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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 09BUENOSAIRES853 | 2009-07-22 16:04 | 2010-11-30 16:04 | SECRET | Embassy Buenos Aires |
VZCZCXRO3809
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHMT RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHBU #0853/01 2031647
ZNY SSSSS ZZH
P 221647Z JUL 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 4112
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEAIIA/CIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
S E C R E T SECTION 01 OF 05 BUENOS AIRES 000853
SIPDIS
E.O. 12958: DECL: 07/22/2039
TAGS: PGOV ECON AR
SUBJECT: (S/NF) ARGENTINA: WILL CRISTINA FINISH HER TERM?
REF: BUENOS AIRES 0827
Classified By: CDA Tom Kelly for reasons b, d.
¶1. (S/NF) Summary/Introduction. The devastating setback
dealt by Argentine voters to the government in the June 28
mid-term elections has restored to respectability last year's
fashionable political forecast -- that Cristina Fernandez de
Kirchner (CFK) will not reach the end of her term as
President in 2011. Like last year, some of this conjecture
is little more than wishful thinking by the government's
opponents, but not all of it. The ruling couple's political
weakness, erratic behavior, looming economic challenges, and
Argentina's history of truncated presidential terms lead some
serious observers to worry about the government's staying
power. A larger group of observers, this Mission included,
believe that CFK will probably make it to the end of her
term, if only by muddling through (reftel). In this report,
we evaluate the main arguments behind the proposition that
the Fernandez de Kirchner government will fall and explain
why we and others think that, at present, that scenario
remains unlikely. End Summary/Introduction.
Kirchner Vulnerability: A New Phenomenon
-----------------------------------------
¶2. (C) The Kirchners' political weakness is still a
relatively new phenomenon, dating back to their mishandling
of last year's farm protests. In the run-up to the October
2007 presidential elections, public approval ratings for
outgoing President Nestor Kirchner (NK) went as high as 77%,
as Argentines credited him for the country's remarkable
economic recovery after its 2001-02 economic meltdown.
Buoyed by her husband's popularity, Cristina Fernandez de
Kirchner (CFK) easily won the presidency in the first round
of the 2007 election. With 45% of the vote, she outdistanced
her nearest opponent by more than twenty percentage points
and doubled the vote received in 2003 by NK, who was then the
little-known governor of remote Santa Cruz. The ruling
couple's considerable political capital dissipated last year
as a consequence of their confrontation with the farm sector.
CFK and NK's plummeting poll numbers, their sudden inability
to stay ahead of the curve, and their abandonment by many of
their allies set the stage for a humiliating Senate defeat of
government legislation that would have ratified the export
tax increase at the heart of the controversy one year ago.
¶3. (S/NF) This political rout led to speculation in 2008
that CFK might fail to reach the end of her term -- which
would make her the first elected Peronist president since the
restoration of democracy in 1983 to meet that ignominious
fate. We even spotted the graffitied question "Se Kae?"
(roughly translated, "Kollapsing?") on a few Buenos Aires
walls last year. Much of the speculation was fed by the
government's most bitter opponents. Diego Guelar, a foreign
policy advisor to Buenos Aires Mayor Mauricio Macri, told a
visiting congressional staffer last August that "this
government won't last 60 days" -- just minutes after his boss
had said that it would. But there was concern within
government circles. A former aide to Buenos Aires Province
Governor Daniel Scioli confided to us recently that he and
other colleagues had urged Scioli to break ranks with the
Kirchners last year over the farm controversy. Scioli said
he wouldn't because "If I do, they'll fall, and I'm no coup
monger." During the farm crisis, the MFA even took the
unusual step of registering its concern with the Embassy.
Foreign Minister Taiana's Chief of Staff Alberto D'Alotto
(protect) told a Mission contact in May 2008 that the MFA was
"very concerned" about the government's staying power.
