VZCZCXRO6707
OO RUEHRG
DE RUEHMN #1111/01 3261544
ZNR UUUUU ZZH
O 221544Z NOV 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6561
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 2559
RUEHCV/AMEMBASSY CARACAS 0466
RUEHLP/AMEMBASSY LA PAZ 6176
RUEHSG/AMEMBASSY SANTIAGO 2945
RUEHRG/AMCONSUL RECIFE 0054
RUEHRI/AMCONSUL RIO DE JANEIRO 0788
RUEHSO/AMCONSUL SAO PAULO 3724
RUMIAAA/CDR USSOUTHCOM MIAMI FL//J-5//
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

SENSITIVE 
SIPDIS 
 
FOR CODEL GOODLATTE 
H-PASS 
 
E.O. 12958: N/A 
TAGS: OREP OVIP EAGR ECON UY
SUBJECT: SCENESETTER FOR CODEL GOODLATTE'S VISIT TO URUGUAY 
 
REF: A. MONTEVIDEO 01104 
 
     ¶B. STATE 187235 
     ¶C. STATE 187531 
 
¶1. (SBU) Summary: Embassy welcomes Codel Goodlatte to Uruguay 
and greatly appreciates its contributions to US foreign 
policy objectives.  Your November 28-29 visit comes at an 
auspicious time in our bilateral relationship and will 
coincide with the arrival of the US Ambassador to Uruguay, 
Frank E. Baxter and his wife Kathrine.  Agriculture remains 
the backbone of Uruguay's economy and the meetings with your 
counterparts in the Uruguayan congress are likely to draw 
wide public interest.  This telegram supplements the 
political and economic briefings that you received in 
Washington by providing additional background information and 
highlights of recent developments, including: 
 
#¿NOMBRE?
Presidential Chief of Staff Gonzalo Fernandez and Economy 
Minister Danilo Astori to discuss progress made on a Trade 
and Investment Framework Agreement (TIFA). 
 
-- The November 21 decision by the International Finance 
Corporation (IFC) to support a major loan for a controversial 
giant pulp mill on a shared river with Argentina. 
 
-- The November 20 ruling by a Florida judge to extradite 
notorious fugitive Uruguayan banker Juan Peirano Basso so 
that he can face charges related to the bilking of hundreds 
of millions of dollars from banks here. 
 	
#¿NOMBRE?	
resonates here	 Uruguay is a member of the G-20 group calling 
for the elimination of these subsidies. 	
 	
End Summary. 	
 	
---------- 	
Background 	
---------- 	
 	
¶2. (SBU) Uruguay's President: On May 4, President Vazquez met 	
with President Bush in the Oval Office.  Both leaders 	
resolved to deepen the commercial relationship.  Uruguay is 	
important to U.S. interests as an example of temperate, 	
long-standing democracy in a region that has, in many cases, 	
lurched to the populist left.  Vazquez has publicly stated 
that he seeks expanded trade ties with the US.  While he is 
sometimes hesitant to utter the words ""Free Trade Agreement"" 
in public, Vazquez and his administration have repeatedly 
signaled their willingness to expand trade with the US. 
Uruguay has also expressed general frustration with the 
Mercosur trading bloc -- and in particular Mercosur's 
unwillingness to resolve Uruguay's very serious paper mill 
dispute with Argentina. Vazquez is a pragmatist, and what he 
most wants for Uruguay is jobs, investment and growth.  At 
home and abroad he has been caught between the competing 
demands of radicals and moderates and he is often challenged 
to balance these opposing interests. His leadership style is 
now predictable: he tends to stay above the fray and allow 
competing factions in the FA to debate an issue to exhaustion 
and then weighs in with a final decision. 
 
