VZCZCXYZ0008
RR RUEHWEB

DE RUEHMN #0489/01 2401850
ZNR UUUUU ZZH
R 271850Z AUG 08
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 8437
INFO RUEHBR/AMEMBASSY BRASILIA 2465
RUEHBU/AMEMBASSY BUENOS AIRES 2594

UNCLAS MONTEVIDEO 000489 
 
CODEL 
SIPDIS 
 
FROM AMBASSADOR BAXTER TO REPRESENTATIVE COLLIN PETERSON 
H FOR LYNNEA SHANE AND TYREA LONON 
WHA/BSC FOR CAROLINE CROFT 
 
E.O. 12958: N/A 
TAGS: OREP AMGT ASEC AFIN UY
SUBJECT: URUGUAY: SCENESETTER FOR CODEL PETERSON'S SEPT 6-8 
VISIT 
 
REF: STATE 91300 
 
¶1.  This telegram is sensitive but unclassified, and not for 
Internet distribution. 
 
------- 
SUMMARY 
------- 
 
¶2. (SBU) Your visit on September 6-8 comes at a time of 
strong and growing engagement between the U.S. and Uruguay. 
President Vazquez steers a moderate course that includes 
active efforts to expand commercial ties with the USG.  As 
Uruguayans look ahead to the 2009 Presidential and 
legislative elections, we expect the GOU to seek to ensure 
that moderate legacy while simultaneously shore up its 
political base.  End Summary. 
 
------------------- 
POLITICAL SITUATION 
------------------- 
 
¶3. (U) Uruguay is a stable democratic nation of 3.3 million 
people, almost half of them residing in its capital, 
Montevideo.  Once known as "the Switzerland of South 
America," it was one of Latin America's wealthiest and most 
egalitarian countries.  A four-year recession, which ended in 
2003, cut personal income nearly in half and lowered 
Uruguay's historically excellent socio-economic indicators. 
Uruguay's economy has been recovering well over the past 
three years, with GDP growth of seven percent in 2007, in 
large part thanks to continued orthodox economic policies. 
Today, GDP per capita is approaching $7,000, and the GOU 
repaid its entire IMF debt early in the past year.  However, 
job creation is not keeping up with expectations, and many 
young people emigrate to seek their fortunes abroad. 
 
¶4. (SBU) With Tabare Vazquez heading the ticket, the 
left-leaning Frente Amplio (FA) party won the presidency and 
the majority in the legislature for the first time in October 
2004, narrowly beating out the more traditional Colorado and 
Nationalist parties.  President Vazquez steers a moderate 
course that balances prudent macroeconomic policies with 
expansion of social programs, especially in the areas of 
health and education. 
 
¶5. (SBU) With national elections in October 2009, the Vasquez 
administration is coming into the home stretch.  The 
President has successfully completed much of his agenda, and 
seeks to ensure his legacy as well as position his party for 
the 2009 elections.  A March 2008 cabinet shake up eased out 
ideologues, put in technocrats, and put a new emphasis on 
foreign policy.  Relations with the U.S. are cordial and 
productive, but election-year politics are likely to limit 
the profile of our cooperation over the next year. 
 
¶6. (SBU) Many Uruguayans were traumatized by the 1973-85 
period of military dictatorship, when security forces 
committed serious human rights violations in their campaign 
against violent insurgents and their sympathizers.  Some 
people blame the U.S. for indirectly supporting the region's 
military governments during the Cold War.  Slick propaganda 
and declassified U.S. documents from the period are 
frequently touted by our detractors as "proof" of our 
involvement.  The complex history of the dictatorship created 
heroes and villains for both the left and right.  Some of the 
persons involved -- including former Tupamaro guerrillas -- 
are still active in politics today.  The real and imagined 
lessons from the dictatorship period continue to shape modern 
politics, including the Uruguayans' perceptions of the U.S., 
especially where the global war on terrorism, Iraq, 
Afghanistan and Guantanamo are concerned. 
 
