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### Viewing cable 09BUENOSAIRES827, NOW WHAT? THE KIRCHNERS' OPTIONS IN POST-ELECTION

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09BUENOSAIRES827 | 2009-07-15 18:06 | 2011-03-15 07:07 | SECRET | Embassy Buenos Aires
Appears in these articles: http://www.lanacion.com.ar/1357488-moyano-visto-como-un-maton-por-eeuu

`

    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

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