UNCLAS SANTIAGO 000001
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PREL, PGOV, OVIP, CI, ECON, MARR
SUBJECT: Scenesetter for Assistant Secretary Arturo Valenzuela's
January 11-12 Visit to Chile
1. (U) Embassy Santiago warmly welcomes you to Chile. 2010 will be
a historic year as Chile celebrates its bicentennial, joins the
OECD, and elects its fifth president since the return to democracy
in 1990. Bilateral relations have never been better with
particularly strong high-level ties and deepening institutional
relationships across a wide range of sectors. In the coming
months, our principal challenge will be working more closely with
the incoming Chilean Government on regional and global issues.
Elections
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2. (SBU) Chile's January 17 runoff presidential election is likely
to be historic, as opposition candidate Sebastian Pinera is
expected to bring conservatives to power for the first time in
twenty years. A Pinera win would have huge symbolic importance,
but lead to only moderate policy changes. Pinera's center-right
political coalition, Alianza, has been associated in the minds of
many with support for the Pinochet dictatorship. The first
election of someone from this coalition will symbolically move the
country past a political discourse that has long calcified around
who supported and opposed the military regime. Nonetheless, there
is broad consensus that the center-left Concertacion coalition,
which has governed Chile since 1990, has been very successful in
restoring democracy, strengthening institutions, and overseeing
impressive economic growth. Indeed, President Bachelet enjoys an
unprecedented 80% approval rating. Dissatisfaction with the
Concertacion stems mainly from frustration with low-level
corruption, a sense that the coalition is worn out, and a failure
to include newer leaders in its ranks.
3. (SBU) The real question surrounding Chile's presidential
election is how to renew the political leadership without
discarding the sound policies implemented under Concertacion rule.
In selecting Eduardo Frei, a former president and son of a
president, as its candidate, the Concertacion signaled, perhaps
unintentionally, that change was not coming from within. Marco
Enriquez-Ominami left the Concertacion and ran as a young
independent on a platform of shaking up the political
establishment. Sebastian Pinera positioned himself between the
two, offering a change in the governing coalition while promising
experienced leadership and continuity in policies.
4. (SBU) In the December 13 election, Pinera won 44.0% of the vote;
Frei, 29.6%; Enriquez-Ominami, 20.1%, and left-leaning Jorge
Arrate, 6.2%, with Pinera and Frei moving on to the January 17
runoff. In the congressional elections held the same day, the
balance of power remained largely the same: Concertacion regained
control of the Senate, while Alianza came out ahead in the Chamber
of Deputies for the first time ever. However, a number of other
measures of political support -- including the total number of
votes cast nationwide for congressional candidates from each
political coalition -- pointed to the Concertacion losing
substantial ground.
5. (SBU) Pinera has a strong advantage going into the runoff. If
he were to win, Chile would see "major changes in faces but not in
policy," in the words of one Pinera advisor. The new government
would have to fill roughly 3,000 positions, and would draw from
center-right supporters in business, think tanks, universities, and
local government. Meanwhile, the Concertacion would face the
challenge of life in the opposition and restructuring its
leadership.
6. (SBU) If Frei were to win, the cabinet would change, although
the turnover would be less dramatic than under Pinera. However,
the Concertacion would still need to define how much to shake up
its leadership. A Frei victory would be incredibly demoralizing
for the Alianza. Pinera is a charismatic, well-funded candidate
who has run an excellent campaign, a sharp contrast to the rather
stiff and unexciting Concertacion candidate and his error-prone
campaign. A Frei win would signal that Chile's voters are simply
not ready for conservative rule and no Alianza candidate -- no
matter how weak his opponent -- is likely to win for some time.
7. (U) The new president will be inaugurated March 11 at the
Congress building in Valparaiso.
United States and Chile as Partners
-------------------------------------------
8. (U) The excellent relations between the United States and Chile
have been strengthened by the close rapport between the Obama and
Bachelet administrations. Vice President Biden's March 2009 visit
to Chile powerfully signaled Washington's interest in engaging with
Chile and the region. President Bachelet's June 2009 visit to
Washington reaffirmed joint efforts to broaden and deepen the
partnership we enjoy with one of the hemisphere's most successful
democracies.
9. (U) The U.S. and Chile have forged a vibrant bilateral
partnership, with strong institutions in both countries ensuring
continued cooperation from the bottom up as well as from the top
down. During President Bachelet's visit to Washington, we signed
agreements on clean energy cooperation and cancer research,
reflecting the breadth of our relationship. The Chile-California
Partnership for the 21st Century, launched by Bachelet and Governor
Schwarzenegger in June 2008, highlights the economic and geographic
similarities between Chile and California and fosters collaboration
in agriculture, energy efficiency, environmental resource
management, and education. Bilateral military and law enforcement
ties are among the best in the hemisphere.
10. (U) The U.S.-Chile Free Trade Agreement (FTA) is a cornerstone
of our relationship. The U.S. is Chile's largest trading partner,
and Chile is our fifth largest trading partner in Latin America.
Bilateral trade has expanded more than 200% (totaling more than $20
billion in 2008) since the FTA went into effect in 2004. Despite
this success, sticking points remain, such as Chile's failure to
implement strong protection for intellectual property rights, as
required by the FTA.
11. (SBU) No matter who wins the presidential election, we fully
expect to maintain excellent relations. Our first focus will be to
establish rapport with the new Chilean officials, building on
existing programs and good ties with members of both the Pinera and
Frei teams. As outlined below, we have some exciting new areas of
cooperation that should quickly draw in our counterparts. In other
areas, notably law enforcement and military cooperation, we expect
strong continuity in our cooperation, with little turnover in the
senior ranks.
