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