Argentina: Background and U.S. Relations

Argentina: Background and U.S. Relations
November 5, 2008
Mark P. Sullivan
Specialist in Latin American Affairs
Foreign Affairs, Defense, and Trade Division

Argentina: Background and U.S. Relations
A South American nation with a population of around 40 million, Argentina
returned to elected civilian democracy in 1983 after seven years of harsh military
rule. In 2001-2002, the democratic political system experienced considerable stress
as the country experienced a severe economic crisis, but ultimately weathered the
storm. Current President Cristina Fernández de Kirchner, elected in October 2007,
succeeded her husband President Néstor Kirchner (2003-2007), who had made
popular policy moves regarding human rights, institutional reform, and economic
policy that helped restore Argentines' faith in democracy. In her first year in office,
President Fernández has faced several major challenges, including an energy crisis
in early 2008 followed by a series of farmers strikes that led to the defeat of her
proposed agricultural export tax increase. More recently, the government has faced
the challenge of dealing with the effects of the global financial crisis. The rapid
decline in prices for several of Argentina's key exports will have an impact on
economic growth and government revenue.
U.S.-Argentine relations generally have been strong since the country’s return
to democracy in 1983 and were especially close during the Menem presidency (1989-
1999). There was some friction in relations when the United States did not support
Argentina during its 2001-2002 financial crisis, and under the Kirchner presidency
when Argentina moved toward closer relations with Venezuela. There was
expectation that the tenor of relations with the United States would improve under
President Fernández. This was thwarted, however, by the so-called suitcase scandal
involving the arrest of four foreign nationals from Venezuela and Uruguay in Miami
for the attempted delivery of funds to benefit Fernández’s presidential campaign.
Nevertheless, the United States and Argentina continue to cooperate on many areas
of mutual interest, including anti-drug and anti-terrorism efforts.
In the 110th Congress, several initiatives regarding Argentina were adopted or
introduced. The House adopted two resolutions for the anniversary of the 1994
Argentine-Israel Mutual Association bombing: H.Con.Res. 188 approved in July

2007, and H.Con.Res. 385, approved in July 2008. The House also adopted H.Res.

435 in November 2007 that emphasized the importance of eliminating Hezbollah's
financial network in the tri-border area of South America. The House version of the
FY2009 Intelligence Authorization Act, H.R. 5959, included a provision requiring
a Central Intelligence Agency report on human rights violations committed by
Argentine military and security forces during the military dictatorship (1976-1983).
In September 2008, a bill was introduced, H.R. 7205, that would bar access to U.S.
capital markets to foreign states that fail to satisfy U.S. court judgments, and
specifically cited Argentina as an egregious example. The Senate version of the
FY2009 agriculture appropriations bill, S. 3289, contained a provision prohibiting
funds from being used for the importation of fresh meat from Argentina until the
Secretary of Agriculture certifies to Congress that every region of Argentina is free
of foot and mouth disease; the provision was not included in the FY2009 continuing
appropriations resolution. Separate bills, S. 3238 and H.R. 6522, were also
introduced on the issue. This report, which may be updated, summarizes political
and economic conditions in Argentina and issues in Argentine-U.S. relations.

Political and Economic Conditions....................................1
Economic Challenges ..........................................3
Global Financial Crisis.....................................5
Energy Crisis.................................................6
Farmers Strikes and Rejection of Export Tax Increase.................7
Human Rights................................................8
Argentine-U.S. Relations............................................9
Overview ....................................................9
Suitcase Scandal and U.S. Indictments............................11
Tri-border Area and Cooperation on Terrorism......................13
AMIA Investigation.......................................14
Trade, Investment, and Debt Issues...............................15
Trade ..................................................15
Investment ..............................................16
Debt ...................................................16
Legislative Initiatives in the 110th Congress........................17
List of Figures
Figure 1. Map of Argentina..........................................2
Figure 2. Tri-border Area of Argentina, Brazil, and Paraguay..............14

Argentina: Background and U.S. Relations
Political and Economic Conditions
Argentina’s democratic political system experienced considerable stress in
2001-2002 when the country experienced a severe economic crisis and related social
unrest. In late 2001, as the banking system faltered and confidence in the
government of then President Fernando de la Rua evaporated, widespread
demonstrations turned violent, and the president resigned. In late December 2001,
the government of interim President Adolfo Rodriguez Saa announced a default on
some $132 billion in public debt, the largest sovereign default in history. Ultimately,
the political system weathered the storm: first, President Eduardo Duhalde (January
2002-May 2003), a Peronist Senator selected by Congress to fill out the remainder
of President de la Rua’s term, implemented policies that stabilized the economy; and
then, center-left President Néstor Kirchner (May 2003-December 2007), a Peronist
who had served as a provincial governor of Santa Cruz in Patagonia, further
enhanced internal political and economic stability.
Despite some difficulties, Kirchner made popular policy moves in the areas of
human rights, institutional reform, and economic policy that helped restore
Argentines’ faith in democracy. In June 2005, the government restructured over
$100 billion in defaulted bond debt that paid an historically low recovery rate of 30%
to bondholders (which caused some 24% of creditors not to accept the offer).1 While
this was politically popular in Argentina, the government’s failure to repay its arrears
to official Paris Club creditors or reach a deal with private creditors for over $20
billion in defaulted bond debt prevented Argentina from full access to international
capital markets.2 The Kirchner government’s continuation of politically popular
price caps on electricity and natural gas that had been imposed during Argentina’s

2002 financial crisis also laid the foundation for energy shortages.3

Legislative elections in October 2005 demonstrated strong support for Kirchner
with his leftist wing of the Peronist or Justicialist Party (PJ), known as the Front for
Victory (FV), making significant gains. Kirchner would have been eligible to run
again in the 2007 presidential elections, but instead supported the candidacy of his
wife, Senator Cristina Fernández de Kirchner.

