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FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0952
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 04 SANTIAGO 000049 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV OVIP ECON CI
SUBJECT: Scenesetter for Secretary Clinton's March 1-2 Visit to Chile 
 
¶1.  (SBU) Welcome to Chile.  Your visit in the final days of the 
Bachelet administration will highlight the outstanding relations 
that we have enjoyed with Chile over the past four years.  You will 
also meet President-elect Sebastian Pinera, an energetic moderate 
whose election marks a historic change from 20 years of center-left 
Concertacion rule.  Both Bachelet and Pinera are taking pains to 
ensure a smooth transition that will enhance Chile's already strong 
democratic and economic institutions.  Pinera and his foreign 
policy team are eager to further strengthen and deepen our 
bilateral relationship, and we will have ample opportunities to do 
so as we jointly address regional and global issues.   In addition 
to the change in government, 2010 is a historic year as Chile 
celebrates its bicentennial and joins the OECD.   The first is 
emblematic of our long, shared democratic history, while the second 
is yet another opportunity to work together to advance our shared 
interests. 
 
 
 
Chilean Leadership:  At a Historic Crossroads 
 
--------------------------------------------- ------------- 
 
 
 
¶2.  (SBU) Your visit comes at a historic moment for Chilean 
politics:  the cusp of the inauguration of Chile's first 
center-right leader since military rule ended in 1990.  Wealthy, 
Harvard-educated businessman Sebastian Pinera defeated former 
president Eduardo Frei to win Chile's run-off presidential election 
on January 17.  He will be inaugurated as the country's new 
president on March 11, just a week after your visit.  Pinera's 
election was historic.  The center-left Concertacion coalition had 
governed the country continually for 20 years, ever since the end 
of the Pinochet dictatorship in 1990.  Pinera, a centrist who hails 
from the country's center-right Alianza coalition, will be the 
first center-right figure to lead Chile since Pinochet and is the 
first to be elected to the presidency since 1958.  This is a change 
of tremendous symbolic importance, signaling that the country has 
moved past a political discourse that has long calcified around who 
supported and opposed the military regime.  Nonetheless, policy 
changes are likely to be modest.  President Michelle Bachelet has 
built broad support for her policies, particularly for her expanded 
social safety net.  Pinera has promised to continue many of these 
policies, but will bring a pro-business, pro-entrepreneurship 
twist. 
 
 
 
¶3.  (SBU) Meanwhile, outgoing President Bachelet and her 
Concertacion coalition are caught in a political paradox.  Bachelet 
herself is incredibly popular--enjoying an unprecedented 83% 
approval rating--and there is broad consensus that the Concertacion 
has been very successful in consolidating democracy, strengthening 
institutions, and overseeing impressive economic growth. 
Nonetheless, voters see the Concertacion as tired and stale, having 
failed to confront problems with low-level corruption or include 
newer leaders in its ranks.  The Concertacion's choice of Eduardo 
Frei, the uncharismatic 67-year old former president and son of a 
president, as its presidential candidate only amplified this 
perception and contributed to the Concertacion's electoral loss. 
 
 
 
¶4.  (SBU) Electoral defeats--the loss of the presidency and also a 
relatively poor showing in the December 2009 congressional 
elections--have left the Concertacion in disarray.  Over the past 
month, party leaders have squabbled in the press about who is at 
fault, demanded and refused to submit resignations, and attacked 
the few party members who agreed to take high-level positions in 
the Pinera government.  Meanwhile, Bachelet herself has remained 
above the fray, highlighting the achievements of 20 years of 
Concertacion rule, instructing her staff to cooperate with their 
successors, and maintaining her international presence through a 
trip through Mexico, Haiti, Trinidad and Tobago, and Guatemala.  In 
response to a request from the UN women and children's agency 
UNIFEM, Bachelet has agreed to serve as spokesperson on behalf of 
Haiti's women and children--a role that will keep her in the public 
eye as an international statesman and the caring protector of 
vulnerable people.  Bachelet is also considering other options, 
including a possible role as Latin assistance coordinator for 
Haiti.  Meanwhile, many in Chile's left are already banking on a 
Bachelet presidential campaign in 2013. 
 
SANTIAGO 00000049  002 OF 004 
 
 
¶5.  (SBU) In the weeks since the election, Pinera and Bachelet have 
both taken pains to ensure a gracious, open, and efficient 
transition.  Pinera and his team have been moving decisively to hit 
the ground running on March 11.  Pinera unveiled his new cabinet on 
February 9, naming many well-educated technocrats with strong 
private sector ties.  (Sixteen of the 22 ministers-designate have 
studied at a U.S. university.)  Political heavy hitters who had 
worked hard to get Pinera elected complained that relatively few 
ministers were drawn from their ranks, but these concerns were 
largely answered by Pinera's inclusion of more political insiders 
at the under secretary level, an announcement he made on February 
¶19. 
 
