SCENESETTER FOR TRIP TO URUGUAY OF DASD STEPHEN JOHNSON AND

UNCLAS MONTEVIDEO 000587 SENSITIVE SIPDIS FOR DAS MCMULLEN AND DASD JOHNSON FROM AMBASSADOR BAXTER STATE ALSO FOR WHA/BSC DASCHBACH E.O. 12958: N/A TAGS: OVIP PREL ECON UY SUBJECT: SCENESETTER FOR TRIP TO URUGUAY OF DASD STEPHEN JOHNSON AND WHA DAS CHRISTOPHER MCMULLEN, OCT 27-30, 2008 REF: MVD 583 AND PREVIOUS ¶1. (U) This telegram is sensitive but unclassified, and not for Internet distribution. SUMMARY - - - - ¶2. (SBU) Your visit comes at a time of strong and growing engagement between the U.S. and Uruguay's left-leaning Frente Amplio (FA) coalition government. Our areas of focus include trade, education, science and technology, and counter-narcotics cooperation. Our military-to-military relationship is also prospering, with increasing cooperation as Uruguay's armed forces assume a wider regional profile. The bilateral relationship overall is solid, and local polling shows that over 55 percent of Uruguayans have a positive image of the U.S., a favorable percentage for the region and up from just 36 percent in 2003. We are working with all segments of Uruguayan society to ensure a continuation of those positive circumstances beyond the 2009 presidential and legislative elections, campaigning for which has already begun. End Summary. Uruguay Today - - - - - - - ¶3. (U) Uruguay is a stable, democratic nation of 3.3 million people, almost half of them residing in its capital, Montevideo. Uruguay is one of Latin America's wealthiest and most egalitarian countries, despite a four-year long severe recession that ended in 2003, cut personal income nearly in half and lowered Uruguay's historically excellent socio-economic indicators. Current Politics - - - - - - - - - ¶4. (SBU) President Vazquez has charted a moderate course since taking office after the Frente Amplio's first-ever victory in October 2004. Until its rise from opposition, the FA rallied its followers with considerable anti-U.S. rhetoric, and both the USG and the FA were unsure how the relationship would proceed when the FA came to power. However, President Vazquez has consistently demonstrated a desire for strong relations with the U.S. and a willingness to pursue a cooperative agenda to that end, including active trade discussions with the USG. ¶5. (SBU) With national elections in October 2009, the Vazquez administration is coming into its home stretch. President Vazquez maintains high approval ratings, and his handling of the FA coalition of disparate parties is widely admired. He is determined to ensure his legacy as a moderate and practical head of state, as well as position his party for the 2009 elections. A March 2008 cabinet shake-up eased out ideologues, put in technocrats, and placed a new emphasis on a more stable and balanced foreign policy. Vazquez' program also focuses on social and labor policies. Our bilateral relationship under Vazquez has been productive, but election-year politics -- jockeying within each party for its presidential candidacy has already begun in earnest -- might limit the public profile of our cooperation over the next year. Political System and 2009 Presidential Candidates - - - - - - - - - - - - - - - - - - - - - - - - - ¶6. (U) Uruguay's constitution institutionalizes a strong presidency, subject to legislative and judicial checks. The constitution also provides for a bicameral General Assembly (congress). A 30-member Senate and 99-member Chamber of Deputies comprise the General Assembly. Uruguay's presidents and members of both houses of congress serve five-year terms. ¶7. (U) There are three major political parties in Uruguay: the ruling Frente Amplio; the National (Blanco) Party; and the Colorado Party. The two traditional parties, the Blancos and Colorados, were founded in the early 19th century and are among the oldest political parties in the world. Throughout most of Uruguay's history, they garnered about 90 percent of the vote, with the Colorados usually in power and Blancos as the traditional opposition. That dominance was challenged with the founding of the Frente Amplio in 1971. The status quo was further unsettled after the economic crisis early in this century, which occurred under a Colorado president and served to relegate the party to Uruguay's political wilderness. The FA won Uruguay's last presidential elections with 50.7 percent of the vote, followed by the Blancos with 34.1 percent and the Colorados with 10.3 percent. There is also an Independent Party that polls at only 1-2 percent, but which is a possible factor in the 2009 elections. ¶8. (U) There will be an election -- roughly equivalent to a one-day distillation of the U.S. primary process -- in June 2009 that will determine the selection of presidential candidates from the Blanco and Colorado parties. It is not yet known whether the FA will be able to come to consensus on a single candidate before the primaries (as traditionally is the case). A 1996 constitutional reform introduced a runoff election between the top two vote-getters if no candidate receives over 50 percent of the overall vote, and most observers believe a run-off between the FA and Blanco candidates to be the likely result of the first round of presidential elections in October, 2009. ¶9. (SBU) Front runner candidates for the upcoming elections have emerged, and they are already fully engaged in maneuvering toward June 2009 party primaries. FRENTE AMPLIO Two candidates, Danilo Astori and Jose Mujica, are expected to comprise the FA ticket, and are now in a heated debate over which of them will lead that ticket. - Danilo Astori: Former Economy and Finance Minister Danilo Astori is now identified with sweeping tax reform that includes a new income tax highly unpopular with the middle class. He has been a leading proponent of deepening economic ties with the U.S. Astori has President Vazquez's support. - Jose Mujica: Senator