The Prophets of Doom
--------------------
¶4. (S/NF) In the end, the Kirchner government survived the
farm crisis and made it into 2009. With its defeat in the
June 28 mid-term election, the speculation has returned,
though it has not reached last year's fever pitch. (A large
majority of analysts do not/not feel that it is the most
likely scenario.) Those who predict an early exit for the
Kirchners tend to stress to varying degrees the following
factors that, in their view, make a Kirchner collapse more
likely:
-- Political: The Kirchners' opponents smell blood after the
June 28 election and are waiting for the right moment to
remove them, abetted by a public that abhors weak leaders;
-- Psychological: The Kirchner psychodrama is contributing to
a series of bad decisions that will lead to the first
couple's political demise; and
BUENOS AIR 00000853 002 OF 005
-- Economic: The ruling couple's post-election turn to the
left dooms them to botch an increasingly difficult economic
situation, sweeping CFK from office.
Se Kae: Political Arguments and Scenarios
-----------------------------------------
¶5. (C) There are some influential political analysts
(Rosendo Fraga, and with less certainty, Manuel Mora y
Araujo) who believe that this country's political volatility
will cause CFK's fall from power. Mora y Araujo argues that
Argentine society abhors weak political leadership. If
Argentines sense that their ruler is enfeebled, he argues,
they tend to collectively say "that's enough." The
consequent withdrawal of support makes the damaged ruler
vulnerable to overthrow by the scheming political class. The
governor of Tierra del Fuego told the CDA that Argentines
were "absolutists" in how they viewed politicians as either
winners or losers, with no gray areas in between.
¶6. (C) Echoing a commonly heard refrain, pollster Doris
Capurro adds that the Argentine press, particularly the
dominant Clarin media group, often serves as "Coup Central."
Clarin, she said, fomented Fernando de la Rua's departure
from power in 2001, and its owners are fierce critics of the
Kirchners. For their part, most politicians have focused on
jockeying for future position, but a few important ones
sometimes seem to be circling prey. Civic Coalition leader
Elisa Carrio said soon after the GOA's mid-term loss that "if
Cristina doesn't react within a week, she's going to have
problems governing." Along the same lines, Radical leader
Gerardo Morales said a few days ago that "if the (current)
dialogue falls apart, the Government will have so little
margin for error that anything could happen." Over the
weekend, dissident labor leader Luis Barrionuevo said plainly
that "I see Julio Cobos finishing Cristina's term."
¶7. (SBU) Fraga argues that the history of Argentina's
post-dictatorship democracy does not bode well for the
Kirchners. Over that 25-year period, three elected
governments lost mid-terms. The two that were led by
Radicals (Alfonsin in 1987 and de la Rua in 2001) did not
survive; the one headed by a Peronist (Menem in 1997) made it
to the term's end. But Fraga thinks that the Kirchners
should take little comfort from Menem's survival. Unlike the
Kirchners, Menem never lost control of the Congress nor his
hold over the Peronist party. Economist Carlos Melconian
adds that in 1997 "the economy was doing fine, and economic
policy remained on autopilot until the presidential elections
two years later."
¶8. (C) Fraga thinks that the Kirchners will fail to change
course, leading to the gradual deterioration of their already
dire political situation. He pointed out that with Manuel
Zelaya's overthrow in Honduras, CFK (with approval ratings
around 28%) is now the elected Latin American president with
the lowest popularity rating in her country. According to
Fraga, the December 10 seating of the victors of the June 28
election will create a Congress with the power to remove CFK
from office. (Note: Impeachment and removal from
presidential office would actually require two-thirds support
in each chamber of Congress, which the opposition -- even
after December 10 -- will not have.) Fraga believes that
Peronists and forces close to Vice President Julio Cobos will
conspire to remove CFK from office to replace her with Cobos.
Fraga describes the scenario as perfect for Peronists -- it
removes the Kirchners from the scene, follows the
Constitutional line of succession, and saddles Radical Cobos
with the burden of taking the tough political decisions
needed to govern Argentina in an economic downturn. For the
non-Peronist opposition, the scenario seems less attractive
-- a senior Radical politician has described it to us as a
trap -- but Fraga maintains that the ambitious Vice President
has already decided to accept power in such a circumstance.