1 For background, see CRS Report RL32637, Argentina's Sovereign Debt Restructuring,
May 5, 2006, by J. F. Hornbeck.
2 Economist Intelligence Unit, “Argentina Country Profile 2008,” p. 32.
3 Thomas Andrew O’Keefe, “The Crisis in the Argentine Energy Sector and Its Regional
Impact,” in Energy and Development in South America: Conflict and Cooperation, edited
by Cynthia J. Arnson, Claudio Fuentes, and Francisco Rojas Aravena, with Jessica Varat,
Woodrow Wilson Center for International Scholars, 2008.

Figure 1. Map of Argentina

Source: Map Resources. Adapted by CRS.

Fernández de Kirchner won the October 2007 presidential elections with 45%
of the vote, defeating her closest rival by 23%, and was inaugurated President on
December 10, 2007, becoming the first woman in Argentine history elected as
President. During concurrent legislative elections, in which half of the Chamber of
Deputies and one-third of the Senate was contested, the President’s leftist FV faction
of the PJ gained further seats in Congress, and now enjoys a majority in both houses.
In April 2008, former President Kirchner became head of the PJ, which should have
helped shore up support within the party for his wife’s presidency.
Despite the strength of President Fernández within the ruling party and
Congress, her political honeymoon was short-lived because of several significant
challenges. These included an energy crisis early in the year and a series of farmers
strikes beginning in March 2008 that led to the congressional defeat of the President's
increase on taxes for soybean and sunflower seed exports. After just six months in
office, President Fernández’s popularity declined to a low of 20% in June 2008
(compared to nearly 60% in January), although more recently in October 2008, her
popularity had risen to 30%.4
Looking ahead, President Fernández faces the challenge of dealing with the
effects of the global financial crisis on Argentina's economy. Her government also
must deal with $6.7 billion in defaulted Paris Club debt owed to foreign governments
and more than $20 billion in defaulted bond debt owed to private creditors. Efforts
to address these challenges will likely be put on hold because of the current global
financial crisis. How the government addresses these economic issues will likely
have a direct impact on its popularity, and could effect next year's mid-term
congressional elections scheduled for October 2009.
Economic Challenges
The Argentine economy has been booming in recent years, continuing the
recovery since the 2001-2002 period when the economy contracted more than 15%.
In recent years, the economy grew 8.5% in 2006, 8.7% in 2007, and is forecast to
grow 6.2% in 2008. The forecast for 2009 is for a slowed growth rate of 2.2%
because of weaker demand for Argentina's exports resulting from the global financial
crisis.5 Poverty rates have declined considerably over the past several years – from
a high of about 45% in 2002 because of the financial crisis to a return to the historical
norm of about 21% in 20066 – but observers maintain that income inequality is still
a major problem, with many people who were thrust into poverty during the 2002

4 “Argentina: Problems Intensify for Fernández,” Latin American Regional Report: Brazil
& Southern Cone, May 2008; “Argentine Poll: President’s Approval Rating up in First
Month,” Dow Jones International News, January 23. 2008; "Argentina's President Approval
Rating Slips to 28% - Poll," Dow Jones International News, September 24, 2008; and Helen
Popper, “Argentina’s Fernández Fails to Hit Right Note,” Reuters News, October 28, 2008.
5 “Argentina: Country Report,” Economist Intelligence Unit, November 2008, p. 17;
"Argentina Economy: Quick View – Economic Activity Loses Momentum," EIU
ViewsWire, October 20, 2008.
6 U.N. Economic Commission for Latin America and the Caribbean, "Social Panorama of
Latin America 2007,” p. 11.

crisis still struggling.7 With a per capita income level of $5,150 (2006), Argentina
is classified by the World Bank as an upper middle income developing country.
Because of the country’s nightmarish experience with hyperinflation in the

1970s and 1980s, the government is sensitive to reports of consumer price increases,

and there is widespread belief that the government has manipulated inflation data to
project a favorable rate. According to official data, consumer price inflation
amounted to 8.5% in 2007, well below estimates of economists who maintain that
inflation was around 20%, one of the highest rates in the region.8 In September 2008,
the Argentine government maintained that inflation over the past 12 months
amounted to 8.7%, while private economists forecast a rate of about 20% for 2008
(down from previously estimated 25% because of a decline in commodity prices and
falling demand for Argentine exports).9 During a visit to New York in late
September 2008, President Fernández asserted that inflation was not a problem in
Argentina, and she defended the government's National Statistics Institute (INDEC),
the agency which has been criticized for under-reporting inflation.10
Under the previous Kirchner government, Argentina’s relations with the
International Monetary Fund (IMF) were contentious. In 2003, after months of tough
negotiations, Argentina reached a three-year stand-by agreement that provided a
credit line of about $12.5 billion. Although IMF accords are not normally politically
popular, the accord was widely praised in Argentina as an agreement with realistic
fiscal targets that would enable Argentina to deal with such issues as employment
and social equity. Argentina suspended its IMF loan program in 2004 because of
IMF pressure to complete debt negotiations with bondholders and adopt supporting
economic reforms. In January 2006, Argentina ultimately chose to repay its $9.5
billion debt owed to the IMF rather than accede to IMF policy directives. While the
move was politically popular in Argentina, some critics argue that it might have been
fiscally imprudent given the alternatives of paying down more expensive debt or
spending it on alternative needs such as infrastructure or social spending.
In early September 2008, the Fernández government announced that Argentina
would repay its defaulted $6.7 billion owed to Paris Club countries in one lump sum
using its foreign reserves (rather than renegotiating a refinancing package, which
normally requires IMF monitoring), but the global financial crisis appears to have
scuttled these plans. Rather than paying back its defaulted Paris Club debt all at
once, which would deplete the country’s $47 billion in foreign reserves, the
government was reportedly looking to pay it back in installments until 2025.11 In
addition to the U.S. government, Argentina's creditor nations for the defaulted debt
include the governments of Germany, Japan, Spain, the Netherlands, France, Italy,

7 Sara Miller Llana, “Class Divide Hardens for Argentina’s Growing Poor,” Christian
Science Monitor, January 7, 2008.
8 Jude Webber, “Argentina Inflation Well Below Estimates,” Financial Times, January 8,


9 "Argentina: Slowing Demand Curbs Inflation," Oxford Analytica, October 13, 2008.
10 "Fernández Denies Argentine Inflation," LatinNews Daily, September 26, 2008.
11 "Argentina Finance: Grabbing the Pension Funds," EIU ViewsWire, October 22, 2008.

