SCENESETTER FOR PRESIDENTIAL DELEGATION TO BOLIVIA

UNCLAS LA PAZ 000007 SENSITIVE SIPDIS DEPARTMENT OF LABOR FOR SECRETARY SOLIS STATE FOR U/S OTERO, WHA E.O. 12958: N/A TAGS: PREL PGOV PHUM SNAR EAID OVIP BL SUBJECT: SCENESETTER FOR PRESIDENTIAL DELEGATION TO BOLIVIA ¶1. (SBU) Embassy La Paz warmly welcomes the Presidential Delegation headed by Secretary of Labor Hilda Solis to the January 22 inauguration of Bolivian President Evo Morales for a second term. The U.S. delegation will visit Bolivia as efforts to normalize relations with the Morales government remain uncertain, hampered by consistently harsh rhetoric from the Bolivians and adverse ideological perceptions of the United States. Energized by his overwhelming electoral victory last month (having won 64 percent of the vote),Morales nevertheless faces formidable challenges in leading one of the least-developed nations in Latin America, rich in natural resources but saddled with a political leadership deeply suspicious of private enterprise, foreign investment and the U.S. "neo-liberal empire." Bilateral Relations: Difficult, but Sustained Engagement ¶2. (SBU) Following the Bolivian government's expulsion of our ambassador in September 2008 and the Drug Enforcement Administration (DEA) three months later, we have sought to work constructively with Bolivia where we can -- on counter-narcotics, economic development, environment and health -- while insisting that any resumption of normal relations must follow clear signals from the Bolivians that they genuinely want more constructive ties. Last May, we embarked on a bilateral dialogue process aimed at addressing the Bolivian government's declared interest in negotiating a new framework for relations. After a promising start and several rounds of talks (most recently in October), negotiations have stalled over disagreements on language governing assistance and trade. Still, Morales continues to refer to the process publicly as a means of getting our relationship back on track, based on "mutual respect" and recognition of "sovereignty." ¶3. (SBU) Although encouraged by his socialist ally and mentor, Hugo Chavez, Morales comes by his anti-imperialist, anti-American streak from his perceived personal experience, nurturing his grievances (he frequently mentions being physically abused by security forces in his early cocalero days) and apparently convinced that the U.S. is opposed to any social or economic reform in Latin America. We harbor no hopes of changing Morales's mind about the U.S., but he has shown himself sufficiently pragmatic at times that we believe it possible to forge a more constructive relationship. Our engagement policy with Bolivia is aimed at capitalizing on the opening offered by the new U.S. administration (early on, Morales evinced keen interest in connecting with President Obama; more recently -- following Chavez's lead -- he has taken to accusing the President of offering no change from his predecessor). Consolidation Morales's Likely Agenda, With Hopes for Steady Growth ¶4. (SBU) Morales enters his second term at the height of his political popularity and power, with effective control of the government and legislature. In his first four years in office, Morales won approval for a new constitution that redefines the country according to his statist, pro-indigenous vision, nationalized the gas and other industries, and out-maneuvered regional separatist and opposition movements. With most of his ambitious goals realized, Morales is likely to focus on consolidating his gains and extending his control to the judiciary. Although sometimes unpredictable, for the most part Morales has adhered to a defined and transparent agenda, which for the coming years he has articulated as mostly more of the same (expansion of public investment, industrialization). Moreover, there are real limits to the president's range of action, given his disparate coalition of supporters (including many skeptical of his socialist rhetoric) and the need to avoid radical measures that could lead to Bolivia's economic isolation. ¶5. (SBU) President Morales and his government have benefited from healthy economic growth in recent years, thanks to strong oil and gas prices. Even at the height of last year's global turndown, Bolivia managed to post growth of about three percent, and the outlook for the next few years is similarly favorable -- provided commodity prices remain steady. Bolivia's $17 billion economy remains relatively small and its per capita income ($1700 in 2009) is among the lowest in the Americas, but the average Bolivian has seen a steady if modest increase in living standards, aided also by generous public spending (state transfer payments, or "bonos," for many low-income categories). Brazil is by far Bolivia's largest trading partner (gas),while trade with the U.S. remains modest (about $850 million in exports and imports last year). The U.S. is the third-largest source of net direct investment in Bolivia ($60 million in 2009),after Spain and Brazil. Common Front Needed to Reverse Coca Growth ¶6. (SBU) Since expelling DEA in 2008, the Bolivian government has sought to show that it can fight illegal narcotics production and traffic on its own. The Bolivians have maintained eradication and interdiction (with vital logistical support from the Embassy's Narcotics Affairs Section, $26 million in FY09),but have been unable to compensate for the loss of DEA law enforcement intelligence and face continuing growth in coca