PINERA ADVISORS: A FREE MARKET APPROACH AND

UNCLAS SANTIAGO 000565 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV ECON SOCI ELAB SENV PREL CI SUBJECT: PINERA ADVISORS: A FREE MARKET APPROACH AND PROTECTING BUSINESS PROMINENT IN EVERY SPHERE REF: A. SANTIAGO 524 ¶B. SANTIAGO 548 ¶1. (SBU) Summary: A strong belief in free markets and the importance of the private sector is a consistent thread in economic, social, energy, and political policies articulated by advisors to opposition presidential candidate Sebastian Pinera. In describing plans to fight poverty, improve education, manage Chile's foreign policy, and respect indigenous rights, key policy advisors consistently highlighted business impacts. Pinera's economic policy would promote entrepreneurship, job creation, a higher growth rate, and increased productivity while attempting to end poverty by ¶2018. Chile's foreign policy would not change substantially. Meanwhile, an advisor noted that the Alianza coalition is "one of the most conservative political coalitions in the world" and hoped that an upcoming trip to Europe might nudge some key members more toward the center. End Summary. ¶2. (U) The Ambassador hosted key members of Pinera's policy team, known as "Grupo Tantauco", for a lunch and policy discussion on June 12. Attendees included Felipe Morande (economics),Rodrigo Vergara (social issues and poverty), Jose Miguel Izquierdo (political institutions),Hernan Salinas (foreign affairs),Juan Carlos Urquidi (environmental issues),Ricardo Raineri (energy),and Rodrigo Yanez (indigenous affairs). The Embassy is working to coordinate a similar event with Frei's policy team, known as "Oceanos Azules." Pinera's Economic Vision: Ending Poverty, Promoting Entrepreneurship, Creating Jobs -------------- -------------- ¶3. (SBU) According to his advisors, Pinera feels strongly that Chile's ample social safety net needs to be reformed. Pinera faults Bachelet for not ending poverty in Chile, something Pinera aims to do by 2018. Social issues coordinator Rodrigo Vergara admitted Pinera had to combat a (misplaced) fear among many in Chile that he would destroy the social safety net. Pinera does not want to increase government spending on social programs, but instead wants to make them more efficient, better target subsidies to the most vulnerable, and improve coordination of all existing programs. In addition, he wants more focus on entrepreneurship, which economic advisor Felipe Morande described as a "second floor" to Chile's social safety net. He said Pinera wanted Chile to reach Portugal's per capita GDP. Vergara noted that Pinera hopes to use higher salaries (perhaps via labor subsidies similar to those that Bachelet has approved for youth); "Ethical Family Income," which would be similar to the Earned Income Tax Credit in the U.S.; more training; and better job opportunities to move Chileans out of poverty. ¶4. (SBU) In addition to efforts to end poverty, Pinera hopes to reinvigorate Chile's economy in general, and specifically to increase productivity, which Morande says has been dropping in recent years. Pinera's platform calls for a return to economic growth rates of 6-7% per year. Just as Pinera sees entrepreneurship as a path out of poverty, he also wants to encourage small business owners from all social classes and sectors of the economy. Pinera plans to streamline the processes for starting a new business and for closing one. Morande also cited plans to encourage innovation, including through public-private research partnerships; to improve training for workers; and to increase investment in Chile's economy, perhaps through tax credits. Morande also stressed that patent protections must be improved and the patent approval process made less costly. ¶5. (SBU) Under a Pinera presidency, Chile would encourage wider participation in the labor market, Vergara said. Only 40% of Chilean women work -- the lowest rate in Latin America, Vergara noted. Similarly, just half of Chilean young people are employed. Pinera would promote part-time work, telecommuting, and home-based businesses to boost employment. Social Issues: "Charter" Schools and Indigenous Affairs -------------- -------------- ¶6. (SBU) In the social sphere, Vergara decried the state of Chile's schools, and said that they did not serve the poorest Chileans well. The Alianza candidate favors more flexibility in dealing with teachers and their work contracts. Pinera would also favor more support to subsidized schools (private schools operating with some public funding, similar to some charter schools in the U.S.),Vergara said, seeming to suggest that poor students' best chance at getting a good education was to avoid the purely public school system as much as possible. ¶7. (SBU) The rights of indigenous Chileans have garnered much attention recently, as Chile's 2008 ratification of ILO Convention 169 was found to have broader-reaching consequences than first thought. Indigenous affairs advisor Rodrigo Yanez took a minimalist view of Convention 169 commitments, noting that, while