CHILE: BOLIVIA GAS NATIONALIZATON PROMPTS

C O N F I D E N T I A L SANTIAGO 000908

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/03/2016
TAGS: ECON ENRG EPET EINV PREL CI BL BR CU VE
SUBJECT: CHILE: BOLIVIA GAS NATIONALIZATON PROMPTS
POLITICAL CONCERNS


Classified By: Ambassador Craig A. Kelly for Reasons 1.4 (b and d).


1. (C) Summary. Chile's government has reacted cautiously in
public to Evo Morales' move to nationalize Bolivia's natural
gas. Chile's media has reported unemotionally on the events
in Bolivia, but editorials have expressed concern about
regional effects. In private, Chilean officials are worried.
They mention Brazil and Argentina's reaction to what some
Chilean officials see as Cuban and Venezuelan influence on
Bolivia. Chilean officials are also worried about how
foreign investors will asses regional risk factors, but see
no immediate direct impact for Chile. End summary.


2. (U) Chile's major dailies ran largely unemotional
reporting May 2-3 on the decision of Bolivian President Evo
Morales to nationalize natural gas. Editorialists, however,
expressed concern about how the move would affect the region.
Conservative, independent daily "La Tercera" called the
details of the nationalization much harsher than foreign
companies had expected. The also conservative flagship daily
"El Mercurio" emphasized Morales' conspicuous use of the
military to occupy the gas fields, and noted Morales'
purported plans to nationalize mining and forestry as well.


3. (SBU) Publicly, the Government of Chile has reacted
cautiously to Morales' decision. Foreign Minister Foxley did
not openly criticize the Bolivian move, but commented that
Chile's own model was "based on a global and open market
economy." Foxley also expressed concern that the region's
integration efforts were now being questioned and "some
efforts were even in crisis." Foxley mentioned the regional
energy integration ring, and said Chile would continue to
seek its creation. Other government sources have been quoted
in the press as saying Morales' nationalization
"crystallizes" two regional axes, with Chile, Brazil and
Uruguay facing a more radical bloc formed by Venezuela, Cuba
and now Bolivia.


4. (C) In private, Chilean officials are more worried. In a
May 2 meeting with the number three official at the Foreign
Ministry, Carlos Portales, the Ambassador asked about Chile's
reaction to Morales' decision. Portales related that during
meetings in Buenos Aires at the end of April, he had
discussed Bolivia at length with his Argentine counterparts.
Portales said Argentina shared Chile's concerns about the
direction Bolivia was taking, and that many countries in the
region did as well. He said the Argentines did not have much
investment in Bolivia but were still worried about the
deteriorating relationship between the Bolivian government
and the private sector.


5. (C) Econoff spoke with two diplomats working in the
economic directorate at the Foreign Ministry (MFA) and both
expressed more concern for the political fallout in the
region rather than the economic implications for Chile.
Claudio Rojas (protect),chief advisor to MFA Economic
Director General Carlos Furche, said Chile's diplomatic
representatives in La Paz had sent the full text of the
presidential decree to Santiago for analysis. That analysis
was underway and so far the GOC had found the decree to be
"consistent" with international law. Rojas called the
Bolivian move "not traditional nationalization." He hoped
the decree's dictates were not final, and that there was
still room for negotiation for the foreign firms involved.


6. (C) Rojas said the GOC was worried about regional
political implications. By this he said he meant Brazil's
reaction. He said Brazil will "rightly see Venezuela and
Cuba behind the Bolivian decision." Rojas expected further
Brazilian anger with the Castro/Chavez/Morales bloc. Rojas
cited press reports in Chile that had the Government of
Brazil calling Bolivia's step "an unfriendly act."


7. (C) Rojas said some in the GOC were concerned that by
virtue of having a left-center government, Chile was in
danger of being lumped together in people's minds with
Morales' Bolivia. He said this was a perception Chile keenly
wished to avoid. As for an immediate effect on Chile, Rojas
did not see one. He acknowledged Chile was in a "delicate
energy situation" and thus anything that affected the
regional energy base could also affect Chile. However, he
remained more concerned about the short-term regional
political fallout then the long-term potential economic
effect on Chile.


8. (C) Chilean diplomat Andres Lamoliatte (protect),
currently assigned to implementing the U.S.-Chile Free Trade
Agreement, had a similar reaction on the effect on Chile. He
noted Chile had no direct connection to Bolivian gas, with no
Chilean investments in the fields and no gas shipments from
Bolivia. That being said, Lamoliatte said the Bolivian
nationalization was a long-term issue for Chile itself but
one that would hurt Brazil immediately. He called the
nationalization "not a good step for Bolivia" and "a little
crazy." He felt strongly that Morales' decision would affect
the Cuba-Brazil and Venezuela-Brazil relationships first and
foremost. He did not think Bolivia had thought through the
ramifications of its actions.
KELLY