¶9. (C) As for the Kirchners, Fraga claims that they
(especially Nestor) may see this scenario as their best
long-term bet if their political situation deteriorates
further. They would portray CFK's forced removal from
office, in this view, as an illegitimate usurpation of the
democratic order, enabling them to escape to a sympathetic
foreign country as democratic martyrs. They would then hope
that the situation under Cobos would degenerate into
political and economic chaos, helping to set the stage for
their eventual political comeback. For Fraga, this strategy
explains CFK's deep interest in the coup against Manuel
Zelaya, which took place on the same weekend as her electoral
setback. It also, he says, means that she will not resign,
regardless of how bad the political situation.
BUENOS AIR 00000853 003 OF 005
Psychodrama: Behavioral Arguments
----------------------------------
¶10. (S/NF) Other observers stress psychological factors in
their prediction of an impending democratic crisis. This
school of thought has two variants: that strongman NK is too
set in his uncompromising ways to adapt, or that he (or he
and CFK) are becoming increasingly erratic and incapable of
governing. As a well-connected banker told us, the Kirchners
could recover by altering course and embracing a more
moderate and consensus-driven course, but NK in particular is
incapable of change. Instead, in this view, he will embark
on a disastrous jeremiad against internal "traitors" whom he
blames for the electoral defeat, leading the government off a
cliff. In support of this view, Fraga argues that Nestor's
personality "cannot change," but that Argentine public
opinion has. It no longer wants an obdurate fighter as it
did when NK took office in 2003; these days, Argentines want
consensual leadership that the Kirchners cannot and will not
provide.
¶11. (S/NF) According to the second variant, Nestor has
indeed changed. In fact, he's gone crazy. Jorge Brito, once
known as "Nestor's banker," seems to believe this theory,
confiding to the CDA that NK appears increasingly obsessive
and disinclined to listen to advice. "He used to listen to
me," Brito recalled, "but now he doesn't bother." Another
banker told us that "Nestor has basically had a nervous
breakdown."
Economic Arguments: Surf's Up
-----------------------------
¶12. (SBU) Some economists and financial market participants
stress that economic factors are most likely to lead to the
Kirchners' downfall. In the words of economist Carlos
Melconian (a Macri ally), "whenever Argentine governments
that came out weakened from mid-term elections faced a
deteriorating economic situation, the result was an economic
policy that aimed at 'surfing' the economic waves. However,
the surfing strategy may have to be aborted halfway: the
economy may collapse before the date of the presidential
elections, as was the case in the Alfonsin-Menem transition
between 1987 and 1989." In other words, unless CFK's
government raises its economic policy game, it may face the
same bleak fate as the Alfonsin and de la Rua governments.
¶13. (C/NF) But the prospects for more sensible economic
policies seem slim, prompting some to suggest that the GOA
will be overwhelmed by the economy's many problems. The
GOA's economic policy team is an object of derision among
serious economists here. Miguel Broda complains that
"there's not a single serious macroeconomist on the whole
Economy Ministry staff." Banker Brito described the GOA to
us as "made up of people who can't even add or subtract." He
was particularly scathing about Guillermo Moreno, the
Internal Commerce Secretary who serves as NK's
Interventionist in Chief, whom he called a "psychopath" who
"thinks he's a genius" but "is as dumb as the rest of them."
Mario Blejer, a former Central Bank chief and IMF Officer who
reportedly turned down an offer to take over the Economy
Ministry a few weeks ago, told the CDA that the problem is
Nestor's control over GOA economic policy. According to
Blejer, "Nestor knows nothing about economics, and to make
matters worse, he thinks he does, so he doesn't listen to
advice." This leads to an economic policy framework
described by another former Central Bank president as
"autistic."
¶14. (C/NF) These economy-focused pessimists disagree on what
the precipitating cause of a government collapse might be.
The financial community's leading bear, Deutsche Bank
Argentina's president Marcelo Blanco, focuses on the
possibility of another sovereign default, noting that the GOA
faces several challenging payments in the near-term future,
starting with more than US$ two billion in "Boden 2012"
payments that come due in August. (According to Blejer,
another US$10.5 billion in debt payments awaits the GOA in
2010.) Blanco told econoff that he thought there was a "high
probability" that the economy will spin out of control
post-election and the Kirchners will ultimately be unable to
govern.
