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OO RUEHWEB

DE RUEHSG #1139/01 3581904
ZNR UUUUU ZZH
O 231904Z DEC 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4186
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SANTIAGO 001139 
 
STATE PLEASE PASS TO USTR KATE DUCKWORTH 
STATE FOR WHA/BSC, WHA/EPSC, EEB/TRA/OTP, EEB/IFD/ODFTREASURY FOR 
SSENICH 
COMMERCE FOR KMANN 
 
SENSITIVE 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELTN ETRD EINV PGOV PREL CI
 
SUBJECT:  CHILE'S TRANSANTIAGO:  SEARCHING FOR CONSENSUS 
 
REF: SANTIAGO 812 
 
¶1. (SBU) SUMMARY:  The Ambassador met with Transportation Minister 
Rene Cortazar December 17 to request an update on Transantiago. 
Cortazar explained the latest improvements in the capital city's 
public transportation system.  The GOC is working with the Congress 
to reach an agreement on funding Transantiago.  Cortazar is 
proposing to resolve three specific issues: a broader mass 
transportation policy, a long-term financing mechanism for 
Transantiago, and repaying the IDB.  Cortazar is optimistic he can 
reach an agreement with Congress on these issues in January 2009. 
He affirmed the GOC would likely use the 2% 
Constitutionally-permitted emergency budget to fund Transantiago in 
the meantime.  Cortazar implied the same 2% could be used to repay 
the IDB loan, though he gave no specifics.  Recent press reports 
indicate Cortazar is still locked in negotiations with key members 
of the opposition to reach an accord on Transantiago.  Post believes 
the Minister's January timeframe for an agreement may be ambitious. 
END SUMMARY. 
 
Background on IDB Loan to Transantiago 
-------------------------------------- 
 
¶2. (U) As detailed in ref, the InterAmerican Development Bank 
approved a $400 million loan in April to improve Transantiago, the 
city's problem-fraught public transportation system.  The funding 
was given to the Transportation System Financial Administrator 
(AFT), the private consortium of banks that administer Transantiago. 
 The IDB loan was guaranteed by CORFO, Chile's state development 
promotion agency.  The IDB conditioned the loan on GOC passage of a 
law providing permanent financing for Transantiago. 
 
¶3. (U) The Chilean Congress did not approve the draft law (due to 
opposition votes against it).  The opposition argued the transport 
system was a failure, the financing mechanism proposed was not 
transparent, and the system discriminated against other mass 
transportation systems in Chile.  Congress' rejection of the law 
placed the GOC and AFT in a difficult position facing a "Default 
Event" on the loan.  Furthermore, in September, the Constitutional 
Tribunal ruled unconstitutional the terms under which the GOC, AFT, 
and IDB negotiated the loan. 
 
¶4. (U) The GOC was forced to start from scratch in drafting a plan 
to fully fund Transantiago, which continues to run an operating 
deficit.  The Government said it would consider using the 
Constitutionally-permitted 2% of the budget set aside for national 
emergencies.  In addition, Minister Cortazar and his staff started 
consultations with the opposition to find a solution.  The GOC is 
also still on the hook to repay the IDB loan, in a manner that is in 
keeping with the Constitution. 
 
¶5. (U) In October, the Chilean Congress formed an Investigative 
Committee on Transantiago.  The Committee has 50 working days to 
investigate whether management of Transantiago has been appropriate 
and legal, including the administration of the IDB loan and other 
loans provided by Chilean entities.  The Committee has requested 
hearings with several ministers, other government officials, and IDB 
representatives in Chile.  On January 5, 2009 the Committee will 
close its investigation and issue a final report to be voted on by 
the Chamber of Deputies. 
 
Cortazar Tells Ambassador:  We'll Have to Use 2% 
--------------------------------------------- --- 
 
¶6. (SBU) The Ambassador, Econoff, and Econ Specialist met with 
Minister of Transportation Rene Cortazar December 17, in response to 
the Ambassador's request for an update on Transantiago.  Cortazar 
said there had been gradual improvements in the system.  The system 
had recently implemented GPS technology and old, short-distance 
shuttle buses had been replaced with newer models.  Cortazar 
acknowledged the public still held a dismal view of the system, but 
the increase in coverage, routes, and the number of buses was 
improving the public's evaluation of Transantiago. 
 
¶7. (SBU) Cortazar also told the Ambassador the level of users' fee 
avoidance had dropped from about 40 percent to 11 percent during 
recent months.  Although falling gas prices could have helped 
Transantiago's budget deficit, they had been offset by the Chilean 
Peso's depreciation against the U.S. Dollar.  Cortazar stressed that 
several technical issues still needed fixing.  In order to pressure 
bus operators to continue improving service, the Ministry of 
Transportation had been forced to fine some operators and cash in 
guarantees for some companies that had missed negotiated deadlines. 
 
 
¶8. (SBU) The Ambassador asked about long-term solutions to financing 
Transantiago.  Cortazar was optimistic current GOC efforts to reach 
an agreement with the Senate's Transportation Committee would bear 
fruit.  He noted he was working on three main policy areas:  a 
broader mass transportation policy (including in areas outside the 
capital), a permanent and long-term mechanism to fix Transantiago's 
financing, and repayment of the IDB loan.  According to Cortazar, 
despite some recent public statements to the contrary, the 
opposition was willing to work with the GOC on these issues.  This 
included key members of Sebastian Pinera's (RN) opposition 
presidential campaign team.  Cortazar expected the GOC and 
opposition could reach an accord in January 2009.  Until then, he 
thought it likely the GOC would have to resort to the 2% emergency 
budget to fund Transantiago. 
 
¶9. (SBU) The Ambassador underlined the importance of the GOC's 
prompt repayment of the IDB loan, not least to keep Chile's 
international standing unblemished.  Cortazar implied the GOC could 
use the 2% emergency budget to pay back the IDB loan as well, though 
he gave no further specifics.  [Note:  Post believes the GOC would 
need to pass special legislation for this purpose in order to make 
the payments constitutional.] 
 
Negotiating an Agreement 
------------------------ 
 
¶10. (U) Subsequent to the Ambassador's meeting with Cortazar,  GOC 
Spokesman, Minister Francisco Vidal, confirmed publicly  that 
Cortazar was engaged in negotiations with the opposition and 
Sebastian Pinera in order to reach an agreement on issues related to 
Transantiago (these meetings had not previously been made public). 
Press reports during the weekend of December 20 indicated members of 
the opposition met to strategize on finding an acceptable resolution 
to Transantiago with the GOC. 
 
¶11. (SBU) Comment:  Although Minister Cortazar is optimistic the GOC 
and Congress can reach agreement in January, this date may be a 
little too ambitious.  Congress enters recess on January 23.  While 
it is possible the GOC and members of the opposition in Congress may 
reach a resolution and draft an agreement by that date, it will be 
difficult.  It is unclear whether the ongoing negotiations have 
tackled repayment of the IDB loan, which so far has garnered little 
public attention.  Given the complexity of the issues and the 
limited time available before Chile starts its period of summer 
vacation, an agreement on Transantiago may be postponed until March 
¶2009. 
URBAN