--------------------------------- 
The Economy, Trade and Investment 
--------------------------------- 
 
¶7. (U) Outgoing Economy Minister Astori has pursued orthodox 
macro-economic policies to control inflation (6.4% in 2006) 
and promote growth and investment.  The result has been 
sustained strong growth, with Uruguay maintaining a 7% growth 
rate over the past two years.  The GOU paid off its debt to 
the IMF ahead of schedule and has regularly issued bonds at 
favorable terms in the international financial markets, 
lowering its debt service costs.  The debt to GDP ratio was 
down to 67% at the end of 2007, from over 101% in 2004. 
 
Unemployment is now in the single digits for the first time 
in six years. The country risk stood at 277 basis points as 
of late July.  Uruguay is now better positioned to handle 
external shocks than it was during the economic crisis of 
2001-2002, but challenges remain with the weakened dollar, 
political volatility in Argentina, and high oil prices. 
 
¶8. (SBU) Uruguay is a major agricultural producer relative to 
its size.  Agriculture and agro-industry account for 23% of 
GDP and over 75% of total exports.  Major exports are meat 
(over $1 billion in 2006 and $885 million in 2007), 
long-grain rice, dairy products, wool and soybeans.  Uruguay 
does not import agricultural products but does import 
processed foodstuffs.  Uruguay applies a 6.6% average tariff 
on imported agricultural goods and does not impose any kind 
of import quota. 
 
¶9. (U) Biofuels represent an emerging area of interest for 
Uruguay and for potential cooperation with the U.S.  Uruguay 
is working to develop ethanol from sweet sorghum, sunflower, 
soy, and sugarcane in the near term to comply with a recently 
passed law that requires state petroleum company ANCAP to 
incorporate five percent ethanol into gas (by 2014) and five 
percent bio-diesel into diesel (by 2012).  ANCAP has already 
established a plant -- in association with Venezuela -- to 
produce ethanol and electricity from sugarcane.  ANCAP also 
plans to build a bio-diesel plant fueled by soy or sweet 
sorghum.  ANCAP's president and other high level Uruguayan 
officials traveled to the U.S. in 2007 with Ambassador Baxter 
to visit several institutions related to biofuels. 
 
¶10. (U) ANCAP is interested in working with the U.S., 
especially in the area of using biomass such as forestry 
waste or woodchips to add value to its rapidly growing 
forestry industry.  ANCAP and other GOU elements hope 
biofuels will one day generate a significant percentage of 
Uruguay's fuel needs, with similarly high percentages of 
Uruguay's electrical generation coming from biomass. 
Weyerhauser is one of the largest companies in Uruguay's 
forestry sector, and a leader in exploring ways to produce 
biofuels from its forestry byproducts. 
 
¶11. (SBU) Uruguay's National Institute for Agricultural 
Research (INIA) is looking to cooperate with a number of U.S. 
universities on biofuels, most notably with Texas A&M, the 
University of Georgia, and North Carolina State.  Texas A&M 
has one of the world's most important sweet sorghum breeding 
programs, and is evaluating the suitability of Texas A&M 
genotypes for Uruguay.  Texas A&M is also considering having 
Uruguayan research stations help its breeding program to 
advance generations.  INIA hopes to work with North Carolina 
State's Worldwide Knowledge Center for the Development of 
Second Generation Biofuels. 
 
¶12. (SBU) Given the importance of the agricultural sector for 
the economy, Uruguay has been active in bilateral and 
multilateral fora to push for trade liberalization, and U.S. 
agricultural subsidies are a hot topic.  Uruguay played a 
useful and constructive role during the last Doha Round 
meetings in Geneva in July.  The Uruguayan delegation was 
particularly vocal about the need for developing countries to 
offer improved market access, and pressed home that point at 
every opportunity during informal meetings that took place 
daily during that ministerial.  GOU officials have commented 
to us that they believe Mercosur to have been negatively 
affected by Argentina's position in that forum. 
 