and Switzerland. Argentina's arrears owed to the U.S. government were estimated
at almost $300 million at the end of 2006.12 Paying off the debt would be a step
toward improving Argentina’s ability to access international credit.13
Another difficult task for Argentina will be dealing with more than $20 billion
in defaulted bond debt from investors, largely from Europe, but also from the United
States and Japan, who refused to participate in the government’s 2005 debt
restructuring. In September 2008, the Fernández government said that it was
exploring a deal with three major banks with the goal of paying off the holders of the
2005 defaulted debt, but the status of the deal is unclear. On October 16, 2008, the
government announced a deal with Citibank, Deutsche Bank, and Barclays that
would include a swap of guaranteed loans in order to reduce the country's debt
payments on loans coming due in 2009-2012, but no announcement was made on a
deal for the holdouts.14
Global Financial Crisis. Initially, President Fernández maintained that the
financial crisis in the United States would not have an effect on the region. In a
speech before the U.N. General Assembly in September 2008, Fernández criticized
the U.S. "casino economy, where it was thought that only capitalism can produce
money."15 By October, however, President Fernández was warning that the global16
financial crisis would have economic and social repercussions for Argentina.
The global crisis already is having an effect on the Argentine economy.
Argentina's growth in recent years has been fueled by its exports of primary
commodities, but the rapid decline in the price of important export commodities for
Argentina such as soybean products and corn will have an impact on economic
growth and the government's fiscal situation. In particular, the government’s heavy
reliance on export taxes for its revenue will have a direct impact on funds available
for government spending. In the manufacturing sector, two industries, textiles and
cars, have led growth in recent years, but will also face downturns as global demand17
In an unexpected move on October 21, 2008, the Fernández government
proposed nationalizing 10 private pension funds with holdings of around $30 billion
with the stated goal of protecting individuals from losing their savings during the

12 U.S. Department of the Treasury, "U.S. Government Foreign Credit Exposure as of
December 31, 2006, Part I Summary and Analysis," p. 20.
13 Anna Willard, "Argentina, Paris Club Still Discussing Debt Deal-Source," Reuters News,
October 14, 2008; "Argentina Ratifies Paris Club Payment," LatinNews Daily, October 14,


14 Lucas Bergman, "Argentina Moves Ahead with "Guaranteed Loan" Swap," Reuters,
October 16, 2008; "Argentina Agrees to Debt Swap," LatinNews Daily, October 1, 2008.
15 "Latin America Lashes Out at U.S. for Not Practising What it Preaches," Latin America
Weekly Report, September 25, 2008.
16 "Argentina Braces for Financial Crisis," LatinNews Daily, October 9, 2008.
17 "Argentina Risk: Alert – Economic Slowdown Will Squeeze Public Finances," Economist
Intelligence Unit – Risk Briefing, October 16, 2008.

global financial crisis. Critics, however, believe that the government's actions are an
attempt to gain access to short-term financing needs in order to offset losses in
revenue.18 Some also view it as an attempt to shore up finances in order to prevent
a future default given that some $28 billion in debt will mature over the next three
years.19 The Argentine stock market reacted swiftly to the government's
nationalization proposal with almost a 30% drop over two days. The pension
nationalization proposal needs to be approved by Congress, and the Fernández
government has asked for it to be completed by the end of November. Opponents in
Argentina's Congress reportedly would support the nationalization if the government
guaranteed that the assets would only be spent on retirees, and not used for other
Energy Crisis
President Fernández’s administration was hard hit early on with significant
power outages that left areas of Buenos Aires without power for three days in January
2008. The outages are the legacy of the previous Kirchner government’s policy of
imposing price caps on electricity prices, which in turn created a disincentive for
investment in electricity production. While the price caps were popular politically,
they have resulted in degradation of the electricity network at a time when demand
has been increasing because of the booming economy. In mid-2008, the Fernández
government began taking more significant measures needed to improve the nation’s
electricity capacity over the long-term. In late July, the government announced that
it would raise electricity and natural gas distribution tariffs on residential users,
although poorer households would be exempt. The low rates had been a disincentive
for investment in electricity production and natural gas production.20
Argentina has been a net exporter of natural gas for a number of years,
especially to Chile, but as the Argentine economy started to boom, domestic demand
for natural gas increased. This caused Argentina to cut back on its gas exports to
Chile beginning in 2004, which has increased tensions in bilateral relations. At the
same time, Argentina began importing gas from Bolivia to satisfy demand in the
northern region of the country which is not well supplied by Argentina’s domestic
natural gas transmission network.21
For a variety of reasons, however, Bolivia has not been able to fulfill its contract
to sell gas to Argentina. As a result, in 2008, Argentina resorted to importing
liquified natural gas to fulfill its gas needs. The government announced in September
2008 that energy subsidies on gasoline, natural gas, diesel and electricity would be
cut by some 30% in 2009, with the goal of spurring new investments in oil and gas

18 "Argentina: Grabbing the Pension Funds," EIU ViewsWire, October 22, 2008.
19 Debora Rey, "Argentine Opposition Lawmakers Seek to Limit Pension Nationalization,"
Associated Press Newswires, October 23, 2008.
20 Charles Newsbery, "Argentina Raises Gas, Power Tariffs to End 7-Year Freeze," Market
News International, July 31, 2008.
21 “Country Analysis Briefs: Argentina,” Energy Information Administration, February


