Uruguay: President Vazquez Going Out on Top

UNCLAS MONTEVIDEO 000090 SIPDIS FOR WHA/BSC DRUCKER/FRIEDMAN/DASCHBACH E.O. 12958: N/A TAGS: PGOV PREL ETRD ECON UY SUBJECT: Uruguay: President Vazquez Going Out on Top Summary -------------- ¶1. (U) Under the leadership of Tabare Vazquez, Uruguay enjoyed five years of relative prosperity and growth, and the governing Frente Amplio (FA) coalition was able to surpass - in two elections running - Uruguay's traditional National (Blanco) and Colorado parties. On Vazquez's coattails, the FA won both presidential and congressional elections in November 2009, and Vazquez's popularity rating of 72 percent as he leaves office is by far the best of any Uruguayan president since the restoration of democracy in 1985. Although relations with Argentina have been strained and personal security remains a concern to Uruguayans, Vazquez has managed to achieve much of what he set out to do when he propelled the Frente Amplio coalition to its first-ever presidency in 2004. The economy, development and social safety net have all prospered under Vazquez's watch, and his political stock is high enough for another presidential bid in 2014 to be a distinct possibility. End Summary. Leaving a Valuable Inheritance -------------- ¶2. (SBU) Currently at 72 percent, and averaging over 60 percent throughout his term, President Vazquez's job approval rating has been unusually high. Understated, calm and authoritative, Vazquez was able to unite the often factious Frente Amplio coalition, lead it into power, and leave with it as the country's most potent political force. Furthermore, Vazquez appears to have been able to manage all that while sticking to principles he outlined on the 2004 campaign trial: democracy, innovation, integration, increased productivity, and universal social welfare. While Vazquez and president elect Jose Mujica regularly express differences, during the election campaign Mujica knew that his and the FA's fortunes rested largely on being able to credibly project a sense of continuity, which he was able to do. Since winning the elections, Mujica has often made clear that he intends to follow many of Vazquez's policies closely. Economy, Investment and Innovation -------------- -------------- ¶3. (U) Mujica has taken the most pains to emphasize his desire to continue Vazquez's policies with respect to managing Uruguay's economy. In this vein, Vazquez's former finance minister, Vice president elect Danilo Astori, was given responsibility to lead economic policy. Vazquez always understood the importance of prudent economic management, as a major factor in his rise to power was Uruguay's economic collapse of 2002. During his time in office, prudent policies and a confluence of positive factors outside of Uruguay's control led to five years of uninterrupted growth. Inflation, always a regional bugbear, is on a downward trend and, despite a slight but brief dip in the first quarter of 2009, Uruguay has proved to be one of the region's most resilient economies; it is one of the few countries in the world not to have slipped into recession during the global downturn. Additionally, Uruguay wisely chose to capitalize on the current decade's commodity price boom, without placing certain restrictions on exports (e.g. export taxes) seen elsewhere in the region. 4) (U) In addition to setting pragmatic macro-economic policies, the Vazquez government sought fiscal reform by enacting a controversial new income tax in mid- 2007. Tax reform included a reduction in the VAT from 23% to 22% and the elimination of a 3% supplemental tax on imports and local sales of industrialized goods that funded social security (COFIS). The new graduated income tax was designed to increase proportionality among tax payers, and resulted in increased government revenues in the first year after it was implemented. The tax was met with noted consternation among the electorate, especially those in the middle and upper income brackets, but a second reform in September 2009 reduced the burden by raising the standard deduction and allowing a variety of new deductions. While unlikely to be rescinded as some opponents would have hoped, the opposition as well as within the Frente Amplio itself may seek further adjustments to the tax. ¶5. (U) The investment climate was and remains generally positive, and U.S.-Uruguayan trade relations have strengthened during the Vazquez administration. Foreign investors believe they will be treated equally with locals when legal disputes arise, and around 100 U.S. companies are currently doing business in Uruguay. The tourism sector is strong, and Brazilians and Argentines continue to vacation and invest in Punta Del Este, which they view as having positive qualities (safety, water quality) lacking in their own beach resorts. The Vazquez administration has also worked hard to present the country as a worthy destination to passing cruise ships, and numbers are steadily increasing. 6) (U) Vazquez effectively guided the Frente Amplio coalition to a good relationship with the U.S., in spite of initial misgivings by some within the FA. His government signed a bilateral investment Treaty in 2005. In January 2007, the U.S. and Uruguay signed a trade and investment framework agreement and began a review of topics usually covered in an FTA. In October 2008, the two governments signed protocols to the TIFA covering substantive commitments in the areas of trade facilitation to enhance customs cooperation and public participation in issues related to trade and environment. The TIFA continues to provide an ongoing platform for active work on commercial issues. 