Jose Mujica is a former guerrilla and the leader of the far-left Movimiento de Participacion Popular (MPP). His populist message has made him the favorite within the Frente Amplio. However, Mujica's history makes many analysts question his electability in general elections. NATIONAL (BLANCO) PARTY - Jorge Larranaga: Senator Jorge Larranaga is the former administrator of one of Uruguay's most important provinces, Paysandu. He represents the center/left movement within the party, which emphasizes a strong state. He recently stepped down from his post as head of the party. -Luis Alberto Lacalle Herrera: Senator Lacalle is a lawyer, rancher, former President of the Republic (1990-95),former Congressman (1972-73),and Senator (1984-89). His faction is considered more to the right of Larranaga's on the political spectrum, but he employs a centrist message. COLORADO PARTY - Pedro Bordaberry: Bordaberry, son of former President of the Republic Juan Maria Bordaberry (1972-77),is the current frontrunner. He is regarded as dynamic and hard working. He has little chance of overcoming the association with his father, whose presidency led to the military dictatorship of 1973-85. However, his candidacy may serve to increase the size of the vote (and subsequent Parliamentary representation) of his party. Current Economic Situation - - - - - - - - - - - - - - ¶10. (SBU) Uruguay's economy has recovered well over the four years following its economic crisis, thanks in large part to implementation of sound economic policies. Today, GDP per capita is approaching $7,000, and the GOU repaid its entire IMF debt early. That's the positive news. On the negative side, however, are plummeting world prices for its key commodity exports such as beef, wheat, rice and soybeans. Uruguay is a major agricultural producer relative to its size, and agriculture and agro-industry account for 23% of GDP and over 75% of total exports. GOU officials are watching carefully manufacturing layoffs, a return of expatriates from Europe, and reserves. ¶11. (U) Uruguay is much better positioned economically now than it was during the 2002 crisis. That downturn was precipitated by a devaluation of the Brazilian Real (and was later exacerbated by Argentina's economic meltdown),and came at a time when Brazil and Argentina purchased two-thirds of Uruguay's exports. Since then, Uruguay has diversified its export destinations. Brazil's currency is sliding again, but Brazil and Argentina together only account for 30 percent of current Uruguayan exports. Issue: Uruguay's Tax Regime - - - - - - - - - - - - - - ¶12. (U) Tax system reform and instituting a personal income tax were central campaign themes for the FA. A comprehensive tax reform took effect in July 2007. The reform simplified the tax system by eliminating some taxes and consolidating others, cut the VAT from a general rate of 23% to 22% and cut corporate income tax from 30% to 25%. The reform also imposed an income tax on all incomes generated in Uruguay. Incomes from capital gains are taxed with a flat 10% rate, and other income, including pensions, are taxed with progressive rates ranging from 10% to 25%. Even with the reform Uruguay's tax system will continue to rely heavily on the VAT. Opposition parties have been critical of the income tax, arguing that it imposes an unfair burden on the middle class. Foreign Policy - - - - - - - - ¶13. (SBU) The March 1, 2008 replacement of anti-American Foreign Minister Gargano with the President's close advisor Gonzalo Fernandez has strengthened opportunities for improved U.S.-Uruguayan relations. Uruguay is also working to reestablish its traditional role in international institutions. Uruguay is the largest contributor to peacekeeping missions in the world, on a per capita basis, and currently has substantial deployments in Haiti and the Congo. ¶14. (SBU) Uruguay receives assistance from Venezuela in the form of subsidized oil, but chooses to stay relatively quiet on Venezuelan issues. Even when in disagreement with Venezuelan policy, the GOU tends to keep a low profile. President Vazquez visited Cuba in June. Cuba sends many doctors to work in Uruguayan hospitals, a fact praised by supporters of the Castro regime but controversial to others as issues such as medical accreditation and safety have been raised. Iran maintains an active commercial section at its embassy, and Uruguay exports a significant amount of high-quality rice to Iran. ¶15. (SBU) Relations with Argentina have been frosty, mainly as a result of a two-year dispute with Argentina over a paper pulp mill on the Uruguayan side of the Uruguay River. The USD 1.2 billion mill, owned by Finnish Botnia, employs 2,500 persons at the plant or in related industries and significantly boosts Uruguayan GDP. The plant began production in November 2007 and boasts the highest level of pulp production in the world and the latest environmental protection technology. Argentina sued Uruguay in the International Court of Justice (ICJ) in 2006 (a verdict is expected in the coming months) and Argentine protesters have blockaded bridges between the two countries for more than two years. Military Overview - - - - - - - - - ¶16. (U) The Uruguayan military of 25,000 men and women can be characterized as a small, professional and proud force. With approximately 60% of the military members having served in peacekeeping missions outside the country, the military has a professionalism that is not seen in many nations in Latin America. Many of the officer corps, besides having experience in missions abroad, have the opportunity to attend military courses in Latin America, the United States, Europe and recently the People's Republic of China. ¶17. (U) Their professionalism also leads the Armed Forces to be more independent and pragmatic when it comes to offers for Security Assistance and bilateral cooperation. The military ensures that its military