production.22 Gas exploration companies announced in October 2008 that they
would be investing some $1.5 billion over the next three years in natural gas
exploration in order to boost domestic production.23
In January 2008, President Fernández and Bolivian President Evo Morales met
in Buenos Aires to discuss plans for a 1,500 kilometer gas pipeline (Gasoducto del
Nordeste Argentino) that would run from the Bolivian border to a terminal in the
Argentinian province of Santa Fe. When completed in 2010, the pipeline would
supposedly supply Argentina with more than four times the amount of gas that
Bolivia currently supplies. No work on the pipeline has begun, however, and there
is skepticism that it will be built.24
Farmers Strikes and Rejection of Export Tax Increase
Another crisis that besieged the Fernández government early in her
administration was a farmers strike that began in mid-March 2008 in response to the
government's tax increase on the export of soybean and sunflower seed products.
Farmers reacted by setting up some 400 roadblocks around the country for about
three weeks, and refusing to release much of their production. President Fernández
criticized the farmers for protesting while earning record profits, and said she would
not “yield to any extortion.”25
The protests led to food shortages in supermarkets and to increased social
tensions between supporters and opponents of the government. In late March, the
government offered to make some concessions to the farmers, but these were
rejected. In early April, the four principal farmers unions declared a 30-day truce.
One casualty of the crisis was Argentina’s Economy Minister Martin Lousteau, who
resigned in late April because of the protracted conflict with farmers, and also
reportedly because of his frustration with the government’s unwillingness to deal
with inflation.26 (Lousteau was succeeded by Carlos Fernández, reported to be a
staunch ally of former President Kirchner.)
In May and June 2008, farmers conducted a series of three more strikes
protesting against the export tax until President Fernández agreed to send the export
tax increase to Congress for debate. While Argentina's lower House of
Representatives narrowly approved the measure by a vote of 129-122 on July 5,

2008, the Senate ultimately defeated the measure on July 17, 2008.

22 "Argentina to Cut Subsides," International Oil Daily, September 18, 2008.
23 "Argentina Gas Producers to Invest $1.5 Billion to Boost Output," Platts Commodity
News, October 10, 2008.
24 "Argentina Ya No Hará un Gran Ducto a Bolivia," La Razón (Argentina, October 17,


25 Vinod Sreeharsha and Jack Chang, “Argentine Farmers Export Tax Hike,” Miami Herald,
March 26, 2008.
26 “Economy Chief Steps Down,” Miami Herald, April 26, 2008.

The Senate's rejection of the export tax increase was a stunning political defeat
for both President Fernández and her husband former President Kirchner, who
thought that they had enjoyed a majority of support in both legislative chambers.
Particularly difficult for Fernández was that Vice President Julio Cobos was the tie-
breaking vote that defeated the measure. The defeat not only demonstrated the
strength of Argentina's farming sector, which received support from the urban middle
class, but also reflected the independence of Argentina's Congress, which had been
viewed as a rubber stamp for the Kirchners. For some observers, the vote was a
rejection of the governing style of the Kirchners, described by some as a style based
on confrontation and intimidation of political opponents.27
Human Rights
Argentina has made significant progress in human rights in recent years. The
previous Kirchner government took steps to be able to bring to justice those
responsible for past human rights abuses that occurred under military rule in the late
1970s and early 1980s in the so-called Dirty War against leftists and their
sympathizers in which thousands “disappeared.” Kirchner purged the military’s top
officers and vowed to prosecute current and retired military officials responsible for
human rights abuses. He strongly supported the Supreme Court’s June 2005
overturning of two amnesty laws from the 1980s that had blocked prosecution. In
August 2006, a former federal police official was sentenced to 25 years in prison, and
in September 2006, the former police commissioner of Buenos Aires was sentenced
to 25 years in prison. In October 2007, a former police chaplain was sentenced to life
in prison for complicity in seven murders and other human rights violations that shed
light on the Argentine Catholic Church’s close relationship with the military
dictatorship.28 In December 2007, seven former army officers and an ex-police
official were convicted and sentenced to at least 20 years in prison.
In her inaugural address, President Fernández stated that her government would
continue to press for the conclusion of human rights cases from the past, and noted
the obligation of the government to “punish those responsible for the greatest
genocide in our history.”29 In August 2008, two former military generals were
sentenced to life in prison for the disappearance of provincial Senator Guillermo
Vargas Aignasse in 1976.
Earlier in the year, human rights activists expressed concerns about the
mysterious deaths of two former military officers who were reportedly going to speak
out about the military’s abduction of hundreds of babies from jailed or missing
dissidents during the Dirty War. In December 2007, an ex-naval officer died in

27 Matt Moffett, "Argentina's Kirchner Rebuked in Soybean-Tax Defeat," Wall Street
Journal, July 18, 2008.
28 Jude Webber, “Spotlight on Church in Argentina’s Dirty War,” Financial Times, October

22, 2007.

29 “Argentine President Sets Out Vision for New Government at Inaugural Speech,”
Executive Office of the President of Argentina, December 11, 2007 (as translated by Open
Source Center).

prison by cyanide poisoning four days before the court was to announce his sentence,
while in February 2008, a retired army officer was found dead by a gunshot to the
head, with the police reportedly finding a suicide note. There is concern among
Argentines that the two deaths were orchestrated by those wanting to impede human
rights prosecutions. Human rights activists also remain concerned about a 2006
missing person case of former political prisoner Jorge Julio López, who was a key
witness in the trial of the former police commissioner of Buenos Aires convicted in

2006 of homicide and torture during the Dirty War.30

In the 110th Congress, on July 16, 2008, the House approved H.Amdt. 1117
(Hinchey) to the FY2009 Intelligence Authorization Act, H.R. 5959, that would
require a report to Congress by the Director of the Central Intelligence Agency (CIA)
on information during the military dictatorship in that country (1976-1983) related
to human rights violations and Operation Condor, including information on children
born in captivity whose status remains unknown. The House approved H.R. 5959 by
voice vote on July 17, 2008, but the Senate has not taken action on it.
Argentine-U.S. Relations
U.S.-Argentine relations generally have been strong since the country’s return
to democracy in 1983 and were especially close during the Menem presidency (1989-
1999). U.S. officials commend Argentina’s contributions to peacekeeping operations
worldwide, including a significant contribution to the current U.N. peacekeeping
mission in Haiti. Because of its military contributions, the United States designated
Argentina as a major non-NATO ally in 1997, a status that gives Argentina access
to grants of surplus U.S. military hardware.
Argentina has not traditionally received much U.S. foreign assistance because
of its well-developed economy and relatively high per capita income level, but it has
received small amounts of anti-terrorism and counternarcotics assistance as well as
International Military Education and Training (IMET) assistance. In 2005, Buenos
Aires became the first port in South America to participate in the Container Security
Initiative (CSI). The program is operated by the Department of Homeland Security
(DHS) using a security regime to ensure that all containers that pose a potential risk
for terrorism are identified and inspected at foreign ports before they are placed on
vessels destined for the United States. In 2006, Argentina began participating in
another DHS initiative known as the Trade Transparency Unit Program that
facilitates exchanges of information in order to combat money laundering. The
program includes training and equipment, and is viewed as a complement to the CSI

30 Jack Chang, “Former Army Officer Who Was ‘Dirty War’ Witness Found Dead,” Miami
Herald, February 29, 2008; and U.S. Department of State, Country Reports on Human
Rights Practices – 2007, March 11, 2008.

