Uruguay: President Vazquez Going Out on Top

UNCLAS MONTEVIDEO 000090

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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

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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

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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

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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

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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

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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?

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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

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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