Chile on the International Stage
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12. (SBU) Under President Bachelet, Chile has embarked on a more
confident foreign policy and our strong bilateral ties have been
the foundation for increasing joint engagement on regional and
global issues. Bachelet, acting as president pro tempore of
UNASUR, established a moderate tone for President Obama's initial
meeting with regional leaders at the Summit of the Americas. In
the past year Chile has played a constructive role on Cuba's
conditional re-entry into the OAS, the conflict in Honduras, and in
deflating the rhetoric surrounding the U.S.-Colombia Defense
Cooperation Agreement. Chile also maintains a 500-strong
peacekeeping contingent in Haiti.
13. (SBU) A Pinera or Frei government will first focus on
establishing its governing team and domestic policies. The broad
parameters of Chile's foreign policy will remain constant and an
important priority will be the ongoing maritime border dispute with
Peru. Relations between the two countries have soured ever since
Peru filed its dispute with the International Court of Justice
(ICJ) in March 2009. Chile is scheduled to submit its response to
the ICJ in March 2010, but the final ruling will not come until
March 2012. Recent spats have maintained a certain level of
friction in bilateral relations, such as recent Peruvian
accusations of Chilean espionage. Either new president may have
less patience than Bachelet with the behavior of regional populists
and may be more inclined to criticize the weakening of democratic
institutions in the region. Chile will take on the rotating
presidency of the Rio Group in early 2010, and that will be an
important opportunity to establish its tone for regional
engagement.
14. (SBU) In June, the United States and Chile agreed to cooperate
jointly in promoting development in other countries in the region.
We are already working together on infrastructure development in
Costa Rica and agricultural expertise with Central America. We
have agreed to focus on new efforts in Paraguay and El Salvador,
and hope to make enough progress to carry this excellent initiative
into the next Chilean administration. We will need to quickly
engage the new government for several upcoming summits, notably
President Obama's Nuclear Safety Summit and the Energy and Climate
Ministerial of the Americas, both in April in Washington. On the
trade front, Chile is excited about the President's commitment to
participate in the Trans-Pacific Partnership, which will hold its
next meeting in Melbourne in mid-March. The GOC has repeatedly
expressed its interest in joining the G-20 to play a role in
reforming the international financial architecture.
Economic Excellence and Challenges
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15. (SBU) Chile has been rightfully lauded for its excellent
economic policies over the past two decades. President Bachelet
and Finance Minister Velasco built on that reputation with their
skillful management of the Chilean economy during the global
economic crisis. Chile's trade-based economy suffered from the
global contraction in demand, and GDP shrank 1-2% in 2009, while
unemployment crept over 10%. However, the negative effects were
tempered by Chile's strong economic fundamentals and sound
institutions, plus a more than $4 billion stimulus package. The
economy is showing signs of recovery and is expected to grow
4.5-5.5% in 2010.
16. (SBU) Both Pinera and Frei have declared their aspiration for
Chile to achieve developed country income levels in the next 15-20
years. This is feasible, but also a huge challenge. Growth rates
have slowed compared to their neighbors, and Chile's productivity
has actually fallen over the past decade. Chile seems to have
realized most of the initial benefits brought by macroeconomic
stability. The new government will have to undertake a number of
microeconomic reforms to maintain economic momentum, and both
candidates have emphasized the importance of education, innovation,
and labor reform.
17. (SBU) In this context, Chile's accession to the Organization
for Economic Cooperation and Development (OECD) is timely.
Accession is a signature accomplishment for Bachelet and Velasco,
and is acknowledgement of Chile's high quality economic policies.
Furthermore, access to the OECD's expertise and experience can also
help guide Chile's next wave of economic reform necessary to become
a developed country.
Environment and Energy Cooperation
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18. (U) Regardless of Chile's change of administration, we will
continue and enhance our already strong energy and environment
cooperation. Key among these efforts will be promoting policies to
support Chile's renewable energy and energy efficiency sectors,
working with Chile on measures to assist in reaching self-imposed
emission reduction goals, and targeting efforts to promote
environmental management best practices and stewardship.
19. (SBU) Our energy cooperation with Chile is robust. In June,
both countries signed an MOU for cooperation on "Clean Energy
Technologies," one of the first concrete steps taken under the
Energy and Climate Partnership of the Americas announced by
President Obama at the Summit of the Americas. The Department of
Energy is providing technical support to a new Renewable Energy
Center and preparation of two solar pilot plants in Chile.
Numerous U.S. energy and environment experts on biofuels, energy
efficiency, and solar technologies have traveled to Chile recently.
The Department of Energy, under its Global Treat Reduction
Initiative, is working with Chilean authorities to remove highly
enriched uranium from research reactors before the April 2010 Non
Proliferation Treaty Review Conference.
20. (SBU) Chile is actively engaged on energy issues in the
international arena. It is a member of the new International
Renewable Energy Agency (IRENA) and the International Atomic Energy
Agency (IAEA), and has been helpful on Iran non-proliferation
issues. The International Energy Agency (IEA) published an
in-depth review of Chile's energy policies in October 2009. Chile
is already implementing recommendations from this study, including
creating a new ministry of energy. Chile announced at the
Copenhagen Climate Change Conference that it would -- voluntarily
and using primarily its own domestic resources -- reduce greenhouse
gas emissions 20% from their baseline by 2020.
21. (U) We expect to deepen our good cooperation on environmental
issues. On January 20, there will be a meeting of the U.S.-Chile
Environmental Affairs Council and Joint Commission for
Environmental Cooperation to finalize a new cooperative work plan.
Capacity-building will be important to support Chile's new ministry
of environment.
SIMONS