Although U.S.-Argentine relations are close, at times there have been tensions
in the bilateral relationship. The tough U.S. approach toward Argentina during its
political and financial crisis in 2001-2002 caused friction in the relationship. This
turned around to some extent in 2003 when the United States supported Argentina
in its negotiations with the IMF. President Kirchner met with President Bush in July
2003 in Washington D.C., and President Bush visited Argentina in November 2005
at the Summit of the Americas held in Mar del Plata. President Kirchner’s
movement toward closer relations with Venezuelan President Hugo Chávez also was
a source of consternation to U.S. policymakers. During the 2005 Summit of the
Americas, President Chávez was the featured speaker at a parallel anti-summit, and
in March 2007, Chávez was allowed to hold a huge anti-American rally in Buenos
Aires to coincide with President Bush’s visit to neighboring Uruguay. Some
observers maintain, however, that Kirchner’s closeness to President Chávez was
merely pragmatic (especially since Venezuela has provided a lifeline to Argentina by
purchasing a significant amount of Argentine bonds) and did not jeopardize
Argentina’s cooperation with the United States on a host of bilateral and global
With Cristina Fernández’s presidential victory, there was considerable
expectation that the tenor of relations with the United States would improve,
compared to relations under the previous Kirchner administration. Just two days
after her December 10, 2007 inauguration, however, an unexpected challenge to
U.S.-Argentina relations occurred when U.S. federal prosecutors in Miami charged
five foreign nationals in the so-called “suitcase scandal” involving the attempted
delivery of funds to benefit Fernández’s presidential campaign (see discussion below
for details). President Fernández’s swift condemnation of the United States, and
what she referred to as its “garbage” smear campaign against her, thwarted any
expectation of a quick improvement in bilateral relations. Not until late January 2008
did somewhat of a thaw in relations begin when U.S. Ambassador to Argentina Earl
Wayne met with President Fernández. The Ambassador emphasized that the case did
not have a foreign policy objective, but centered on the violation of laws in the
United States carried out by suspected agents of the Venezuelan government.32
President Fernández reportedly was angered by Secretary of State Condoleezza
Rice’s decision to skip Argentina during a March 2008 visit to neighboring Brazil
and Chile, but a visit by U.S. Assistant Secretary of State for Western Hemisphere
Affairs Tom Shannon in mid-April 2008 reportedly was aimed at getting relations
back on track.33 Shannon again visited Argentina in July and August 2008, with

31 Jude Webber, “Kirchner, Chávez Strike Mutual Pose,” Miami Herald, March 16, 2007.
32 “EEUU Aclara a Argentina Que Caso de Antonini Wilson en Miami No Es Político,”
Agencia EFE, January 31, 2008.
33 Alexei Barrionuevo, “Rice Trip to Skip Argentina in Sign of a Growing Rift,” New York
Times, March 13, 2008; “Argentina: Patching up Relations with U.S.,” Latin American
Weekly Report, April 17, 2008.

some observers suggesting that it was an attempt to improve relations with President
Fernández . 34
As in many parts of the world, the image of the United States has declined in
Latin America over the past several years. According to a 2007 Pew Research Center
study that surveyed seven major countries in the region, Argentina by far had the
lowest favorable view of the United States, just 16% in 2007, down from a favorable
view of 50% in 2000.35
Suitcase Scandal and U.S. Indictments
On December 11, 2007, four foreign nationals – three Venezuelans (Moises
Maionica, Franklin Duran, and Carlos Kauffmann) and one Uruguayan (Rodolfo
Wanseele Paciello) – were arrested in Florida, and appeared the following day in
federal court in Miami in the so-called suitcase scandal. A fifth foreign national
wanted in the case – Antonio Jose Canchica Gomez, reportedly a Venezuelan
intelligence official – remains at large. U.S. federal prosecutors in Miami charged
the five with: 1) conspiring to act as agents of the Venezuelan government in the
United States without prior notification to the U.S. Attorney General; and 2)
attempting to cover up the source and destination of the undeclared $800,000
confiscated on August 4, 2007 by Argentine authorities from a dual U.S.-Venezuelan
businessman from Miami, Guido Alejandro Antonini Wilson, at a Buenos Aires
airport when entering the country. A federal grand jury indicted the five foreign
nationals with the same charges on December 20, 2007. Three of the four defendants
facing trial in the case pled guilty, leaving Franklin Duran to face trial beginning in
September 2008.
At some point after his return to the United States in August 2007, Antonini
began cooperating with the FBI as an informant. As alleged in the indictment, taped
conversations between Antonini and the defendants in a series of meetings and
telephone calls from August 23, 2007 until December 11, 2007 showed that
substantial inducements were offered to Antonini, including the payment of money
and the preparation of false documents in an attempt to conceal the source and
destination of the $800,000. High-level Venezuelan officials were alleged to be
involved in the matter, including from the Office of the Vice President and the
Intelligence and Preventative Services Directorate (DISIP).36 The Department of
Justice subsequently noted in January 2008 that Antonini had been carrying the
suitcase at the request of one of the other passengers on the plane, and was unaware
that the money was in the suitcase.
The initial criminal complaint filed against the defendants on December 12,

2007, alleged that the $800,000 had been destined for the campaign of a candidate

34 "U.S.-Argentine Relations Back in the Spotlight," Latin American Regional Report, Brazil
& Southern Cone, September 2008.
35 The Pew Global Attitudes Project, “Global Unease with Major Powers,” June 2007, p. 13.
36 United States District Court, Southern District of Florida, Case No. 1:07-cr-20999-JAL,
Document 24, December 20, 2007.

