BACHELET'S IDEA OF REGIONAL INTEGRATION: IS IT

C O N F I D E N T I A L SANTIAGO 001675

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/04/2016
TAGS: PREL CI
SUBJECT: BACHELET'S IDEA OF REGIONAL INTEGRATION: IS IT
FOR REAL?


Classified By: Deputy Chief of Mission Emi Yamauchi. Reasons: 1.4 (b an
d d)


1. Summary: Beginning in her campaign last fall, President
Michelle Bachelet made clear she would focus on domestic
issues and improving Chile's relations within the region.
Historical border disputes, the threat of domestic
instability in Bolivia and Peru, economic uncertainty in
Argentina, and Chile's own traditional inward focus have kept
previous Chilean governments from finding serious, long term
allies among its immediate neighbors. Despite its
export-oriented trade success with much of the world, Chile
continues to look for better relations and economic
integration in the Southern Cone. Driving GOC foreign policy
at this point are the "open regionalism" or "regional
integration" themes of the Bachelet administration. End
Summary.

"Open Regionalism"
--------------


2. (U) While President Bachelet has made clear that her
primary focus will be on domestic issues, she made time early
on in her administration to reach out to Chile's neighbors.
Her first Presidential visit abroad was to Argentina. She
has since visited Uruguay, Paraguay, Brazil, Argentina again
(for the MERCOSUR summit),and Peru (for President Garcia's
inauguration). She reportedly has plans to visit Ecuador in
the next few months, and will attend President Uribe's
inauguration in Colombia in August. FM Foxley, Energy
Minster Poniachik, and a number of deputy ministers have also
made early trips within the region. Bachelet has hosted
Bolivian President Evo Morales and Peruvian President-elect
Alan Garcia in Santiago.


3. (U) The GOC's foreign policy, particularly its trade
policy, has not focused on South America in recent years.
Chile has instead sought to develop some of its most positive
relationships outside the region. While that focus will not
likely diminish, there have been very public pronouncements
about trying to integrate Chile's more immediate neighbors
into that approach. In a July speech to the Chilean
Asian-Pacific Foundation, FM Foxley touted a policy of "open
regionalism" in which Chile would improve relations with its
neighbors while still remaining open to the rest of the
world.

A Need for Improvement
--------------


4. (SBU) Due to long standing territorial and maritime issues
with Bolivia and Peru, and recent policy shifts by Argentina
on energy exports, Bachelet may have difficulty cementing
close ties amongst her immediate neighbors. In a recent
survey by Adimark, a reputable non-partisan polling service,
major Chilean business leaders responded that they would
avoid doing business in Bolivia (66 percent),Venezuela (52
percent),Argentina (47 percent),or Peru (43 percent). By
comparison, less than 10 percent said they would avoid
business in Iraq (8 percent),Iran (6 percent),or Haiti (4
percent).


5. (C) A growing rift within Bachelet's ruling Concertacion
coalition on her regional policy has surfaced regarding
political repression in Cuba, Venezuela's bid for a seat on
the UN Security Council, and bilateral commercial discussions
with the governments of Argentina and Bolivia. The one true
bright spot for Chile was the election of Garcia in Peru.
There is every indication that Chile intends to forge closer
and more formal trade and military ties with Peru. Chile
would also like to see Peru become more integrated into APEC,
which dovetails nicely with its version of "open
regionalism."

Regional Relations
--------------


6. (U) MERCOSUR: President Bachelet attended the July 20-21
MERCOSUR summit in Cordoba, Argentina. With the summit
dominated by the Castro-Chavez political agenda, Chile's
press expressed concern about the changing balance of power
in the region. Chavez's entry into MERCOSUR is seen by
Chileans as coming at Brazil's expense. Additionally, there
was some disappointment in the minor role President Bachelet

played at the summit. Bachelet emphasized core economic
principles and "regional integration," but her comments on
her policy of "open regionalism" received very little press
attention.


7. (C) CHILE-BRAZIL: In Chile's eyes, Brazil has been the
most important country in the region, both economically and
politically. With its size, resources, and international
influence, a strong Brazil could lead the region in solving
many of the regional challenges that Chile feels it cannot
surmount on its own. Chileans have expressed concern about
Brazil's loss of influence to Venezuela. Several Chilean
politicians have stated publicly that it is essential for
Brazil and Chile to work together on the direction of policy
in South America. Bachelet visited Brazil in April and has
repeatedly affirmed -- both publicly and privately -- the
importance of the Chile-Brazil relationship. A good example
of the power of Brazil's influence on Chile is the upcoming
vote for Venezuela or Guatemala for the non-permanent UNSC
seat. Brazil's early and public declaration of support for
Venezuela could ultimately be the deciding factor in
Bachelet's own choice.


