A/S DESUTTER'S AUGUST 18-19 VISIT TO CHILE:

UNCLAS SECTION 01 OF 03 SANTIAGO 001681

SIPDIS

STATE FOR VC, WHA/BSC

E.O. 12958: N/A
TAGS: PREL PGOV PARM EAID MARR HA VE CI SOFA
SUBJECT: A/S DESUTTER'S AUGUST 18-19 VISIT TO CHILE:
SCENESETTER



1. Summary: Following a successful run on the international
stage, Chile is shifting its focus to domestic issues and its
December 11 presidential and congressional elections. Former
Defense Minister and ruling coalition candidate Michelle
Bachelet is the favorite to succeed President Lagos. Chilean
chief executives are legally barred from seeking re-election.
All three main presidential candidates are likely to keep
the country and our relationship on track. Chile's economy
is robust and stable. Chile continues to play a leading role
in Haiti, and is cooperating with us on Venezuela. Military
relations are growing, and President Lagos has expressed
interest in strengthening relations as an element in
modernizing the role of the Chilean military. Chile
continues to partner with us on non-proliferation and
counter-terorism issues of shared concern. End summary.

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FROM APEC TO COMMUNITY OF DEMOCRACIES
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2. Minister of Interior Jose Miguel Insulza's May election as
OAS Secretary General capped a successful six-month run on
the international stage for Chile. During this time, Chile
hosted two high-level international meetings (APEC Leaders'
Week and Community of Democracies Ministerial),concluded (in
December 2004) a productive two-year term on the UNSC, and
maintained a leadership role in Haiti peacekeeping efforts.
Throughout, Chile generally proved to be a reliable and
rational partner for the U.S.

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DOMESTIC SCENE
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3. Chile will hold presidential and congressional elections
on December 11, 2005. This will be Chile's fourth
presidential election since the end of the Pinochet era in

1989. The previous three elections were judged free and
fair, and there is no reason to expect otherwise for the
upcoming one. There are currently four presidential
candidates: the Socialist Party's Michelle Bachelet
(representing the ruling Concertacion coalition); the
Independent Democratic Union's Joaquin Lavin; the National
Renewal's Sebastian Pinera; and the Communist Party's Tomas
Hirsch. (President Ricardo Lagos, who is riding high in the
polls, as incumbent is constitutionally barred from serving
consecutive terms.) Bachelet, the Concertacion's
presidential candidate and former defense minister, is
leading in the polls. She would become Chile's first female
president if she wins. Half the seats in both the Senate and
the Chamber of Deputies are also up for election on December

11. The new president and members of Congress will take
office on March 11, 2006.


4. In recent years, Chile has taken a number of significant
steps to strengthen democratic institutions and deal with the
human rights abuses of the past. In November 2004, the
National Commission on Political Prisoners and Torture
(Valech Commission) issued a landmark report on human rights
abuses during the Pinochet era, and the judicial system
continues to investigate and prosecute a number of human
rights cases. In June, a historic, country-wide judicial
reform went into effect in Santiago, the last of the
municipalities. In July, Congress passed a number of
constitutional reforms designed to increase civilian control
over the military.

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ECONOMY
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5. Chile's economy is the main reason behind President Lagos'
70 percent approval rating. The Chilean economy grew at an
impressive 6.1 percent in 2004 -- almost double the rate in
2003 -- and may do even better in 2005, due in large measure
to a boom in global copper prices. Bilateral trade increased
over 30 percent during the first year of the U.S.-Chile Free
Trade Agreement, and related cooperation on labor and
environmental protection is going well. Chile's inadequate
protection of intellectual property rights remains a
significant sore point, and both sides are anxiously awaiting
better, new market access for beef and poultry. The U.S.
remains Chile's most important source of foreign investment,
although Spain surpassed us in 2004 as the number one
provider of foreign direct investment. Since 1990, U.S.
firms have invested over USD 16 billion in Chile, with a
concentration in the energy, telecommunications and mining
sectors. U.S. companies generally praise Chile's mostly
transparent but close-knit business climate.

