SCENESETTER AMBASSADOR MAISTO'S VISIT TO URUGUAY

,UNCLAS MONTEVIDEO 000415

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/OAS AMBASSADOR JOHN F. MAISTO, DAN CENTO AND
OLWYN STAPLES
DEPT ALSO FOR WHA/BSC DBARNES, CCROFT AND SMURRAY
DEPT PLEASE PASS USTR RPORTMAN AND EEISSENSTATT
TREASURY FOR OASIA FOR DDOUGLAS
COMMERCE FOR SECRETARY CGUTIERREZ AND ITAITA/MAC/WBASTIAN
NSC FOR DFISK AND SCRONIN
SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: OVIP PREL AORC PGOV SOCI UY
SUBJECT: SCENESETTER AMBASSADOR MAISTO'S VISIT TO URUGUAY



1. (SBU) Summary: Your visit to Uruguay on May 18 comes on
the heels of a very successful May 4 meeting between
Uruguayan President Vazquez and President Bush in Washington.
Uruguay is important to U.S. interests as an example of
temperate, long-standing democracy in a region that has
largely lurched to the populist left. Vazquez stated that he
seeks expanded trade ties with the U.S. While he is
sometimes hesitant to use the words "Free Trade Agreement" in
public, has also stated that if expanded trade with us means
an FTA, so be it. Uruguay has also expressed general
frustration with the Mercosur trading bloc -- and in
particular Mercosur's unwillingness to resolve Uruguay's very
serious papermill dispute with Argentina. Vazquez is a
pragmatist above all, and what he most wants for Uruguay is
jobs, investment and growth. At home and abroad he has been
caught between the competing demands of radicals and
moderates who vie on how best to achieve his goals. End
Summary.

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Background
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2. (SBU) Domestic politics: Vazquez and his coalition Frente
Amplio (FA) Government completed their first year in power on
March 1, with generally high marks (reftel). Polling in
January estimated that Vazquez enjoyed a 54% approval rating.
It is apparent that his adroit and pragmatic leadership along
with Uruguay's strong institutions and the basically
conservative nature of its society prevented the radical tilt
some observers predicted during the 2004 electoral campaign.
The President seems to prefer the term "progressive" rather
than "leftist" to describe his administration. Looking back,
Vazquez' campaign promise to "shake the trees to their roots"
has meant more in terms of rejecting outdated socialist
thinking than anything else. The moderates in his cabinet
generally have the upper hand, and Vazquez has been more
challenged by the radicals within his FA coalition than he
has by the two discredited opposition parties (Blancos and
Colorados) who ruled the country during the past century. In
his efforts to be practical, Vazquez relies on a relatively
small cadre of experienced officials to get things done. A
key ally in domestic politics has been AgMinister and
ex-Tupamaro guerrilla leader Jose Mujica, who has often
countered the ideologues on the far-left. Vazquez was also
able to appease many radicals by addressing the human rights
abuses committed during the "dirty war" period of the
military dictatorship and by finding the buried bones of
disappeared persons. His leadership style is now
predictable: he stays above the fray and allows competing
factions in the FA to debate an issue to exhaustion and then
weighs in with a final decision. This method will be sorely
tested in 2006 as the GOU attempts to reform taxes,
education, and defense -- and possibly faces an eventual
showdown with powerful communist-dominated labor unions.


3. (SBU) Foreign policy has been a formidable challenge,
compounded by the stubbornly ideological, anti-US Foreign
Minister Reinaldo Gargano. By far, the GOU's most serious
problem has been the severe bilateral dispute with Argentina
over the construction of paper mills on the shared Uruguay
river -- not only because of soured bilateral relations with
Uruguay's closest neighbor, but also because of the
implications to foreign investment, an independent foreign
policy, and Mercosur. Uruguay has a heavy debt burden and no
known hydrocarbon deposits, so that Venezuelan oil and money
provide considerable temptation for boosting the economy.
However, Vazquez appears to model himself more after Chile's
ex-President Ricardo Lagos, and his mild leadership style
stands in sharp contrast to the populist bombast of Hugo
Chavez, Nestor Kirchner and Evo Morales. His well-qualified
economic team, headed by Economy Minister Danilo Astori and
Industry Minister Jorge Lepra, pursues prudent and sensible
macroeconomic policies and further reflects his
administration's pragmatic emphasis. As much of the region
has lurched to the left, Vazquez has gone out of his way to
seek good relations with the U.S., and Uruguay remains a
stable anchor in a storm-tossed region.

