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FM AMEMBASSY MONTEVIDEO
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INFO MERCOSUR COLLECTIVE
RUEAIIA/CIA WASHINGTON DC

UNCLAS MONTEVIDEO 000090 
 
SIPDIS 
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 
 
------------ 
 
 
 
¶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 
 
---------------------------------------- 
 
 
 
¶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 
 
--------------------------------------------- ----- 
 
 
 
¶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 
 
-------------------------------------- 
 
 
 
¶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 
 
--------------------------------------- 
 
 
 
¶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? 
 
------------------------------ 
 
 
 
¶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 
 
------------- 
 
 
 
¶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