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S E C R E T SECTION 01 OF 05 BUENOS AIRES 001594

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).

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SUMMARY
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¶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

BUENOS AIR 00001594 002 OF 005


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

BUENOS AIR 00001594 003 OF 005


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

BUENOS AIR 00001594 004 OF 005


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

BUENOS AIR 00001594 005 OF 005


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.


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COMMENT
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¶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