¶15. (C/NF) Political analyst Jorge Castro stresses the
government's fiscal situation as the Kirchners' Achilles
heel. The GOA, he argues, is ungovernable without a fiscal
surplus. If the central government's fiscal accounts fall
into deficit, he said, the government could collapse. The
Kirchners, in particular, have relied on their discretionary
BUENOS AIR 00000853 004 OF 005
control of federal revenue sharing to keep governors and
mayors in line. If the GOA starts suffering cash flow
problems, it could encounter political turbulence and have to
contend with rebellious governors. Brito worries that
radicalization of the regime's economic agenda could be the
straw that breaks the camel's back. If NK pursues more
radical economic measures, such as pursuing new
nationalizations, he told us, the GOA's core of support would
shrink from 30 to 15% percent of the population, setting the
stage for its abrupt demise. Another economist, Orlando
Ferreres, suggests that in such a scenario the Peronists
would be the ones who depose CFK, reasoning that "no one is
more conservative than a frightened Peronist."
Why We Think CFK Will Make It to 2011
-------------------------------------
¶16. (C/NF) This recompilation of many arguments making the
rounds about the durability of CFK's regime is not intended
to create the impression that the government is doomed. At
the Mission, we believe that CFK will remain president until
December 2011, and that remains the opinion of most of our
interlocutors here -- a motley crew that includes
anti-Kirchneristas like Eduardo Duhalde and Mauricio Macri,
press moguls like Clarin managing director Jose Aranda, and
former Kirchner Cabinet chief Alberto Fernandez. We recently
wrote a cable (reftel) on the reasons why we thought that a
muddling-through scenario was most likely. Rather than
recapitulating all of those arguments here, we outline the
main political and economic factors supporting the contention
that CFK will remain president until 2011.
¶17. (C/NF) Our best-connected contacts in the political
establishment tell us that the focus is on the 2011
presidential election, not coup plotting. A key Macri aide
tells us that the main contenders for the 2011 election --
his boss, Carlos Reutemann, and Hermes Binner, to name a few
-- have predicated their planning on CFK making it to the end
of her term. None find taking the reins at a time of
economic crisis particularly appealing, and CFK's premature
departure could undermine their respective strategies for
making it to the Casa Rosada in 2011, when the economy should
be stronger. The preferences of these frontrunners are
critical, because in the wake of the June 28 elections, they
influence other political actors.
¶18. (C/NF) To further complicate the lives of would-be coup
plotters, CFK is a Peronist. The fractious Peronist
establishment, though undoubtedly disgruntled with the
Kirchners, is unlikely to end CFK's term if those efforts
could redound to the benefit of non-Peronist politicians.
Political analyst Mora y Araujo notes that, since 1983,
Peronist presidents have proven far harder to dislodge from
office before the end of their term than non-Peronists. We
would also point out that the Kirchners' forte is tactical --
they are generally more nimble and adroit than their rivals
and opponents. That said, NK is also a high-stakes gambler,
often betting heavily on the element of surprise in dealing
with his adversaries. Given his penchant for
unpredictability, he could easily over-play his hand one of
these days, and one of his "surprise" moves may backfire on
him.
¶19. (C/NF) The fear factor also plays in CFK's favor.
Opposition politicians from both the right (Mauricio Macri)
and center-left (Radical leader Oscar Aguad) tell us that
Argentines remember the chaos that followed Fernando de la
Rua's departure from office in December 2001, and are not
anxious to repeat the experience. Macri told a visiting U.S.
Senate staffer last year that Argentines would be "happy" for
the Kirchners to fall ("if this glass of water was the
Kirchners, everyone would fight to push it over") except for
one thing -- they fear that the government's collapse would
risk a return to bedlam. Argentines also seem impassive or
unmoved by outrageous cases of corruption or other
developments that elsewhere would have caused major scandals
("valijagate" comes to mind), making us wonder what it would
take to get people into the streets.
Most Think that the Economy Won't Push CFK from Office
--------------------------------------------- ---------
¶20. (C) Most of Argentina's best economists think that the
economic situation will not force the Kirchners from office.