7) (U) The Vazquez administration emphasized strengthening and deepening relations with its Mercosur partners, but this has not been to the detriment of relations with the U.S. or other trading partners. His government sought to expand economic ties to the rest of South America and beyond to reduce its dependence on its larger neighbors. The desire to expand trade relations beyond Mercosur was also fueled by the belief among many Uruguayans that as a trade bloc, Mercosur has benefited Brazil and Argentina much more than the Union's smaller members. However, from 2005-2009, exports to Mercosur rose from 23 percent of Uruguay's total to 28 percent, and imports from Mercosur increased slightly, from 42 percent to 45 percent. Vazquez sought to develop commercial relations throughout Latin America and beyond. In 2009 Uruguay was the first Mercosur member to implement an FTA with Israel. The agreement was negotiated within an Israel-Mercosur framework agreement signed in December 2007. 8) (SBU) While many Uruguayans are generally dubious about privatization, especially in the context of large state enterprises such as the state petroleum, utility, telecom and water companies, the Vazquez government completed several public tenders, initiated before its term, that privatized logistical operations. Notable among these was the 2009 inauguration of a new, modern airport terminal that was built and operated by an Argentine-owned consortium. The Vazquez government has presided over the expansion of a private container terminal in the Montevideo Port, and set into motion the auction of a second nearby container terminal, scheduled to be held in March 2010. ¶9. (U) Uruguay has long been known as a regional leader in software development, and currently employs around 6,000 people in the computer industry. Vazquez successfully built on this IT-friendly foundation by ensuring that Uruguay was the first Latin American country to embrace the Massachusetts Institute of Technology's "One Laptop per Child" computer literacy program, and the first country in the world to complete the program by giving every school-aged child a computer. Known locally as "Plan Ceibal," the distribution of inexpensive laptop computers and their use in schools has been extremely popular. Uruguay will now try to spread that success regionally by sharing its relevant expertise via the Pathways to Prosperity initiative. With support from the World Bank, EU, and IDB, Vazquez further bolstered his country's reputation for scientific advancement by creating the National Agency for Investigation and Innovation (ANII),a national agency for scientific research, with has the goal of spurring Uruguay's scientific innovation. ¶10. (U) Vazquez kept his promise to strengthen labor rights. Under the leadership of Labor Minister and former Tupamaro guerrilla Eduardo Bonomi, unions enjoyed growth and greater representation. His pro-labor policy stimulated the creation of about 600 unions of various sizes and Uruguay's PIT-CNT, the local equivalent of our AFL-CIO, saw its membership triple (and its power grow proportionally) during this period, to 320,000 from 130,000 members. The Frente also re-established trilateral "wage councils" (comprised of business, union, and GOU reps),which decides on salary adjustments. The Ministry of Labor hired more labor inspectors and was able to provide them with more resources. Under Vazquez, Frente Amplio legislators supported 36 laws designed to benefit workers, including a law to promote greater employee participation in business; collective bargaining in the public sector; expanded retirement options; educational leave for the private sector; and benefits for domestic workers. These moves have not always been popular with business, but built huge new political constituencies. Social Welfare and Education -------------- ¶11. (U) Despite Uruguay's relatively high standard of living, relatively large numbers of Uruguayans live in poverty, a situation exacerbated by the 1999-2002 financial downturn. To tackle this, the FA government implemented an emergency plan to assist families with the lowest incomes. Government statistics, which are generally believed, show the poverty level has decreased from about 46 percent in 2004 to 20 percent in 2008. The Vazquez administration also raised the minimum wage. The unemployment rate has dropped to around 8 percent. ¶12. (U) Public health has been a priority for Uruguay's physician-turned-president, who, even in office, has continued to practice oncology one day per week. In 2006, Vazquez's government successfully banned smoking in all public places. Funded through payroll taxation, a new national health system has given the Uruguayan poor and the country's working class greater access to health care than they ever had previously. About 800,000 Uruguayans, or around a quarter of the population, participate in the program. Additionally Vazquez's presidency has made equality of access a priority in the purchase of vaccinations and other medications. ¶13. (U) Under Vazquez' watch, Uruguay took important steps to increase and improve counternarcotics efforts. Because of porous land borders and active ports, Uruguay runs the risk of serving as a narcotics transit country. Drug use is