VZCZCXRO7212
RR RUEHDT RUEHPB
DE RUEHWL #0287/01 2520304
ZNR UUUUU ZZH
R 080304Z SEP 08
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 5412
INFO RUEHNZ/AMCONSUL AUCKLAND 1732
RUEHBY/AMEMBASSY CANBERRA 5245
RUEHDN/AMCONSUL SYDNEY 0712
RHHMUNA/CDR USPACOM HONOLULU HI
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE

UNCLAS SECTION 01 OF 02 WELLINGTON 000287 
 
SIPDIS 
SENSITIVE 
 
STATE FOR STATE FOR EAP/ANP 
PACOM FOR J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: PGOV KCRM KDEM NZ
SUBJECT: TROUBLED NZ FM STEPS ASIDE; PRESSURE REMAINS ON PM CLARK 
 
WELLINGTON 00000287  001.2 OF 002 
 
 
¶1. (SBU)  Summary.  On August 29, Winston Peters agreed to step down 
as New Zealand's Foreign Minister pending investigation over fraud 
allegations involving his New Zealand First party.  PM Helen Clark 
has assumed Peters' portfolios but left the door open for him to 
resume his ministerial duties if cleared of wrongdoing.  With the 
prospect of being called before Parliament's Privileges Committee 
regarding her knowledge of Peters' financial affairs, Clark herself 
faces scrutiny over this matter.  National has ruled out working 
with Peters in a future governing coalition, which many view as a 
political gamble given the tightening of the political race between 
Clark and Key.  End Summary. 
 
Peters Steps Aside as FM; Clark Takes Over 
------------------------------------------ 
 
¶2. (SBU)  On August 29, Prime Minister Helen Clark announced that 
Winston Peters had voluntarily stepped aside as New Zealand's 
Minister of Foreign Affairs while allegations of fraud relating to 
political donations to his party are investigated.  Peters and his 
New Zealand First Party (NZ First) have been subjected to 
allegations of providing misleading statements about party donations 
from several wealthy contributors and financial misconduct for 
several months.  On August 28, New Zealand's Serious Fraud Office 
(SFO) launched an investigation into NZ First finances, and what 
happened to donations made to the party by wealthy New Zealand 
businessmen.  Said Clark, "It's very clear to me and very clear to 
(Peters) that the appropriate thing is for him to stand aside from 
his portfolios while the Serious Fraud Office conducts its 
investigation." 
 
¶3. (SBU)  In addition to the SFO investigation, the parliamentary 
privileges committee is looking into whether Peters should have 
declared a donation paid to legal costs he incurred arising from the 
2005 election.  Peters has continued to deny any wrongdoing and has 
called all allegations against him and the party "vile, malicious 
and malevolent."  At Peters' request, Clark has taken over his 
ministerial responsibilities, which also include the portfolios of 
racing and senior citizens, in the intervening time.  Clark, 
however, suggested that the door is open to Peters to resume his 
ministerial duties should he be cleared by the SFO. 
 
Face-saving Gesture Ensures Peters' Support 
------------------------------------------- 
 
¶4. (SBU)  By taking on Peters' ministerial portfolios at his 
request, Clark spared him the humiliation of firing him and 
distributing his portfolios between more junior ministers.  Some 
commentators speculated that a change in Peters' ministerial 
circumstances would damage the hitherto good relationship between 
Clark and Peters and thus destabilize the Government.  However, 
Clark's face-saving gesture, in addition to her strong rapport with 
Peters, was instrumental in maintaining NZ First support for the 
Labour-led Government.  As a result, NZ First has promised its 
support for the Government's Emissions Trading Scheme (ETS) 
legislation, expected to pass parliament this week. 
 
National Will Not Work with Peters 
---------------------------------- 
 
¶4. (SBU)  While Clark maintains support for the besieged Peters, the 
opposition National Party has explicitly ruled out working with him 
in a National-led Government.  On August 27 and in a calculated 
political move, National leader John Key announced that Peters would 
not have a role in any future National coalition regardless on 
whether he is cleared of any wrongdoing.  Most political analysts 
see this as a significant political gamble, as Key may not have the 
luxury of turning away potential coalition partners in a 
post-election environment where neither Labour or National gain a 
clear majority.  At the moment, Key is banking on National 
maintaining its lead over Labour in the polls and the very real 
possibility that NZ First will not get enough votes to return to 
parliament at the election.  Key has also calculated that public 
patience with Peters has run out. 
 
¶5. (SBU)  Key's categorical rejection of a post-election deal with 
Peters, no matter the election outcome, has effectively bonded NZ 
First to Labour.  National is now expected to campaign that a vote 
for NZ First is a vote for Labour, which could damage support for 
both NZ First and Labour.  Many NZ First supporters prefer a 
coalition with National and may shift their votes to National. 
Another potential beneficiary of NZ First voters may be the ACT 
party, whose leader (Rodney Hide) has been leading the charge 
against Peters by submitting the complaint against Peters to the 
SFO. 
 
 
WELLINGTON 00000287  002.2 OF 002 
 
 
Clark's Actions Face Scrutiny 
----------------------------- 
 
¶6. (SBU)  The fallout from the Peters donation affair has also 
tainted Helen Clark, and prompted the NZ media and political rivals 
to question her integrity.  Clark has faced accusations that she 
shielded Peters from facing tough questions in Parliament, and 
applied a double standard for a minister whose support her 
Government needed when she took a tougher line against Labour Party 
ministers who committed lesser offences, and withheld prior 
knowledge about an alleged offence committed by Peters for six 
months.  Clark is fighting suspicion that her reluctance to come 
down hard on Peters suggests she is places greater importance on 
politics rather than principle. 
 
Peters' Actions Concern the Greens 
---------------------------------- 
¶7. (SBU)  Clark also faces fallout over the Peters affair from the 
Greens, which could affect her ability to form a government after 
the next election.  Present polling suggests that Labour would want 
NZ First to return to parliament in order to get its support as it 
seeks to form a governing coalition.  The Green Party, a key 
traditional ally of Labour whose support it would likely rely on to 
form the next government, has expressed unease about a post-election 
governing arrangement that would include NZ First.  On August 29, 
the co-leader of the Green Party, Jeannette Fitzsimons, revealed 
that she would find it difficult to be in government with Peters. 
Her co-leader, Russell Norman, also stated that the Greens would 
find it "incredibly difficult" to work with Peters in government. 
¶8. (SBU)  Comment.  This week, Parliament's privileges committee 
will hear further testimony surrounding the New Zealand First 
donation controversy.  On September 9, Owen Glenn, one of the 
wealthy New Zealand donors at the center of the controversy, will 
give his version of events before the privileges committee; Peters 
is scheduled to appear the same day.  Glenn's testimony could prove 
damaging to Peters if, as expected, it differs from Peters' 
recollection.  Clark also may be called to give testimony before the 
committee, but Labour MPs are working to prevent her from being 
called.  It remains unclear how this issue will ultimately affect 
both Peters and Clark at election time; at the moment, it's the 
media's favorite political sideshow and has effectively sidelined 
other major issues.  End Comment. 
McCormick