in Argentina’s October 28, 2007 presidential election.37 Assistant U.S. Attorney
Thomas Mulvihill maintained in court that the money was intended for the campaign
of Cristina Fernández de Kirchner, which was quoted in various press accounts.38
As noted above, the case, which appeared to catch the Argentine government
by surprise, induced a strong reaction from President Fernández who maintained that
the United States manufactured the scandal to punish her for maintaining close
relations with Hugo Chávez. State Department officials stressed that the case was
not a foreign policy matter, but that the case originated and was completely handled
by the Department of Justice and the FBI.39 By late January 2008, Argentine officials
declined to make any further comments on the case, which appeared to be an attempt
to prevent the case from further jeopardizing the status of relations with the United
S t at es. 40
Argentina requested the extradition of Antonini in August 2007 on fraud
charges, and then reportedly later amended the request to add the charge of money
laundering. In early January 2008, Argentina’s Minister of Justice Anibal Fernández
demanded the extradition of Antonini, and in September 2008 the Argentine
government reiterated their request for Antonini's extradition.
The trial of the remaining defendant, Franklin Duran, began in early September
2008, and on November 3, 2008, Duran was convicted of acting as an unregistered
agent of a foreign government and of conspiring to cover up the origin and
destination of the money. Antonini was one of the key witnesses at the trial, and
convicted businessman Carlos Kauffmann also testified. Federal prosecutors
maintained that Kauffman and Duran attempted to silence Antonini for the
Venezuelan government in order to keep the source and destination of the $800,000
in cash secret. In his testimony, Kauffmann said that he and Duran paid millions to
Venezuelan officials in order to win public contracts. Antonini testified that a former
Venezuelan oil company official told him that there was another $4.2 million on
board the plane also intended for the Fernández campaign that was not confiscated
by Argentine customs.41

37 United States District Court, Southern District of Florida, Case No. 1:07-cr-20999-JAL,
Document 1, December 13, 2007.
38 Luisa Yanez, Jack Chang, and Phil Gunson, “Venezuela Accused in Campaign Probe,”
Miami Herald, December 13, 2007; Alexei Barrionuevo, U.S. Links Smuggled Cash to
Venezuela,” New York Times, December 13, 2007; and Monte Reel and Juan Forero, “U.S.
Says Venezuela Tried to Give $800,000 to Argentine,” Washington Post, December 13,


39 U.S. Department of State, Daily Press Briefing, December 13, 2007.
40 “Argentina Remains Silent About New Developments in $800,000 Valise Case,” La
Nación (Buenos Aires), January 26, 2008 (as translated by Open Source Center).
41 Gisela Salomon, "U.S. Prosecutors Say Argentine, Venezuelan Had Cash," Associated
Press Newswires, September 24, 2008; Casey Woods and Gerardo Reyes, "Venezuelan
Bribery Stars In Trial Over Suitcase of Cash," Miami Herald, October 4, 2008.

Some observers fear that the case could have a negative effect on bilateral
relations. On September 11, 2008, Argentina's Foreign Ministry issued a
communique that referred to the accusations in the trial as irresponsible and based
on material produced by the FBI with the knowledge of political authorities in the
United States.42 In response, the U.S. Ambassador to Argentina, Earl Anthony
Wayne, stressed that judicial independence is one of the pillars of the U.S. system,
and emphasized that U.S. relations with Argentina remain friendly.43 After Duran was
convicted in early November, Argentina’s Minister of Justice asserted that Antonini
had been hired and paid for his testimony.44
Tri-border Area and Cooperation on Terrorism
In recent years, U.S. concerns have increased over activities of the radical
Lebanon-based Islamic group Hezbollah and the Sunni Muslim Palestinian group
Hamas in the tri-border area (TBA) of Argentina, Brazil, and Paraguay, which has
a large Muslim population. The TBA has long been used for arms and drug
trafficking, contraband smuggling, document and currency fraud, money laundering,
and the manufacture and movement of pirated goods. According to the State
Department’s April 2008 Country Reports on Terrorism, the United States remains
concerned that Hezbollah and Hamas are raising funds among the sizable Muslim
communities in the region and elsewhere in the territories of the three countries. The
report also stated that there was no corroborated information that these or other
Islamic extremist groups had an operational presence in the area. Allegations have
linked Hezbollah to two bombings in Argentina: the 1992 bombing of the Israeli
Embassy in Buenos Aires that killed 30 people and the 1994 bombing of the
Argentine-Israel Mutual Association (AMIA) building in Buenos Aires that killed 85
The United States has worked closely with the governments of the tri-border
region through the “3+1 regional cooperation mechanism,” established in 2002 to
serve as a forum for counterterrorism cooperation and prevention among all four
countries. Argentina hosted the fifth plenary session of the 3+1 mechanism in
December 2006 that focused on such issues as early warning among states,
information exchange in order to prevent illegal activity, and the denial of refuge to
those who finance, plan, or commit acts of terrorism. According to the State
Department’s annual terrorism report, Argentina cooperates well with the United
States at the operational level on counterterrorism issues, and has addressed legal and
institutional issues that previously hindered its counterterrorism efforts. In June
2007, Argentina’s Congress approved anti-terrorism legislation requiring lengthy
prison sentences for terrorist financing or conspiring with terrorists. The new law

42 Ministerio de Relaciones Exteriores, Comercio Internacional, Y Culto, Comunicado de
la Cancillería Argentina, September 11, 2008.
43 A. Rebossio, "Fernández Acusa al FBI de Desestablizar Argentina," El País (Madrid),
September 13, 2008.
44 “Argentina Slams Witness in Cash Suitcase Scandal,” Associated Press Newswires,
November 4, 2008; Phil Gunson, “Suitcase Evidence Is Phony,” Miami Herald, November

5, 2008.

brings Argentina in line with the recommendations of the multilateral Financial
Action Task Force.45 Looking ahead, according to the annual terrorism report,
Argentina’s challenge is to begin to use its strengthened legal and regulatory tools
aggressively in order to combat financial crimes.
Figure 2. Tri-border Area of Argentina, Brazil, and Paraguay