¶3. (SBU) Domestic politics: Vazquez and his coalition Frente 
Amplio (FA) Government have been in power for about a year 
and a half and have generally received high marks, according 
to polling data.  Vazquez' adroit and pragmatic leadership 
along with Uruguay's strong institutions and the basically 
conservative nature of its society prevented the radical tilt 
some observers predicted during the 2004 electoral campaign. 
The President seems to prefer the term ""progressive"" rather 
than ""leftist"" to describe his administration and some think 
that he seeks to emulate Chile's center-left brand of 
government.  Looking back, Vazquez' campaign promise to 
shake the trees to their roots"" has meant more in terms of 
rejecting outdated rigid socialist thinking than anything 
else.  The moderates in his cabinet have generally enjoyed 
the upper hand, and Vazquez has been more challenged by the 
 
MONTEVIDEO 00001111  002 OF 003 
 
 
radicals within his FA coalition than he has by the two 
discredited opposition parties (Blancos and Colorados) who 
ruled the country during the past century.  In his efforts to 
be practical, Vazquez relies on a relatively small cadre of 
experienced officials to get things done.  A key ally in 
domestic politics has been Agriculture Minister and 
ex-Tupamaro guerrilla leader Jose Mujica who, despite his 
past, has often countered the extreme ideologues on the 
far-left.  Vazquez was also able to appease many radicals by 
addressing the human rights abuses committed during the 
dirty war"" period of the military dictatorship, by finding 
the buried bones of disappeared persons and by arresting some 
of the worst human rights abusers. 
 
¶4. (SBU) This method has been tested in recent months as the 
GOU attempts to reform taxes, education, and defense -- and 
has faced several disputes involving the powerful 
communist-dominated labor unions.  Minister of Economy Danilo 
Astori has tried to hold the line on government spending and 
has so far rejected proposals to increase the wages of 
government workers and medical personnel, opposed calls to 
delay loan repayments to international monetary institutions 
or to rescue indebted farmers.  In fact, Astori recently 
announced that Uruguay was repaying its entire debt with the 
International Monetary Fund (IMF) early.  President Vazquez 
tacitly supports Astori's orthodox positions on the economy, 
but both men have had to do so cautiously. 
 
¶5. (SBU) Foreign policy: has been a formidable challenge, 
compounded by the stubbornly ideological, anti-US Foreign 
Minister Reinaldo Gargano.  By far, the GOU's most serious 
problem has been the severe bilateral dispute with Argentina 
over the construction of paper mills on the shared Uruguay 
river -- not only because of soured bilateral relations with 
Uruguay's closest neighbor, but also because of the 
implications to foreign investment, an independent foreign 
policy, and Mercosur.  Uruguay has a heavy debt burden and no 
known hydrocarbon deposits, so that Venezuelan oil and money 
provide considerable temptation for boosting the economy. 
Uruguay's state oil monopoly ANCAP recently signed a deal 
with Venezuela's state-owned PDVSA to help fund 24 percent of 
the cost of oil exploration in the Orinoco region of 
Venezuela in return for a proportionate share of the 
resulting oil.  Details of the agreement remain murky, and 
observers are skeptical if ANCAP can fund its end of the 
bargain or if the endeavor will result in significant gains 
for Uruguay.  Vazquez appears to style himself more after 
Chile's ex-President Ricardo Lagos, and his mild leadership 
image sharply contrasts with the populism of Venezuela's Hugo 
Chavez, Argentina's Nestor Kirchner and Bolivia's Evo 
Morales. 
 
------------------------ 
Issues Likely to Surface 
------------------------ 
 
¶6. (SBU) In August, the GOU made it clear publicly that it 
would have to define its position on trade with the United 
States by the time of a critical October Joint Commission on 
Trade and Investment (JCTI) meeting.  Many sectors of the 
GOU, including President Vazquez, expressed strong interest 
in negotiating a Free Trade Agreement (FTA) with the U.S. 
However, neither side could reach the clear consensus needed 
to move forward.  Instead, the U.S. and Uruguay will sign a 
Trade and Investment Framework Agreement (TIFA), which 
increases discussion of trade issues but falls short of 
Uruguay's desired market access. Uruguayans will be keenly 
interested to know if an FTA (and market access) is still 
possible and what the political changes in the U.S. Congress 
will mean for Uruguay, in particular the possibility of a 
renewal of Trade Promotion Authority. 
 