cooperation and exercises are in sync with the national foreign policy of non-intervention, peaceful solution of controversy and self-determination. This is the lens through which each offer from the U.S. to participate in an exercise and event is filtered. The size and the relative lack of resources also make the Uruguayan Armed Forces very pragmatic when it comes to Security Assistance. As ASPA sanctions diminished USG contributions of equipment and training, Uruguay shifted to Russia, Europe and Canada for equipment and to Europe, Latin America and the People's Republic of China for military training. ¶18. (U) The military is slowly accepting an apolitical role in the new government. After the end of the military dictatorship in 1985, the Armed Forces returned to the barracks and supported democracy and the civilian leadership. This support and acceptance was considerably easier under the Blanco and Colorado party leadership, since most of the officers are members of those parties. The military is coming to grips with serving a political leadership that the majority did not support during the elections and has steadily built a working relationship despite philosophical differences. ¶19. (U) The Army is the predominant force of the Armed forces with over 17,000 of the approximately 25,000 in uniform. The Army commands most resources and is the only service with bases outside the Montevideo area. The Navy has more influence than their size would dictate and the Air Force is not as influential as the other two services at the national level. ¶20. (U) The major political military issues in Uruguay are the increase of MOD control and transparency, the difficulties of reduced resources for the Armed Forces, continuing Peacekeeping operations support and the Armed Forces mission redefinition. PKO Participation - - - - - - - - - ¶21. (U) Uruguay does not have problems finding enough troops and military observers to staff UN peacekeeping missions. Although we have received inquiries from the Minister of Interior, providing police for any UN peacekeeping mission would be difficult due to domestic political concerns about crime. Uruguay is likely to maintain its unmatched per capita contributions to PKO, but is unlikely to take on new deployments due to a lack of capacity to provide additional troops. The Minister of Defense has on several occasions remarked that Uruguay will not deploy forces to Darfur/Chad. ¶22. (U) Officials also complain that the UN is months in arrears on PKO payments for salaries and equipment. This places a heavy burden on the cash-strapped armed forces here and limits the Armed Forces' ability to provide equipment since it involves a large expenditure prior to the deployment. Update on Other Key Areas of Bilateral Cooperation - - - - - - - - - - - - - - - - - - - - - - - - - - ¶23. (SBU) Military-to-Military: In September, Uruguay and the U.S. Army co-hosted the PKO South 2008 Decision-Making exercise in Uruguay. That exercise involved over 200 multinational troops, and was the first time Uruguay hosted the training. Eleven separate Humanitarian Assistance Program (HAP) projects were completed in the last year or are ongoing, involving USD 772,000 in 2007 and USD 797,000 in 2008. Those funds are directed towards emergency operations centers, a disaster relief warehouse, and many small projects including the purchase of medical equipment and computers for schools. In another example, representatives from SOUTHCOM's Office of Science and Technology and the Office of Naval Research composed part of the delegation accompanying U/S Paula Dobriansky on her July visit to Uruguay, which led to commitments to pursue joint data sharing activities and bioinformatics programs. MOD Bayardi's July meetings with SecDef Gates and others in Washington and Miami allowed him to give a very positive press interview regarding the 4th Fleet, in which he accurately explained the fleet's mission and scope. ¶24. (SBU) Science and Technology: In April 2008, the USG and GOU signed a Science and Technology agreement that outlined a broad array of areas for increased cooperation. In July 2008, State Under Secretary Dobriansky led a science and technology fact-finding mission to Montevideo, which led to the launching of several projects and exchanges. Foremost among these is a National Cancer Institute commitment to establish an extensive cancer research program in Uruguay. In a follow-up meeting in September 2008, U/S Dobriansky and FM Fernandez reconfirmed their intention to further scientific cooperation and designated the following priority areas: biofuels and alternative energy; biomedical and behavioral research; experimentation, response tools, and advanced technologies; agriculture; measurement standards; basic and cross-cutting science; meteorology and hydrology; fisheries and marine science; and other capacity building opportunities. More specifically, we signed a bilateral Memorandum of Understanding on biofuels cooperation in September 2008, and in October 2008, the Uruguayan Antarctic Institute extended an offer to host U.S. scientists on 2009 research missions to Antarctica. ¶25. (SBU) Counter-Narcotics: Ambassador Baxter and Jorge Vazquez, Uruguay's Chief of the National Counter-narcotics Council (and the president's brother),signed a bilateral Letter of Agreement on counter-narcotics cooperation September 25. The Embassy's counter-narcotics team, represented by State, DOD, and regional representatives from DEA, DHS, and FBI, followed up by meeting on October 7 with Uruguay's counter-narcotics commission, composed of vice ministers from relevant ministries and top officials from Uruguay's drug-fighting agency. The Embassy team offered ideas about how both sides could most effectively interact, and the GOU committed to deepening cooperation and detailing Uruguay's specific counter-narcotic deficiencies and needs. BAXTER