Many post contacts believe that the peso exchange rate is a
barometer for popular confidence in the government. The fact
that the GOA has been able to manage a deliberate, controlled
devaluation of the peso for over eight months without a major
run on the dollar, even after the June 28 electoral setback,
argues for a stable outlook. The notion that the economy
BUENOS AIR 00000853 005 OF 005
will bring the Kirchners down ultimately rests on the premise
that the government will lack the funds to meet its internal
and external obligations. For over two years we have been
hearing dire forecasts of an impending, overwhelming fiscal
crunch just around the corner. However, two of our best
contacts -- Javier Alvaredo, General Manager of BICE Bank,
and Juan Carlos Barboza, the Central Bank's foreign exchange
chief -- tell us with some confidence that the GOA will be
able to meet its obligations. On the external debt payments
front, both of them said independently that the GOA will have
enough funds to meet debt payments in 2009 and 2010. They
argue that 2010 will be easier than 2009 because no GDP
warrant payment will come due (there is a big one in December
2009). The market, as measured by country risk ratings and
bond indices, does not seem spooked.
¶21. (SBU) Our contacts also tell us that the GOA is unlikely
to run out of money before CFK's term ends. A contact in the
Economy Ministry's Finance Secretariat insists that the GOA
will meet its 2009 financing needs from public sector
resources (e.g., the recent nationalization of private
pension funds, which gives the GOA a huge pile of money to
work with); inflows from International Financial Institutions
like the World Bank and IDB; and liability management
(buybacks, exchanges, etc.).
¶22. (SBU) There is also room for adjustment on the
expenditure side. Economist Daniel Marx notes that the
government's decision to move the mid-term election to June
28 means that its pre-electoral spending spree was relatively
brief this year, which will make it easier for the new
Economy Minister Amado Boudou to reduce outlays for the
balance of this year and next. Marx thinks that social
spending and subsidies will plummet now that the election is
over, easing fiscal pressure on the government (though he
admits that other pressures, such as transfer payments to the
provinces demanded by increasingly assertive and desperate
governors, will increase).
¶23. (C/NF) Ultimately, popular support for, or tolerance of,
the Kirchners rides on Argentines' relative sense of
well-being. Barring another bout of hyper-inflation or
government confiscation of savings or sudden uptick in
unemployment, many Argentines are disinclined to rock the
boat for now. Argentina is no stranger to nationwide general
strikes that have paralyzed the country; it is a huge boon
for the Kirchners that, for now, the bulk of organized labor
(historically co-dependent on the Peronists) remains in their
pockets.
¶24. (C/NF) Finally, time is probably on the Kirchners' side.
Though the economy is currently in bad shape, Argentina's
impressive human capital and natural resources will drive an
eventual rebound. Argentina's debt levels are manageable,
its return on capital high, and it enjoys several strong
sectors (agriculture, mining, high tech) as well as a
relatively competitive industrial sector and decent market
size. This means that if the Kirchners make it to the middle
of next year, with the external environment improving and
some attractive presidential candidates in the mix for the
2011 race, the proximity of the post-Kirchner era may by
itself reverse capital inflows and jump-start a robust
recovery -- which paradoxically could significantly reduce
the chances that CFK will be removed from office prematurely.
A Word on the Psychological Theory
----------------------------------
¶25. (C/NF) As for the argument that the ruling couple's
precarious psyches will lead to their fall from power,
suffice it to say that this argument is highly speculative
and anecdotal. Few people maintain that the president and
her husband, both well into their fifties, have changed much
over the past two years. As Fraga notes, it is Argentina
that has changed, not them. That seems like a good (partial)
explanation for why the Kirchners fared poorly and misplayed
their hand in the mid-terms, but it does not necessarily mean
that it will prevent CFK from reaching the end of her term.
After all, the Kirchners have been abrasive, impervious to
outside advice, and even paranoid through more than six years
of presidential power, and they're still in the Casa Rosada.
As long as the political establishment remains focused on the
next presidential race and the economy doesn't suffer a
meltdown, we expect that's where the Kirchners will stay
until December 2011.
KELLY
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