¶7. (SBU) On May 19, U.S. Immigration and Customs Enforcement 
(ICE) agents arrested Juan Peirano Basso in the U.S., in 
connection with an $800 million fraud scheme that is widely 
thought as having worsened the 2002 financial crisis in 
Uruguay. Peirano had entered the United States earlier and 
had been able to obtain Legal Permanent Residence Status 
 
MONTEVIDEO 00001111  003 OF 003 
 
 
(LPR).  On November 20, a Florida judge ruled to extradite 
Peirano Basso back to Uruguay.  News sources expect his 
lawyers to appeal the ruling.  The case has generated intense 
media attention and goodwill from the GOU for U.S. 
forward-leaning cooperation in this case.  Many Uruguayans 
feel personally offended by the bankers' actions because the 
alleged fraud directly harmed the financial situation of the 
nation and of many individuals.  Peirano Basso's three 
brothers, also implicated in the case, are currently under 
arrest in Uruguay. 
 
¶8. (SBU) The paper mill dispute with Argentina is Uruguay's 
most pressing foreign policy problem.  The dispute over one 
Finnish paper mill under construction on the Uruguayan side 
of the shared Uruguay River, is an issue of paramount 
national interest.  The plant's construction cost is 
estimated at 8% of Uruguay's GDP and its operation is 
expected to generate exports worth 2% of Uruguay's GDP.  It 
represents the largest Foreign Direct Investment in Uruguay's 
history.  Argentine government officials, some local 
inhabitants and environmental activists claim the plant would 
harm fishing, farming, and tourist areas along the 
Uruguay-Argentina border.  Protesters from Argentina have 
blocked bridges between Argentina and Uruguay off and on 
since December 2005 at great cost to Uruguay's trade and 
tourism revenues. One of the bridges remains blocked.  Four 
independent reports concluded that these concerns were 
exaggerated, since the plants use the latest technology 
available. Uruguay has recently complained at the OAS and 
pressed its case with the World Bank and the Mercosur 
Tribunal.  On May 4, Argentina filed an injunction with the 
International Court of Justice to halt the construction of 
the paper mills, and on July 13, the Court refused to grant 
the injunction.  There is still no date for a hearing on the 
merits of the case.  Originally, another the Spanish company 
ENCE planned to build another plant nearby.  Argentine 
pressure and delays in the World Bank loan caused ENCE to 
reconsider, and in September ENCE backed out of its plans. 
On November 21, Uruguay scored a clear victory when the World 
Bank approved the $170 million loan for the project by a vote 
of 23-1. 
 
¶9. (SBU) Uruguay is a major agricultural producer. 
Agriculture and agro-industry account for 23% of GDP and over 
75% of total exports.  The major Uruguayan exports are meat 
(over $1 billion this year), long-grain rice, dairy products, 
wool and soybeans.  Forestry has surged over the last decade, 
due to favorable investment conditions and a a favorable 
climate, where eucalyptus grows almost ten times as fast as 
in the U.S.  Uruguay does not import agricultural products 
but does import processed foodstuff.  Uruguay applies a 6.6% 
average tariff on agricultural goods and does not impose any 
kind of import quota.  There are no subsidies on agricultural 
production or exports. Given the importance of this sector 
for the economy, Uruguay has been active in bilateral and 
multilateral fora in pushing for trade liberalization. 
Agricultural subsidies are a hot topic.  The GOU's trade 
policy on agriculture has generally been in line with 
Mercosur's, and Uruguay is a member of the G-20 group of 
countries calling for the elimination of agricultural 
subsidies.  The GOU threatened last year to file a case with 
the WTO on U.S. rice subsidies.  Embassy intervention allowed 
for the opening of a bilateral dialogue instead, to attempt 
to resolve the issue.  Talks are ongoing, but the threat of 
an impending WTO case still remains. 
Nealon 

...