Identifier
Created
Classification
Origin
09MONTEVIDEO121
2009-03-03 16:23:00
CONFIDENTIAL
Embassy Montevideo
Cable title:  

URUGUAY: PRESIDENT VAZQUEZ TO TRAVEL TO BRASILIA

Tags:  PREL PGOV ECIN EINV ETRD 
pdf how-to read a cable
VZCZCXYZ0019
RR RUEHWEB

DE RUEHMN #0121/01 0621623
ZNY CCCCC ZZH
R 031623Z MAR 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 8847
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEAIIA/CIA WASHDC
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RHEBAAA/USDOE WASHDC
C O N F I D E N T I A L MONTEVIDEO 000121 

SIPDIS

FOR WHA/BSC MARY DASCHBACH

E.O. 12958: DECL: 03/02/2019
TAGS: PREL PGOV ECIN EINV ETRD
SUBJECT: URUGUAY: PRESIDENT VAZQUEZ TO TRAVEL TO BRASILIA
TO MEET LULA MARCH 10

REF: A. A) BRASILIA 0253

B. B) BRASILIA 128

Classified By: CDA ROBIN MATTHEWMAN, FOR REASON 1.4 ((B)

Summary
- - - -

C O N F I D E N T I A L MONTEVIDEO 000121

SIPDIS

FOR WHA/BSC MARY DASCHBACH

E.O. 12958: DECL: 03/02/2019
TAGS: PREL PGOV ECIN EINV ETRD
SUBJECT: URUGUAY: PRESIDENT VAZQUEZ TO TRAVEL TO BRASILIA
TO MEET LULA MARCH 10

REF: A. A) BRASILIA 0253

B. B) BRASILIA 128

Classified By: CDA ROBIN MATTHEWMAN, FOR REASON 1.4 ((B)

Summary
- - - -


1. (C) President Vazquez plans to travel to Brasilia March 10
for a meeting with President Lula. That summit is expected
to produce agreement on several issues, according to FM
Gonzalo Fernandez, including commitments to eliminate a
longstanding tariff problem between the two countries and to
increase the amount of electrical energy flowing from Brazil
to Uruguay. Other items on the agenda include moving toward
the use of national currencies in the conduct of bilateral
trade, the possibility of Uruguay entering into a currency
swap arrangement with Brazil (of the type Brazil agreed with
the U.S.),and facilitating the entrance of Uruguayan goods
into Brazil's production and distribution networks. Many
Uruguayans are hoping that the confluence of the positive
Lula/Vazquez personal relationship with external
circumstances bolstering the Brazil/Uruguay relationship will
allow the March 10 meeting to show tangible results. End
Summary.

Old Friends
- - - - - -


2. (U) Uruguayan President Tabare Vazquez will visit Brasilia
March 10 for a summit with Brazilian President Lula (we
understand from the Brazilian ambassador to Uruguay that
Brazil suggested an early date so that the two leaders could
coordinate prior to Lula's trip to the U.S.) The two leaders
are in regular contact, and this summit will be the fifth
such bilateral meeting since Vazquez took office in March

2005. Included in that series of meetings was Vazquez's
first trip abroad as president, when he visited Lula less
than a month after taking office. On a less formal basis,
Lula and Vazquez also flew together to the northern Uruguayan
Department of Paysandu to inaugurate a brewery the day after
Vazquez's inauguration. To set the stage for the summit,
Minister of Foreign Affairs Gonzalo Fernandez and Minister of
Industry and Energy Daniel Martinez traveled to Brasilia
February 12 for meetings with their counterparts.


A Likely Agenda
- - - - - - - -


3. (C) FM Gonzalez told the Charge February 16 that he had a
very productive trip, and that as a consequence the leaders
have an ambitious agenda. According to Gonzalez, the
ministers agreed in principle to several items: moving toward
elimination of the double tariff between the two countries
(so named because often tariffs are applied to a product that
enters Mercosur from outside the customs union, with a
subsequent tariff as that product travels to another Mercosur
country),a problem that has long bedeviled Mercosur members;
Brazil will increase electricity transfers to Uruguay from
300MW to 500MW, with immediate effect; and Brazil pledged to
assist in an expansion of the electrical grid that connects
the two countries (Ref A). (Note: much of the electricity
that Uruguay purchases from Brazil must be transferred
through Argentina, significantly increasing its cost. End
Note.) The electrical grids of Brazil and Uruguay differ in
voltage, and require transformers for any direct transfer of
electricity. Uruguay plans to fund the purchase and any
related infrastructure improvements using the Fondo de
Convergencia Estructural de Mercosur (FOCEM),but Argentina
has vetoed that idea to date. Any Brazilian assistance would
therefore likely take the form of talking Argentina away from
that stance.