the required consultations on economic development in indigenous areas could be useful, they were non-binding. Indigenous rights should not get in the way of investment, and if strictly enforced, could impede investment, he asserted. He noted that the convention does not require that indigenous people benefit directly from economic development. No Dramatic Changes in Foreign Policy -------------- ¶8. (SBU) Remarking that "Chile's interests are permanent," foreign policy advisor Hernan Salinas laid out a vision of Pinera's foreign policy that has a great deal in common with Bachelet's approach. Relations with the U.S. and South America would continue to be a priority, and Chile would continue to play an active role in UNASUR. Although Chile would actively defend its interests in the border dispute with Peru at the International Court of Justice, Salinas noted that Chile "has to be smart" and would not let the dispute interfere with a good commercial relationship with Peru. Salinas did take a strong stand on Cuba, noting that proposals to admit Cuba to the OAS without first demanding substantial changes on the island would be "useless." Leaving the Door Open for Nuclear and Hydroelectric Power -------------- -------------- ¶9. (SBU) Calling for greater energy security, energy advisor Ricardo Raineri said Chile was behind in developing renewable energy sources. In the last few years, 80% of energy investment has been in diesel turbines, when the government should be doing more to promote renewables. An expansion in the use of renewable energy (now accounting for 4% of the energy matrix, as opposed to zero a few years ago) was positive, he noted, but insufficient. Pinera would not rule out development of hydroelectricity in pristine Patagonia in southern Chile, nor would he discount the use of nuclear power -- both controversial topics in Chile. However, implementing either option would not be easy, he noted, as Chile does not have the nuclear know how necessary for a nuclear plant, and harnessing Patagonia's hydroelectric potential would require transmission lines that would have to travel 2,000 km through national parks, private property, and indigenous areas. ¶10. (SBU) Environmental coordinator Juan Carlos Urquidi called for increased civil society involvement in environmental issues, and noted that conflicts between environmental concerns and property rights would have to be weighed carefully. Noting that Chile is far from global centers of production and consumption, Urquidi suggested that Chile should pursue carbon offsets to counteract the environmental impact of shipping its goods to and from world markets. The Horse Race: Pinera Advisors Upbeat -------------- ¶11. (SBU) Strong distrust of political coalitions, increased coverage of corruption scandals, and Chile's favorable position in weathering the financial crisis have created a complicated political environment, political advisor Jose Miguel Izquierdo remarked. President Bachelet enjoys record high approval ratings and yet an opposition presidential candidate leads in the polls. Nonetheless, Izquierdo asserted that Pinera was still a strong candidate, even as he acknowledged that independent candidate Marco Enriquez-Ominami's sudden emergence and continued strong showing had "paralyzed" Chilean presidential politics. Pinera enjoys substantial support among voters who might be expected to back Enriquez-Ominami or Concertacion candidate Eduardo Frei, Izquierdo emphasized. While votes in the 1988 plebiscite have long defined the left-right split in Chilean politics, conservative candidate Pinera appears to have overcome this divide, attracting 38% of those who opposed the continuation of military rule in 1988. In addition, 20% of Chileans who voted for Bachelet in 2005 say that they will cross party lines to support Pinera. ¶12. (SBU) At the same time, Pinera's team feels torn by their candidate's centrist leanings and the strong pull of the staunchly conservative Independent Democratic Union (UDI) party. UDI is Chile's largest political party, while Pinera and many of his advisors hail from the smaller and less conservative National Renewal (RN) party. Izquierdo noted that the Alianza coalition is "one of the most conservative political coalitions in the world" and said that he hoped an upcoming trip to Europe and conversations with European conservatives would convince some of the staunchest conservatives to moderate their stance. Comment -------------- ¶13. (SBU) Pinera has assembled an impressive team of advisors from academia, the private sector, and partisan think tanks. Just as Pinera himself is focused on his economic message (Ref B),his advisors also seem to see economic questions as most critical. Questions about foreign policy generated relatively little discussion, while many issues -- poverty, indigenous rights, relations with Peru, and environmental issues -- are seen through the lens of free market choices or avoiding potentially negative impacts on the private sector and Chile's economic prosperity. End Comment. SIMONS