine), as
well as sectors exploiting Argentina's highly educated and
capable workforce (e.g., software and tourism).
This could help produce tangible economic benefits for the
United States and Argentina, and demonstrate the U.S.
commitment to consultation on policy matters and shared
economic prosperity. Along with commensurate Argentine reform,
this initiative could help foster economic stability in
Argentina.
Promote U.S. state relationships with Argentina--In 1963,
President John F. Kennedy launched a program associating U.S.
states with countries. On June 12 of this year California
Governor Arnold Schwarzenegger and Chilean President Michelle
Bachelet signed two memorandums of understanding for
collaboration with Chile on energy and education.
Recognizing the need to improve understanding between the
U.S and Argentina, we should work to develop the U.S. state-
Argentina program of academic exchanges, as well as other
sectors of mutual interest such as agriculture and energy
(biodiesel from soy, especially).
The benefits of such a measure for both the United States
and Argentina are promising. First, such state-country
association could offer a bridge toward increased integration
in the areas where it would makes sense for the two countries,
and help build support for a process that results in the
further integration and in an enhanced economic relationship.
In sum, the next U.S. administration could take several
steps to reach out to Argentina and the region, both as an act
of goodwill and because of the tangible benefits that both
sides could reap from closer collaboration.
The latest farm crisis in Argentina demonstrates that an
ostensibly domestic matter can have international consequences.
The United States, far from taking sides on the issue, could in
the future view a similar predicament as an opportunity to
quietly offer technical support and assistance to help bolster
stability and trust.
Recognizing that one of the greatest overall challenges the
USG faces in Argentina is the high level of anti-Americanism,
and that the political dynamic in Latin America is
ideologically diverse, the United States should not hesitate to
take advantage of opportunities where closer cooperation can
lead to greater understanding and prosperity for all involved.
Appendix I.--Argentina: Agricultural Situation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Appendix II.--Discussions With Individuals in Argentina
ARGENTINE GOVERNMENT OFFICIALS (EXECUTIVE AND LEGISLATIVE BRANCH
OFFICIALS AND ARGENTINE CENTRAL BANK)
Executive Branch
Secretary of Political Economy, Dr. Martin Abeles, and
Secretary of Finance, Mr. Hernan Lorenzino
Ministry of Labor Cabinet Chief, Dr. Norberto Caravan
Legal and Technical Secretary Dr. Carlos Zanini, Office of the
President
International Economic Negotiations, Ambassador Nestor
Stancanelli
Martin Redrado, Argentine Central Bank President
Legislative Branch
Senator Jose V. Pampuro (Senate President Pro Tempore)
Senator Miguel Angel Pichetto (Rio Negro)
Silvia Lemos--Vice President, UCR
Luis Galvalisi--PRO
Federico Pinedo--PRO
Patricia Bullrich--Coalici"n C!vica
Professional Staffer Mariano Gervan in 'Interbloque Federal'
Senator Maria Eugenia Estenssoro (Civic Coalition)
Manuel Baladron (FPV)
Juan Carlos Marino--UCR La Pampa
Daniel Persico--FPV San Luis
Ernesto Ricardo Sanz--UCR Mendoza
PROVINCES (GOVERNORS)
Marios Das Neves, Chubut, PJ
Gerardo Zamora, Santiago del Estero, UCR
ARGENTINE AGRICULTURAL ORGANIZATIONS
Nicolas Bossio, Federacion Agraria (FAA)
ARGENTINE POLITICAL ANALYSTS AND LEADING OP-ED COLUMNISTS
Sergio Berensztein--Poliarquia
Jorge Elias--La Nacion
Javier Kulesz--UBS Trading (Union de Bancos Suizos)
Carlos Escude--CEMA (Centro de Estudios Macroeconomicos)
Silvia Naishtat--Clarin
Graciela Coatz-Romer Gil of Public Opinion and Communication
Consultants
UNITED STATES DEPARTMENT OF STATE,
U.S. EMBASSY BUENOS AIRES, ARGENTINA
Anthony Wayne, U.S. Ambassador to Argentina (AMB/DCM/POL/ECON/
FCS/FAS)
MULTILATERAL ORGANIZATIONS
Pedro Alba World Bank World Bank Director for Argentina, Chile,
Paraguay, and Uruguay
Appendix III.--Other Areas of Cooperation Between the United States and
Argentina
International Crime and Drugs: Argentina is a trans-
shipment point for narcotics emanating largely from Colombia,
Peru, and Bolivia. Argentine law enforcement agencies cooperate
closely with their USG counterparts on drug interdiction
efforts, fugitive arrests and informationsharing, this has
resulted in increased enforcement.
This U.S. Embassy in Argentina is working with the GOA on
institutional capacity-building and expanding training
opportunities for law enforcement officials, prosecutors and
judges in order to improve internal security and decrease
international drug and criminal activity in Argentina.
In the area of anti-money laundering and counter-terrorism
finance, the U.S. Embassy in Argentina is working through
diplomatic channels and via bilateral technical assistance and
training programs to encourage Argentine law enforcement and
regulatory bodies to enforce existing laws and regulations more
aggressively.
Democracy and Rule of Law: The U.S. Embassy in Buenos Aires
works with the GOA, media and civil society to strengthen
democratic institutions, fight corruption and reinforce
civilian control of the military. The USG promotes key reform
efforts such as ending the election of representatives by party
slate lists, increasing governmental transparency, and limiting
public corruption and strengthening the political independence
of the judicial branch.
The USG works with the GOA as a cooperative partner in
multilateral fora and seek Argentina's cooperation in the
defense of democracy and the observance of human rights in
countries like Cuba, Venezuela, and Bolivia, as well as UN
peacekeeping in Haiti. Argentina recently obtained a seat on
the UN Human Rights Council.
Human Trafficking: Argentina is on the USG's Tier-2
Watchlist for lack of progress in providing greater assistance
to victims and curbing official complicity in trafficking at
the provincial level. Argentina is a source, transit, and
destination country for men, women, and children trafficked for
the purposes of commercial sexual exploitation and forced
labor. According to the International Organization for
Migration, 80% of trafficking victims in Argentina are
Argentine, most of whom are trafficked for the purpose of
sexual exploitation. Bolivians and Peruvians are trafficked
into the country for forced labor in sweatshops and
agriculture. Argentine efforts to combat trafficking have
focused on prevention and training of security and government
officials. The U.S Embassy in Argentina has worked with NGOs,
lawmakers, and government officials in an effort to encourage
comprehensive anti-trafficking legislation, which was passed in
April 2008. The U.S Embassy is working with the GOA to
strengthen their law enforcement and judicial capacity to
investigate and prosecute these crimes.