Source: Map Resources, Adapted by CRS, April 2008.
The U.S. Congress has continued to express concerned about the potential
terrorist threat emanating from the tri-border area. On November 5, 2007, the House
approved H.Res. 435 (Klein) by voice vote, which supported the counterterrorism
efforts of the “3 + 1” mechanism and emphasized the importance of eliminating
Hezbollah’s financial network in the tri-border area of South America. The resolution
also expressed concern over the emerging national security implications of Iran’s
efforts to expand its influence in Latin America, and in light of this, recommended
that the President create more mechanisms for joint counterterrorism operations and
intraregional information sharing among supportive countries in the Western
AMIA Investigation. Progress on the investigation and prosecution of those
responsible for the 1994 Argentine-Israel Mutual Association (AMIA) bombing was
stymied for many years because of the government’s mishandling of the case. In
September 2004, a three-judge panel acquitted all 22 Argentine defendants in the
45 Oscar Serrat, “Argentine Congress OKs Anti-terror Bill with Sentences for Conspiracy,
Financing, Laundering,” Associated Press Newswires, June 14, 2007; and Kate Joynes,
“Anti-Terror Bill Passes Through Argentine Congress,” Global Insight Daily Analysis, June

15, 2007.

case and faulted the shortcomings of the original investigation. However, the
government moved forward with a new investigation in 2005, and in November
2006, an Argentine judge issued arrest warrants in the AMIA case for nine
individuals: an internationally wanted Hezbollah militant from Lebanon, Imad
Mughniyah, and eight Iranian government officials, including former Iranian
President Hashemi Rafsanjani. Interpol subsequently posted a Red Notice for
Mughniyah, and in November 2007, Interpol’s General Assembly voted to approve
notices for five of the Iranians wanted by Argentina (not including Rafsanjani). The
action had been held up since March 2007, when Iran appealed the decision by
Interpol’s Executive Committee to issue the notices. In mid-February 2008, Imad
Mughniyah was killed by a car bomb in Damascus, Syria.
Over the years, the U.S. Congress has continued to express concern about
progress in Argentina’s investigation of the 1994 AMIA bombing. In July 2007, the
House approved H.Con.Res. 188 (Ros-Lehtinen) by voice vote, which applauded the
Argentine government for increasing the pace of the AMIA investigation, and called
upon the General Assembly of Interpol to issue red notices for five Iranians
implicated in the AMIA bombing. On July 15, 2008, the House approved
H.Con.Res. 385 (Ros-Lehtinen) by voice vote, which condemned the AMIA
bombing, and urged Western Hemisphere governments to take actions to curb
activities that supported Hezbollah and other Islamist terrorist organizations.
Trade, Investment, and Debt Issues
Trade. The United States exported almost $5.9 billion in goods to Argentina
in 2007 (with machinery, electrical machinery, and organic chemical exports topping
the list) and imported $4.5 billion in goods, with 41% consisting of oil imports. In
2004, the United States Trade Representative (USTR) placed Argentina on the
Special 301 Priority Watch list regarding intellectual property rights (IPR) protection
because of serious concerns over the lack of adequate protection for copyrights and
patents. Although the country has made some improvements, USTR kept Argentina
on the Priority Watch List through 2008 because of continued problems with patent
protection and copyright piracy. According to USTR’s 2008 Special 301 report, the
United States encourages Argentina to undertake stronger IPR enforcement actions
to combat the widespread availability of pirated and counterfeit products. The report
maintained that there are more than 40 large well-established markets in Buenos
Aires heavily involved in the sale of counterfeit goods.
Some in Congress have expressed concern about a potential rule change
proposed by the U.S. Department of Agriculture in 2007, but not yet made final, that
would permit imports of fresh bovine and sheep products from the southern46
Patagonia region in Argentina. Currently, the United States only accepts cooked
beef from Argentina because of concerns over foot and mouth disease in the country.
The southern Patagonia region has been free of the disease since 1976, but critics

46 Federal Register, Vol. 72. January 5, 2007, pp. 475-480.

maintain that fresh meat imports from any part of Argentina should be prohibited
from being imported into the United States.47
In the second session of the 110th Congress, identical bills S. 3238 (Johnson)
and H.R. 6522 (Herseth Sandlin) introduced in July 2008 would have prohibited the
importation of any ruminant or swine, or any fresh meat or products of ruminant or
swine from Argentina until the Secretary of Agriculture certified that every region of
Argentina was free of foot and mouth disease without vaccination. The Senate
version of the FY2009 agriculture appropriations measure, S. 3289, as reported out
of committee, included a provision in Section 736 that would have prohibited any
funds in the act from being used to pay for activities that would allow such imports
from Argentina. The provision was not included in the FY2009 continuing
Investment. The stock of U.S. foreign investment in Argentina amounted to
an estimated $14.9 billion in 2007, with investments concentrated in financial48
services, agribusiness, energy, and petrochemicals. While strong economic growth
levels have increased attention on Argentina by U.S. and international investors, legal
uncertainties concerning creditor and contract rights and unpredictable regulatory
changes have diminished the attractiveness in some sectors.49 There are over 30
pending investment dispute cases against Argentina filed by foreign companies,
including a number of U.S. investors, at the World Bank’s International Centre for
Settlement of Investment Disputes (ICSID), with claims amounting to some $13
billion. The ICSID ordered Argentina to pay $133 million in compensation to the
Michigan-based CMS Energy Corporation in October 2007, but Argentina is now
balking at the payment, maintaining that the company must file a claim in an50
Argentine court.
Debt. With regard to Argentina’s defaulted bond debt discussed above, a group
known as American Task Force Argentina (ATFA) – an alliance of organizations
representing U.S. bondholders that did not participate in Argentina’s 2005 debt
restructuring – has been pressing the U.S. government to pursue a negotiated
settlement with Argentina.51 The group includes a variety of national and state
associations that lost money because of Argentina’s 2001 debt default.