production. We are working closely with regional and European allies (the principal markets for Bolivian cocaine; only an insignificant amount of Bolivia's production reaches the U.S.) to internationalize counter-narcotics cooperation and press the GOB to reverse the growth in coca production. Morales (still head of the coca growers' union) plans to raise the limits on the legal coca crop, although well below actual current production -- which could provide a basis for coordinated international pressure to begin real net reductions. U.S. Development Assistance Under GOB Review ¶7. (SBU) We maintain a significant USAID-administered development assistance program in Bolivia, despite GOB pressure and budget constraints. With almost $60 million in FY09, the U.S. remains by far the largest single aid donor in Bolivia. Among our priorities are assistance for alternative crop development (alternatives to coca),at about $18 million, public health at $15 million and agriculture, private sector development and the environment, at $14 million. USAID programs are mostly well received by the Bolivian people and local stakeholders, but generated friction in recent years, as the Morales government has sought a greater role in defining our assistance programs. Last year, the Bolivians forced the closure of our democracy and public administration programs and have insisted that the bilateral dialogue process address their concerns about assistance priorities. Populist, Anti-Imperialist Foreign Policy ¶8. (SBU) President Morales will continue to pursue an approach that emphasizes solidarity with Hugo Chavez and other ALBA (Bolivarian Alternative for the Americas) allies, in keeping with his populist conviction that the U.S. represents a constant threat to Latin America. He can also be expected to seek deeper ties with Iran, Russia, China and other potential non-Western partners. His approach over the past year shows he remains deeply suspicious of the U.S., but also recognizes the value of at least correct relations with us (and also the disadvantages of alarming centrist voters who believe his attacks have gone too far). ¶9. (SBU) Still, Morales also cultivates close relations with Brazil, Bolivia's major economic partner and with whom it shares a 3200-kilometer border, and values his personal ties with President Lula da Silva. An enthusiastic supporter of the Union of South American Nations (UNASUR),Morales has also seen the limitations of that group for advancing his and ALBA's agenda (failing to reach consensus to oppose the Colombia base agreement, for example). Brazil, Chile and Argentina will continue to privately urge Morales to improve relations with the U.S., especially if more conservative leaders are elected in those countries over the next two years. Morales clearly relished his grandstanding, spoiler role at December's UN Climate Summit (where he railed against the developed world and demanded astronomical compensation for crimes against "Mother Earth"),but it remains to be seen whether he will sustain this campaign absent the spotlight of Copenhagen. Watch Out For: Latest Bilateral Controversies ¶10. (SBU) Bolivia's leaders point to a number of U.S. actions and events over the past year that have complicated our efforts to improve bilateral relations and conclude a new framework agreement. Many of these are likely to emerge at some point in discussions during the U.S. delegation's visit. -- Counter-narcotics Decertification: In September 2009, the Administration determined in its annual report to Congress that Bolivia had "failed demonstrably" to meet its international counter-narcotics obligations. Although a waiver was approved to allow U.S. assistance to continue, the finding was roundly criticized by Bolivia's leaders and opinion makers. -- Exclusion from ATPA (formerly ATPDEA): After previously having their participation suspended in the Andean trade preference regime (which eliminates tariffs for certain imports in exchange for counter-narcotics cooperation),the U.S. Congress in December 2009 excluded Bolivia entirely from legislation extending the program. President Obama's accompanying statement emphasized our desire to work with the Bolivians to enable them to qualify for the program in the future. The actual economic impact was modest, as most Bolivian exports are covered under GSP, but the GOB reaction to the move was strongly negative. -- "Goni" Extradition: The Bolivian government is seeking the extradition of former President Gonzalo "Goni" Sanchez de Lozada and associates for alleged crimes committed prior to his resignation and flight to the U.S. in October 2003 (some 59 were killed in clashes with police). The U.S. Department of Justice has yet to respond to the GOB request, but the answer could provoke a violent reaction from the Bolivian government and affiliated social and victims' groups. Meanwhile, a civil suit against "Goni" is moving forward in the U.S. District Court in Southern Florida. -- Opposition Politician in U.S. Exile: Former opposition presidential candidate Manfred Reyes Villa fled to Miami days after losing to Morales in the December 6 election, and is expected to seek political asylum. His escape in the face of numerous fraud and corruption charges has received national coverage and will likely lead to a formal GOB extradition request. Reyes Villa's flight, which was unknown to the Embassy and confirmed only days ago, reinforces the GOB narrative of the U.S. as a safe haven for criminals. Creamer