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Regional Issues
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6. Chile has been increasingly willing to assume leadership
roles in recent years. Former Minister of Interior Jose
Miguel Insulza was elected OAS secretary general in May. In
Haiti, Chile responded positively to the USG's request for
support in February 2004, and self-deployed a battalion to
Haiti within 48 hours. Chile currently has approximately 600
troops deployed there as part of the UN Mission, and a
Chilean civilian serves as UN Special Representative. In
May, the Chilean Congress voted to extend Chile's troop
deployment for six months to December 2005, with a provision
that the Government can extend the deployment for an
additional six months to June 1, 2006. On Venezuela, despite
its center-left political orientation, the governing
Concertacion coalition is wary of President Chavez. The GOC
shares our frustrations with the Venezuelan leader's
behavior, particularly his non-democratic ways, and is
concerned that his rhetoric and actions (especially regarding
Bolivia) could prove destabilizing for the region. FM Walker
met with the Venezuelan opposition group SUMATE in Santiago
on August 9.

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NON-PROLIFERATION
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7. Chile shares many of our non-proliferation and disarmament
objectives. The GOC supported a number of U.S.-sponsored
initiatives during its tenure on the UNSC and its
chairmanship of APEC. It recently co-sponsored the OAS
MANPADS resolution. The GOC has expressed general support
for PSI, observed Operation Chokepoint in November 2004, and
attended both PSI anniversary events. However, the GOC has
stopped short of endorsing PSI -- either privately or
publicly. The MFA has doubts about its ability to engage in
interdictions given its other treaty obligations. It is
seeking a recommendation from the Defense Ministry, as there
are also Navy operational issues. The Defense Ministry is in
general agreement with the purpose and intent of PSI, but has
expressed concern over its implementation with respect to the
sovereignty of foreign-flagged vessels and particularly the
interdiction and boarding of vessels outside Chilean
territorial waters but within their economic exclusion zone.


8. Chile is a signatory to the IAEA additional protocol.
Chile enforces the United States Coast Guard's International
Ship and Port Facility Security Code (ISPS). Chile is not a
signatory to the Container Security Initiative (CSI) or the
Megaports Initiative. The GOC is considering seeking
membership in the MTCR, the Australia Group, and the
Wassenaar Group.

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MILITARY COOPERATION
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9. President Lagos has expressed interest in strengthening
U.S.-Chile military relations as an element in modernizing
the Chilean military's role and establishing its appropriate
place in Chilean society. There is no Status of Forces
Agreement (SOFA) between the GOC and USG and, due to
political realities, there is little chance of negotiating
one until after the new Chilean administration takes over in
March 2006. That said, the GOC provided limited yet adequate
protections to DOD personnel involved in the seven military
exercises that took place during 2005.


10. The GOC will begin taking delivery in January 2006 of ten
F-16 fighter aircraft -- the first major purchase of U.S.
equipment since our cut-off of military sales during the
Pinochet era. The Army and Navy are also considering
significant purchases of U.S.-manufactured systems. The U.S.
has also provided over $1 million to Chile's topnotch
military training facility for peacekeeping, and has been
working to increase the GOC,s global peacekeeping role.
Chile has contributed small contingents to missions in
Cyprus, Bosnia and Kosovo, in addition to the 600 troops and
engineers in Haiti.

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ARTICLE 98
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11. Chile has signed but not ratified the Rome statute. The
governing coalition supports ratification, but does not have
the votes in Congress. Ratification is not likely until the
composition of Congress changes in March 2006, at the
earliest.

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COUNTER-TERRORISM
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12. Chile remains on the terrorists "least desirable" list in
the hemisphere. The GOC has been supportive of U.S.
counter-terrorism policies, particularly during its time on
the UNSC. Chile is a signatory to all 12 UN anti-terrorism
conventions and protocols, and the UN International
Convention for the Suppression of the Financing of Terrorism.

KELLY