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Issues Likely to Surface
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4. (SBU) We expect that President Vazquez would actively
engage in a discussion of how regional political and economic
trends may develop in the years to come and the U.S. vision
for the region. Vazquez will be open to commenting on Hugo
Chavez, Fidel Castro, Evo Morales and Nestor Kirchner, etc.
Soliciting Vazquez' views of China and the EU may also be
useful. Foreign Ministry officials will be more willing to
discuss non-regional relationships, for instance with Iran
and the EU. They will also gladly engage in discussions on
Argentina, Bolivia, the OAS, and various multi-lateral
issues.


5. (SBU) President Vazquez' stated interest in closer trade
ties with the United States has implications for Mercosur.
The FM, more than other parts of the GOU, tends to value the
relationship with Mercosur quite highly. A follow-up meeting
of the Joint Commission on Trade and Investment (JCTI) which
met in April is scheduled for October in Uruguay. The
administration has stated publicly that it hopes to present
some sort of expanded trade agreement at that time. FM
Gargano has threatened to resign if the GOU begins
negotiations of an FTA.


6. (SBU) The paper mill dispute with Argentina is Uruguay's
most pressing foreign policy problem. The dispute over one
Finnish and one Spanish pulp mill under construction on the
Uruguayan side of the Uruguay River, is an issue of paramount
national interest. The proposed $1.7 billion investment is
equivalent to 10% of Uruguay's GDP. Argentine government
officials, some local inhabitants and environmental activists
claim the plants would harm fishing, farming, and tourist
areas along the Uruguay-Argentina border. Protesters from
Argentina have blocked bridges between Argentina and Uruguay
off and on since the first of the year at great cost to
Uruguay's trade and tourism revenues. An independent review
of the preliminary World Bank environmental impact study
(CIS) reports that these concerns appear exaggerated, since
the plants use the latest EU technology. Uruguay has recently
complained at the OAS and pressed its case with the World
Bank. On May 4, Argentina filed a case with the World Court
in opposition to the construction of the paper mills.


7. (SBU) Uruguayan fugitive Juan Peirano Basso is sought by
Uruguayan authorities for stealing hundreds of millions of
dollars from bank depositors. Peirano was given Legal
Permanent Resident status in the U.S., but Uruguayan and U.S.
authorities have since worked closely towards his eventual
arrest and possible extradition.


8. (SBU) Uruguay has no known hydrocarbons deposits and is
seeking energy supplies from Bolivia and Venezuela, which is
using this vulnerability to expand its exports of oil and is
seeking to take an interest in Uruguay's refinery. Uruguay
currently buys 50 pct of its oil from Venezuela under
favorable terms. Venezuela has said that it wants to
participate with Uruguay in a proposed gas pipeline from
Bolivia that would pass through Paraguay and Brazil, but
exclude Argentina. We can recognize Uruguay's need for
reliable energy supplies, while pressing the GOU to enter
into agreements that are market-based and do not come with
political strings from Caracas. The GOU's reaction to Evo
Morales' nationalization of hydrocabons in Bolivia is not yet
clear.

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Comment
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9. (SBU) Given your compressed schedule in Uruguay, your
remarks to the press will be especially important. You are
well and favorably known to the Uruguayan media from your
previous visits. You will have ample opportunity to speak on
the role of the OAS, the Summit of the Americas (SOA),the
hemispheric social charter, transparency in government and
the effect of modern knowledge-based society on governability
and development. End Comment.
Nealon