increasing, which puts pressure on public security. Vazquez named his brother, Jorge Vazquez, as prosecretary, a chief of staff position that includes counternarcotics and disaster relief. With a close confidant in this position, the GOU made significant progress over the past five years. The 2009 National Counternarcotics Plan centralized several agencies' duplicated efforts under the direction of the National Anti-Drug Police, an internationally respected and efficient team. National and international cooperation has blossomed, with the most visible fruits of that cooperation coming in an October 2009 seizure of over two metric tons of cocaine- a record for the region. ¶14. (U) Another central tenet of Vazquez' 2004 campaign was education reform. His administration took a significant step towards this when in December 2008 it passed a law designed to restructure the public education system in Uruguay. The law makes formal education obligatory for children aged 4 to 18 and stipulates a minimum of 900 hours per year of mandatory classroom instruction, thereby lengthening the school year by a full month. In addition, it proposes to bridge the gap between junior high and vocational training, allowing greater lateral mobility of students between the different systems by creating a common system of academic credits. Although some controversy over implementation has prevented the law from being fully enacted, President-elect Mujica appears committed to seeking consensus in order to enable the law to go forward. ¶15. (U) Vazquez has also successfully increased the amount the funding for the teaching of English in schools. In 2007, funding to pay for English teachers was provided by the USG and the Embassy continues to work with the public school system on English language instruction. In 2009, the Vazquez administration ended a six-year moratorium on contributions to the local Fulbright Commission by giving an amount more than seven times larger than the GOU had ever given previously. Human Rights and Transparency -------------- ¶16. (U) At the beginning of his term, Vazquez promised to address the outstanding issue of human rights abuses committed during the 1973-85 dictatorship. Although limited by the "Expiry Law," an amnesty law that protects police and military personal from persecution for acts carried out during the dictatorship, Vazquez's administration nevertheless pursued the prosecution of several dictatorship-era figures for human rights violations, including the former dictator Gregorio Alvarez and members of military intelligence. Vazquez has also worked to uphold Uruguay's reputation for transparency in government, with Transparency International ranking Uruguay and Chile as the most transparent countries in Latin America. Room for Improvement? -------------- ¶17. (SBU) Arguably the most public weakness of Vazquez's administration has been his government's record on public security. Long a source of steadily mounting concern among Uruguayans, the issue flowered into a hot topic during the recent elections. Both crime and drug use continue to rise under Vazquez's administration. A poll towards the end of 2009 found that just under half the electorate felt the government had done nothing to address public security, while 36 percent believed that they had done very little. The FA itself conceded that improvements had been "modest." The failure to address the similarly long-gestating problem of poor conditions in Uruguay's prisons has also been a shortcoming of the Vazquez administration. Overcrowding continues to be chronic and the administration was given a very public rap on the knuckles by visiting Special Rapporteur for Torture and other Cruel, Inhuman or Degrading Treatment or Punishment, Manfred Nowak. Vazquez, who had cooperated fully with Nowak's inspection, swiftly pushed through a raft of measures designed to alleviate pressure for at least the next 12 months. Some of those measures have yet to be implemented, however. ¶18. (SBU) Vazquez's relationship with the Argentine government has been strained, mainly due to a dispute between the two governments over the operations of the Botnia paper mill plant in Fray Bentos. For the past three years, Argentine protesters have maintained an ongoing blockade of a key international bridge, hurting Uruguay's economy. Legal arguments over the plant and its location are currently being heard by the International Court of Justice in The Hague. The conflict has extended itself to other areas. In 2009, President Vazquez blocked former President Nestor Kirchner's candidacy to become the Secretary General of the fledgling UNASUR regional organization. Argentina blocked Mercosur funding for a project that would have allowed Uruguay to import Brazilian electricity. Argentina also obstructed a plan to dredge a canal in the shared Rio de la Plata that would allow more port transit for Uruguay. Many Uruguayans are hoping that Mujica's administration will be able to make headway in these areas. Comment -------------- ¶19. (U) Vazquez leaves office with an enviable political reputation that undoubtedly played a significant role in Mujica's election success. Although much could change over the next five years, Vazquez's successful and prosperous administration has given him sufficient popularity that he would be the early front runner if he decides to run for president again in 2014, something hinted at by close Vazquez advisors. End Comment Nelson