¶13. (SBU) In 2006, Uruguay and the U.S. started a dialogue on 
a Trade and Investment Framework Agreement (TIFA), which was 
signed in January 2007.  The sanitary and phytosanitary 
working group has focused on particular barriers to trade, 
resulting in the opening of the Uruguayan market to U.S. 
turkey and the U.S. blueberry market to Uruguayan producers. 
Work on citrus, deboned lamb and U.S. beef is ongoing, as are 
discussions on ecommerce, the environment, and trade 
facilitation is also ongoing.  The USG and the GOU signed a 
Science and Technology (S&T) cooperation agreement in April. 
Uruguay's current level of development, education, and 
infrastructure present an excellent opportunity for 
cooperation with the USG on S&T issues.  The agreement 
strengthens the bilateral relationship in the spirit of 
deepening economic ties between the two nations. 
 
¶14. (SBU) Bilateral Agricultural Issues: 
 
-- Beef:  Uruguay suffered an outbreak of foot-and-mouth 
 
disease in 2001, but prompt reporting and solid controls led 
APHIS to reopen the U.S. market to Uruguayan beef in 2003. 
The U.S. was Uruguay's main beef export market by 2004, but 
Uruguayan beef exports to the U.S. have declined since that 
year, as beef prices in the EU have risen and Uruguayan 
exporters began to concentrate on that market.  Uruguay 
closed its market to U.S. beef in 2003 due to Bovine 
Spongiform Encephelopathy (BSE), but has since reopened for 
U.S. genetics (bovine semen and embryos).  We continue to 
press for Uruguay to resume imports of U.S. beef. 
 
-- Citrus:  Uruguayan citrus producers have requested a pest 
risk assessment.  APHIS expects to conduct such an assessment 
by the end of September. 
 
-- Poultry:  Uruguay banned all imports of poultry from the 
U.S. in 2003, citing the threat of Newcastle disease (Note: 
the ban on U.S. turkey was subsequently lifted in 2007).  We 
continue to work toward a broader re-opening of this market. 
 
-------------- 
Foreign Policy 
-------------- 
 
¶15. (SBU) The March 1, 2008 replacement of Foreign Minister 
Gargano with the President's close advisor Gonzalo Fernandez 
has strengthened opportunities for improved U.S.-Uruguayan 
relations.  Uruguay is also working to reestablish its 
traditional role in international institutions.  Uruguay is 
the largest contributor to peacekeeping missions in the 
world, on a per capita basis, and currently has substantial 
deployments in Haiti and the Congo.  Uruguay is seeking to 
expand economic ties outside of Mercosur to the rest of South 
America and beyond, in part to reduce its reliance on 
sometimes volatile neighbors.  Uruguay played a moderating 
role in the Colombia-Ecuador-Venezuela dispute.  Chilean 
President Michelle Bachelet's July visit demonstrated the 
countries' close relations and the desire to strengthen 
partnerships. 
 
¶16. (SBU) Uruguay receives assistance from Venezuela in the 
form of subsidized oil, but chooses to stay relatively quiet 
on Venezuelan issues.  Venezuelan FM Nicolas Maduro visited 
Montevideo in August, and the GOU downplayed the significance 
of the trip.  President Vasquez visited Cuba in June; Cuba 
sends many doctors to work in Uruguayan hospitals, a fact 
praised by supporters of the Castro regime but controversial 
to others as issues such as medical accreditation and safety 
have been raised.  Iran maintains an active commercial 
section at its embassy, with Uruguay exporting a significant 
amount of high-quality rice to Iran. 
 
¶17. (SBU) Relations with Argentina (and by extension 
Mercosur) have been frosty, mainly as a result of a two-year 
dispute with Argentina over a paper pulp mill on the 
Uruguayan side of the Uruguay River.  The USD 1.2 billion 
mill, owned by Finnish Botnia, employs 2,500 persons at the 
plant or in related industries and significantly boosts 
Uruguayan GDP.  The plant began production in November 2007 
and boasts the highest level of pulp production in the world 
and the latest environmental protection technology. 
Argentina sued Uruguay in the International Court of Justice 
(ICJ) in 2006 (a verdict is expected around the end of 2008) 
and Argentine protesters have blockaded bridges between the 
two countries for more than two-years.  The GOA and the 
protesters claim that the mill environmentally damages the 
Uruguay River which borders both countries; Uruguay and 
Botnia are confident the court will rule otherwise. 
Baxter