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