4. (C) The leaders will also discuss other issues, according
to MFA officials and reports in the Uruguayan media.
Specifically, they will try to develop an export financing
program for Uruguay, and make progress toward the goal of
using national currencies in bilateral trade. Minister of
Economy Alvaro Garcia was quoted as saying that Lula and
Vazquez will look at the possibility of Uruguay entering into
a currency swap program with Brazil, modeled after the
arrangement Brazil has with the U.S. Federal Reserve. Garcia
described such an arrangement as providing a cushion to
Uruguay's reserves in uncertain times. Vazquez will try to
impress upon Lula the importance to Uruguay of Brazilian
mining firm Vale do Rio Doce proceeding with a now-stalled
large dock construction project in the Department of Soriano.

Vazquez hopes to also bring home a promise of easier access
for Uruguayan products into the largest Brazilian production
and distribution networks.

Uruguay's Most Important Relationship
- - - - - - - - - - - - - - - - - - -


5. (U) Brazil has been Uruguay's principal trading partner
for every year but one during the last decade (Argentina
briefly displaced Brazil in 2001). Bilateral trade in 2008
amounted to USD 2.6 billion, with Uruguay in deficit by
approximately USD 600 million. Uruguay enjoyed slight
surpluses in 2002-2003, but fell into a USD 140 billion
deficit in 2004, which has grown each year to date.
Uruguay's sale of goods to Brazil worth USD 1 billion in 2008
amounted to 16 percent of Uruguay's exports that year. In
comparison, second-place destination Argentina only accounted
for eight percent of Uruguay's exports.


6. (U) Uruguay does not track inbound investment by country,
but Brazil is widely thought to be the largest foreign
investor in Uruguay. Brazilian firms have made major
investments during the past decade in critical areas of the
Uruguayan economy. Purchases of slaughterhouses have given
Brazilian firms control over 40 percent of Uruguayan beef
exports. Similarly, rice producer SAMAN, Uruguay's number
one individual exporter, with over 50 percent of rice
exports, is Brazilian. Brazilian Ambev has a monopoly on
beer production in Uruguay, and Brazilian firms also have
significant interests in Uruguay's growing forestry industry.
Petrobras bought Shell's entire network of stations in
Uruguay several years ago, and controls natural gas
distribution in the country. Significantly, Brazilian
development bank BNDES placed its first office outside Brazil
in Uruguay.


7. (C) Apart from the obvious geographical and commercial
factors promoting partnership, there are other reasons why
the Brazil-Uruguay relationship is flourishing today. FM
Fernandez cited a currently "difficult" Brazilian
relationship with Argentina as bringing Uruguay and Brazil
closer, and told the Charge that Brazil is having "big
problems" with Paraguay over the pricing of Itaipu energy.
Considering those factors, the FM continued, turning to
Uruguay is a natural reaction. From Uruguay's perspective,
Fernandez said, its current relationship with Argentina means
staying close to Brazil is a must.


8. (C) Vazquez has had difficulty convincing Lula to take a
role in Uruguay's most contentious and delicate ongoing
issues -- the paper mill dispute with Argentina and Uruguay's
consequent veto of Nestor Kirchner as UNASUR Secretary
General -- so not too many observers here expect progress in
those areas. Nevertheless, many Uruguayans believe Vazquez's
personal relationship with Lula makes a difference and that
the meeting could generate tangible and positive outcomes for
Uruguay. For instance, a Vazquez call to Lula was widely
credited here with having influenced Lula's decision to
rescind measures his government announced February 27 that
would have restricted imports (from all over the world, not
just from Uruguay) by imposing a mandatory licensing regime
on certain products (Ref B). Elimination of the double
tariff would provide a significant boost to Uruguay's efforts
to position itself as a logistics center for the region, and
would be an excellent result for Vazquez. But that problem
has plagued Mercosur for so long that few believe it will be
resolved anytime soon. Similarly, increasing the flow of
electricity from Brazil and beefing up the relevant
infrastructure would be a boon, allowing Uruguay to avoid the
fee that Argentina now charges to allow Brazilian electricity
to flow through Argentina to Uruguay.


9. (C) Still, some insiders are less sanguine about the
trip's prospects. Presidential candidate and FA Senator
Danilo Astori told the Charge over lunch February 18 that
dealings with Brazil always start off well and sound great in
the media, but rarely result in any tangible benefits to
Uruguay. Astori said he hopes something positive will come
from Vazquez's trip, but that he would only believe it when
he sees it.
Matthewman