A CONFIDENT BACHELET - AND CHILE - RIDING OUT THE

C O N F I D E N T I A L SANTIAGO 000922 SIPDIS E.O. 12958: DECL: 10/13/2018 TAGS: PGOV PREL CI SUBJECT: A CONFIDENT BACHELET - AND CHILE - RIDING OUT THE STORM REF: A. SANTIAGO 919 AND PREVIOUS ¶B. SANTIAGO 912 AND PREVIOUS Classified By: Ambassador Paul E. Simons for reason 1.4 (b and d). -------------- Summary -------------- ¶1. (C) Bachelet's top domestic affairs advisor told the Ambassador October 14 that "rainy day" policies implemented by the President had positioned Chile well to weather the current global financial downturn. Bachelet's standing with the Chilean public had also been enhanced by her good showing in recent international fora, including UNGA in September, and in promoting UNASUR's intervention in the Bolivian crisis. October 2008 municipal elections would likely show Bachelet's governing Concertacion coalition losing some ground, but not enough to jeopardize its ability to hold on to power in 2009 presidential elections. End summary. ¶2. (U) The Ambassador, joined by E/Pol Counselor, met with Francisco Diaz, President Bachelet's senior domestic political affairs advisor, to discuss upcoming nationwide municipal level elections (widely considered a harbinger for next year's presidential and congressional elections),as well as Diaz's views on the ongoing global financial crisis. -------------- Shelter From the Storm -------------- ¶3. (C) After the Ambassador noted, as reported ref A, that Chile seemed to be managing well the fallout from the financial crisis, Diaz replied the GOC continued to monitor the situation very closely and still worried about a possible uptick in unemployment, its greatest concern. So far, he continued, while there has been little job creation, thankfully there also has been no noticeable decrease in jobs ("unlike during the 1999-2000 Asian crisis"). The crisis was not resulting in increased bankruptcies, and while some new investment seemed to be on hold, projects underway appeared unaffected, including infrastructure and construction projects. Small and medium business firms are "holding steady." Inflation remained "under control." ¶4. (C) Diaz attributed Chile's relative ability to withstand the global downturn to Bachelet's decision in 2006 to save surpluses generated by then high copper prices, a step for which she had been much criticized, "including by those within her own party" who had wanted to see the money spent on social programs. Now, Diaz said, her fiscal probity was 
paying dividends. He noted that the GOC was able to finance, for example, 200,000 new pensions despite the crisis, even nearly doubling payments from CHP 38,000/m (USD 63) to CHP 75,000/m (USD 125). -------------- Bachelet Riding High -------------- ¶5. (C) Diaz said that Bachelet's poll numbers has been steadily tracking upward, which he attributed both to domestic successes (including the charismatic President's ability to connect with people during last month's national day celebrations) as well as increased and successful appearances in international fora. Diaz, along with international affairs advisor Marcos Robledo, had drafted Bachelet's well received September 2008 remarks at Harvard. The President's emergency convocation in Santiago of UNASUR heads of state (ref B) to deal with the Bolivia crisis had also burnished her leadership credentials and would pay an additional dividend to the governing coalition Concertacion in the upcoming municipal elections. ¶6. (C) Diaz predicted that while Concertacion might lose a few mayoralties nationwide in the October 26 municipal elections, it would hold on to most, if not all of the so-called "emblematic" offices in major cities. He thought the opposition center-right Alianza could chip 3-4 percent off of Concertacion's 10 point overall margin in the 2006 municipal elections, but this could still be construed as a victory by Concertacion. Diaz conceded the Ambassador's observation that Alianza might paint it otherwise, and that the election would be "won or lost" in the media analysis afterwards. Diaz nonetheless sounded pleased, saying that he was personally involved in the campaigns of several young candidates in the Santiago region who he believed would do surprisingly well. ¶7. (C) E/Pol Counselor asked if the on again/off again candidacy for the presidency of former president Ricardo Lagos (who in the past two weeks has issued conflicting statements about his availability) was problematic for the Concertacion. Diaz said Bachelet would back a sole, consensus candidate. In his view, Lagos would give Concertacion heavyweights Jose Miguel Insulza ("my candidate," said the Socialist Diaz) or Eduardo Frei (Christian Democrat) six to eight months to "define themselves." But if March 2009 comes along and Lagos remains the only candidate in the polls seemingly capable of defeating likely Alianza candidate Sebastian Pinera, then that fact will "change minds" within Concertacion. -------------- Comment -------------- ¶8. (C) Bachelet had been written off months ago by many commentators as a "lame duck," ineffective, unsure of herself, and likely to lead Concertacion to its first electoral defeat since the return to democracy. With approval ratings now in the high-forties and even low-fifties (as opposed to mid-thirties in early 2008) she has rebounded nicely, helped by her government's ability to weather so far the international financial crisis, as well as her own ability to project an image of moderate statesmanship in the Bolivian matter. It remains to be seen if that translates into votes for Concertacion - whose own polling numbers remain dismally low (as does the opposition's) - in the 2008 and 2009 elections. End comment. SIMONS