8. (C) CHILE-PERU: With Garcia as president in Peru, Chile
sees great promise for improved relations. Garcia had a very
positive visit to Chile on June 22, and is known to have
strong personal and political ties to Bachelet's
administration as well as the ruling Concertacion coalition.
He has also expressed interest in reintegrating Chile into
the Community of Andean Nations (which Chile left in 1976).
Further, Garcia's Peru is a logical member of a
Brazil-Chile-Peru alliance to counter Cuba-Venezuela-Bolivia
influence in the region. As Chile increasingly looks to Asia
for trade partners, Peru could be an important partner,
especially within the context of APEC.


9. (U) CHILE-BOLIVIA: Discussion of the Chile-Bolivia
relationship generally centers around Bolivia's demand for
sovereign access to the sea and its subsequent refusal to
sell natural gas to Chile until this access is provided. The
two nations have not had full diplomatic relations since
1978, and Bolivia has gone so far as to call on Argentina to
refuse to sell energy to Chile. The vice-chancellors of
Chile and Bolivia recently agreed to discuss, among other
things, the sea access issue. Bachelet and Morales met
briefly at the MERCOSUR summit, but she has repeatedly stated
that no sovereign Chilean territory will be ceded to Bolivia.
Their discussions yielded no major breakthroughs. While
steps such as the May 1 nationalization of oil and gas caused
concern in Chile, particularly as to how it affected
international perceptions of the region, there is hope in
Chile that Morales will provide Bolivia some much needed
political stability.


10. (C) CHILE-ARGENTINA: Bachelet's decision to take her
first overseas trip as president to Argentina signaled the
relationship's importance to Chile. Although Bachelet and
President Kirchner pledged to work together on a variety of
issues (mining, tourism, culture, and border crossings),it
is Argentina's natural gas policy that overshadows everything
else. Chile imports nearly 90 percent of its natural gas
from Argentina; almost all of it is destined for use by
Chile's industries. Argentina's unilateral cuts of up to 50
percent in the winter of 2005 and again this year heightened
Chile's sense of energy vulnerability. Argentina's
unpredictable moves have left the Chilean Government on the
defensive with everyone from factory owners to average
consumers. Working with Kirchner appears to be ever more
difficult for the Chileans as his quirky and exclusively
domestic focus hinders attempts to bring Argentina and Chile
into a more strategic partnership.

COMMENT
--------------


11. (C) Despite the avowed interest in promoting regional
integration, Bachelet does not seem willing to exert
leadership. She has generally positive relationships with
Garcia in Peru and Lula in Brazil and has kept lines of
communication open with Morales in Bolivia and Kirchner in
Argentina. She is somewhat constrained by Chile's long
tradition of being successful at building strong bilateral
trade relationships outside South America. To help the
region develop into a more unified (and wealthier) block, it

is in our interests for Chile to show some leadership,
especially in multilateral fora.


12. (C) Unfortunately and somewhat inexplicably, Chile has
not made an effort to play up successes that would highlight
its regional focus. The GOC keeps a low profile on matters
such as its peacekeeping deployment in Haiti, having Chilean
Jose Miguel Insulza as the OAS Secretary General or the
Chilean rescue flight that evacuated 114 Latin Americans from
the conflict in Lebanon. Chile rescued its own citizens and
provided door-to-door service from Damascus for Spaniards,
Peruvians, Brazilians and Argentines. Despite the initial
rhetoric of placing a focus on regionalism, it is clear the
Chilean political establishment does not instinctively think
in these terms.


13. (C) Chile is a successful model and could be a strong
leader in the region. However, Chile's ability to lead is
constrained by two factors. First, Chile's ability to think
locally does not come naturally or easily for a country so
trade-focused on the rest of the world. Chile tends to think
and act most comfortably in bilateral fora. Therefore,
developing a regional focus will be something new for Chile.
Second, Chile does not want to be out of synch with Brazil
and Argentina. In that regard, Chile looks to them on issues
such as whom to support for the rotating UNSC seat. While
the words are there, Chile has a long way to go in developing
a consistent, long term policy that will give it the regional
image and relationships Bachelet desires.
KELLY