PULP MILLS: VAZQUEZ' TRIP EXPOSES HARSH REALITIES

,C O N F I D E N T I A L MONTEVIDEO 000268 SIPDIS SIPDIS DEPT FOR WHA/AS SHANNON AND EB/AS WAYNE DEPT ALSO FOR WHA/BSC BARNES, CROFT AND MURRAY DEPT PLEASE PASS USTR TREASURY FOR OASIA FOR DOUGLAS COMMERCE FOR ITA/MAC BASTIAN NSC FOR FISK AND CRONIN SOUTHCOM FOR POLAD E.O. 12958: DECL: 03/20/2016 TAGS: PREL PGOV SOCI EINV ECON AORC UY SUBJECT: PULP MILLS: VAZQUEZ' TRIP EXPOSES HARSH REALITIES REF: A. MONTEVIDEO 00259 ¶B. MONTEVIDEO 00256 ¶C. CARACAS 0720 ¶D. MONTEVIDEO 0230 ¶E. MONTEVIDEO 0229 Classified By: Charge D'Affaires James D. Nealon for reasons 1.4 (B) and (D) ¶1. (C) Summary: President Tabare Vazquez returned empty-handed from an erratic eight-day tour of regional countries designed to drum up support for Uruguay's position in the serious paper mill dispute with Argentina (ref A). From our point of view, the trip was a disaster, especially his confusing signals out of Venezuela (refs C&D) and his constant flip-flop of positions. More importantly, his inability to convince anyone that the Argentine blockades of the international bridges (now in their 43rd day) -- that violate international law and treaties -- is worrisome in terms of foreign policy capacity and domestic support. The Embassy notes that the loss of the paper mills would be truly catastrophic for this country. Vazquez also faces the stark possibility that Uruguay may be unable to attract massive foreign direct investment to wean it off of its traditional reliance on vulnerable beef exports by diversifying to renewable wood products. Embassy maintains its assessment that Vazquez is a capable and moderate leader who wants closer relations with the U.S. (refs D&E),but that Uruguay may be just too small and weak to stand up against anyone in this tough regional neighborhood. This is a defining moment for the GOU. Should the plants' construction actually be halted for any length of time, the consequences for this government could prove fatal. End Summary. Paper Mills are Vital for Uruguay's Vision of the Future -------------- -------------- ¶2. (C) Despite a seemingly innocuous issue, the pulp mills carry tremendous strategic importance ($ 1.7 billion equivalent to ten percent of GDP) for Uruguay. Already the dispute with Argentina has caused major harm to the country's national pride, economy (estimates range from $200-300 million),and relations with Argentina and Mercosur. Faced with high unemployment and brain drain, the GOU is eager to attract foreign investment, and prides itself on its ""green"" environmental image. ""Uruguay Natural"" is a popular slogan for selling both grass-fed beef and tourism here. This is why Vazquez and the GOU have become increasingly frustrated that no international organization or neighboring country has come to Uruguay's rescue in the ""economic war"" it perceives that Argentina is waging. ¶3. (C) Little wonder then, that Vazquez embarked on a tour of Mercosur and Mercosur-associate countries to drum up support for UrugQ's position in the paper mill dispute. From what we gather, he botched the trip entirely and only succeeded in dividing a previously united domestic constituency. On March 11, in Santiago he prematurely declared ""peace in our time"" after his brief meeting and misfired attempt at magnanimous statesmanship with Nestor Kirchner, and reversed his earlier adamant position that the plants' construction would not be halted. Flushed with ""success"", he then failed to transmit the urgency of the issue in his pull-aside meeting with Secretary Rice. Then in La Paz, after accepting a coca-leaf portrait of guerrilla icon Che Guevara (and learning that folks at home were angry) he reversed himself again, saying that the GOU would not negotiate under pressure. Despite a mini-love fest with Chavez, where he sold off a few ailing parastatals, he failed to garner support for the paper mills from the GOV. Later in Brasilia, Lula offered little visible support and Paraguay's Duarte's was reportedly unable to provide any relief. Ten days after Vazquez began his trip to garner support for Uruguay, nothing much has changed on the ground. The bridges remain blocked --for almost six weeks now-- though the media continues to report that a breakthrough is imminent. Consequences for Vazquez -------------- ¶4. (C) While we are still somewhat puzzled by Vazquez' behavior during the regional trip, we continue to believe that he is a capable and moderate leader who genuinely wants closer relations with the U.S. On March 18, Industry Minister Lepra told the Charge that Vazquez' position on U.S.-Uruguay relations and an eventual FTA remains unchanged. Embassy further believes that Uruguay can serve as a useful bridge to the region, indirectly advance U.S. interests, and that Vazquez can exert some moderating influence on his more radical regional counterparts, as he did during both of Chavez' visits to Montevideo. But we must recognize that the gentle doctor is something of a ""babe in the woods"" when he deals with ex-guerrillas, former union leaders, and golpistas."" While he might want a Chilean-style moderate socialism, they may not. Vazquez is also constrained by ideologues in his coalition government, such as ForMin Gargano and by the size of Uruguay vis-a-vis its powerful neighbors. Vazquez' trip was a disaster in many ways. He came across as prevaricating and raised doubts at home and abroad about his ability to conduct foreign policy, but his behavior is in some ways understandable. The Frente Amplio (FA) government has been overwhelmed by the paper mill dispute and paralyzing bridge blockades that threaten vital national interests. Vazquez is also hamstrung by an old-line Socialist foreign minister who lacks ability and vision in foreign affairs and does not believe in the kind of bipartisan foreign policy that was carried out professionally for generations by the Blancos and Colorados. Comment: Embattled Vazquez Has Few Options -------------- ¶5. Comment: Embassy stresses that the paper mill dispute is perceived here as a life-or-death struggle by this government. The GOU's feckless strategy of threatening (but not taking) Argentina to international or Argentine court rings hollow in the face of an opponent who holds all the cards. (Note: The Charge was privy to and obtained a copy of what is the likely GOU strategy: internationalize the issue, but avoid confrontation with Argentina at all costs. End Note.) What is next in the continuing saga of the paper mill dispute and attendant blockades is unknown, but we are by now convinced that the issue is the most serious challenge yet to face President Vazquez and his Frente Amplio government. Vazquez' failure to gather regional support for Uruguay's plight makes his outreach to the U.S. on trade issues all the more important. End Comment. Nealon