47 Michael Teitelbaum, "Panel-Approved Spending Bill Bars Funding of Meat Imports from
Argentina," CQ Today, July 17, 2008.
48 U.S. Department of Commerce, "U.S. Direct Investment Abroad Tables," Survey of
Current Business, September 2008, p. 58.
49 U.S. Department of State, “2008 Investment Climate Statement – Argentina,” February


50 Michael Casey, “Crunch Time in Key ICSID Case as Argentina Stalls CMS Payout,” Dow
Jones Newswires, January 16, 2008; In June 2008, CMS Energy sold its stake in the
Argentine gas transport company TGN to a U.S. investment company, Blue Ridge
51 See the website of the American Task Force Argentina at [].

According to ATFA co-chair Nancy Soderberg, Argentina’s strong economic
growth over the last few years can only be maintained if the country fully enters the
international capital markets, and for that to happen the Argentine government will
have to offer a new proposal to the bondholders that did not participate in the 2005
debt restructuring. She has maintained that Argentina’s lack of international capital
has driven the government closer to Venezuela and its expensive lines of finance.52
Two so-called vulture companies (which specialize in buying bonds in distressed
economic environments) – EM Ltd. and NML Capital – were seeking a judgement
in U.S. court that would allow them to seize Argentine assets in New York, but in
October 2007 the Supreme Court let stand a lower court ruling that prevented the
seizure of the assets.
H.R. 7205 (Jackson-Lee), introduced late in the 110th Congress on September
28, 2008, would take a number of measures against foreign countries that fail to
satisfy U.S. court judgments of more than $ 1million for more than six months. Most
significantly, the measure would bar access to U.S. capital markets to the foreign
state in default and bar domestic corporations of a foreign state from access to U.S.
capital markets if the foreign state has been in default for more than two years. The
bill specifically cited Argentina as an egregious example of defaulting on its debt to
foreign creditors in 2001, and then expressing its intention not to pay U.S. judgments
against those defaults.
Legislative Initiatives in the 110th Congress
H.Res. 435 (Klein). Introduced May 23, 2007; House approved by voice vote
November 5, 2007. Among its provisions, the resolution supports the
counterterrorism efforts of the “3 + 1” mechanism, emphasizes the importance of
eliminating Hezbollah’s financial network in the tri-border area of South America,
expresses concern over the emerging national security implications of Iran’s efforts
to expand its influence in Latin America, and recommends that the President create
more mechanisms for joint counterterrorism operations and intraregional information
sharing among supportive countries in the Western Hemisphere, especially in light
of Iran’s increased involvement in the region.
H.Con.Res. 188 (Ros-Lehtinen). Introduced July 18, 2007; House passed by
voice vote July 30, 2007. Among its provisions, the resolution applauds the
Argentine government for increasing the pace of the AMIA investigation, and calls
upon the General Assembly of Interpol to issue red notices for five Iranians
implicated in the AMIA bombing.
H.Con.Res. 385 (Ros-Lehtinen). Introduced June 26, 2008; House approved
by voice vote July 15, 2008. Among its provisions, the resolution condemns the
AMIA bombing, and urges Western Hemisphere governments to take actions to curb
activities that supported Hezbollah and other Islamist terrorist organizations.

52 “ATFA Co-Chair Ambassador Soderberg Concludes Visit to Buenos Aires,” PR
Newswire, May 16, 2008.

H.R. 5959 (Reyes). FY2009 Intelligence Authorization Act. Introduced May
21, 2008; House passed July 16, 2008 by voice vote. During July 16, 2008 floor
consideration, the House approved H.Amdt. 1117 (Hinchey) by voice vote, which
became Section 426 of the bill. The provision calls for a report (in unclassified form,
but may include a classified annex) within 270 days by the Director of the Central
Intelligence Agency (CIA) that includes a description of any information in
possession of the intelligence community with respect to the accession to power of
the Argentine military in 1976, violations of human rights committed by officers or
agents of the Argentine military and security forces, and Operation Condor and the
fate of Argentine people targeted, abducted, or killed during such Operation,
including children born in captivity whose status remains unknown. The report also
is to include a compilation of information that has been declassified. Not later than
one year after the original report, and annually thereafter for three years, the Director
of the CIA is to submit an update of the compilation of information that has been
H.R. 7205 (Jackson-Lee). Judgment Evading Foreign States Accountability
Act of 2008. Introduced September 28, 2008; referred to the Committee on Financial
Services and in addition to the Committee on Foreign Affairs. Among its provisions,
the bill takes a number of measures against foreign countries that fail to satisfy U.S.
court judgements of more than $1 million for more than six months. Most
significantly, the measure would bar access to U.S. capital markets to the foreign
state in default and bar domestic corporations of a foreign state from access to U.S.
capital markets if the foreign state has been in default for more than two years.
S. 3289 (Kohl). FY2009 Agriculture, Rural Development, Food and Drug
Administration, and Related Agencies Appropriations Act. Introduced and reported
July 21, 2008 (S.Rept. 110-426). As reported, Section 736 of the bill would prohibit
any funds appropriated by the act to pay the salaries and expenses of any individual
to conduct any activities that would allow the importation into the United States of
any ruminant or swine, or any fresh (including chilled or frozen) meat or product of
any ruminant or swine, that is born, raised, or slaughtered in Argentina until the
Secretary of Agriculture certifies to Congress that every region of Argentina is free
of foot and mouth disease without vaccination. (The provision was not included in
the continuing resolution for FY2009 appropriations. Also see related bills, S.

3238/H.R. 6522 below).

S. 3238 (Johnson)/H.R. 6522 (Herseth Sandlin). Foot and Mouth Disease
Prevention Act of 2008. S. 3238 introduced in the Senate July 10, 2008; referred to
Committee on Agriculture, Nutrition, and Forestry. H.R. 6522 introduced July 16,
2008; referred to the House Committee on Agriculture. Would require the Secretary
of Agriculture to prohibit the importation of any ruminant or swine, or any fresh
(including chilled or frozen) meat or products of any ruminant or swine that is born,
raised, or slaughtered in Argentina until the Secretary of Agriculture certifies to
Congress that every region of Argentina is free of foot and mouth disease without
vaccination. (Also see action on S. 3289 above.)