 
 
United States and Chile as Partners 
 
--------------------------------------------- - 
 
 
 
¶6.  (SBU) The U.S. and Chile are strong allies, working together on 
a variety of bilateral, regional, and global issues.  The Obama and 
Bachelet administrations have enjoyed a close rapport, as signaled 
by Vice President Biden's March 2009 visit to Chile, President 
Bachelet's work with you and President Obama at the April 2009 
Summit of the Americas, and her subsequent visit to Washington last 
June.  Pinera advisors tell us they want to bring the U.S. and 
Chile even closer during the next four years.   President-elect 
Pinera is slated to visit Washington in April for President Obama's 
Nuclear Safety Summit, one of Pinera's first trips overseas as 
president. 
 
 
 
¶7. (U) The U.S. and Chile have forged a vibrant bilateral 
partnership, with strong institutions in both countries ensuring 
continued cooperation from the bottom up as well as from the top 
down.  During President Bachelet's visit to Washington, we signed 
agreements on clean energy cooperation and cancer research, 
reflecting the breadth of our relationship.  The Chile-California 
Partnership for the 21st Century, launched by Bachelet and Governor 
Schwarzenegger in June 2008, highlights the economic and geographic 
similarities between Chile and California and fosters collaboration 
in agriculture, energy efficiency, environmental resource 
management, and education.  In early 2010, the United States and 
Chile signed a new extradition treaty, a double taxation treaty, 
and an MOU on trilateral cooperation, further strengthening 
bilateral ties in the last months of the Bachelet administration. 
Bilateral military and law enforcement ties are among the best in 
the hemisphere.  We expect strong continuity in this cooperation, 
with little turnover in the senior ranks. 
 
 
 
¶8.  (U) The U.S.-Chile Free Trade Agreement (FTA) is a cornerstone 
of our relationship.  The U.S. is Chile's largest trading partner, 
and Chile is our fifth largest trading partner in Latin America. 
Bilateral trade has more than doubled since the FTA went into 
effect in 2004, totaling more than $16 billion in 2009.  Despite 
this success, sticking points remain, such as Chile's failure to 
implement strong protection for intellectual property rights, as 
required by the FTA. 
 
 
 
Chile on the International Stage 
 
------------------------------------------ 
 
 
 
¶9.  (SBU) The broad parameters of Chile's foreign policy will 
remain constant under Pinera, who brings English language skills, 
overseas experience, expert-level economics knowledge, and a 
pro-U.S./pro-free market stance to his diplomacy.  Pinera advisors 
tell us that the new administration will prioritize relations with 
the United States and Latin America.  Some observers have 
speculated that Pinera may have less patience with regional 
populists than President Bachelet had.  Chile's relationship with 
Latin American political and economic powerhouse Brazil is likely 
to be particularly important.  Questions about the way forward in 
Haiti, where Chile has maintained a 500-person strong peacekeeping 
contingent for the past several years, will be an important theme 
 
SANTIAGO 00000049  003 OF 004 
 
 
in months and years to come. 
 
 
 
¶10.  (SBU) Chile's ongoing maritime border dispute with Peru proved 
to be a frequent irritant to President Bachelet.  Relations between 
the two countries have soured since January 2008 when Peru asked 
the International Court of Justice (ICJ) to rule on its maritime 
border with Chile.  Peru submitted its case in March 2009.  Chile 
will submit its response to the ICJ in March 2010, but the final 
ruling will not come until 2012.  Pinera may place greater 
attention on promoting investment and trade cooperation with Peru, 
but it remains to be seen if both sides can keep the border dispute 
from dominating their bilateral relationship. 
 
 
 
¶11.  (SBU) Under President Bachelet, Chile became increasingly 
engaged in regional and global issues.  Bachelet served as 
president pro tempore of UNASUR; established a moderate tone for 
President Obama's initial meeting with regional leaders at the 
Summit of the Americas; and played constructive roles on Cuba's 
conditional re-entry into the OAS, the conflict in Honduras, and 
the U.S.-Colombia Defense Cooperation Agreement. 
 
 
 
¶12.  (SBU) Two early regional challenges for Pinera will be the Rio 
Group and the OAS.  Chile assumed the pro tempore presidency of the 
Rio Group in February, and Pinera accompanied Bachelet to the 
meeting in Mexico.  Chile will need to manage enlargement of the 
Rio Group and the claims of some that an enlarged Rio Group could 
replace the OAS (a view Chile firmly rejects).  Despite misgivings 
about Jose Miguel Insulza's leadership at the OAS and frustration 
about his tendency to intervene in domestic politics, Pinera 
announced February 12 that he would back Insulza's re-election as 
OAS Secretary-General.  Within the sphere of multilateral politics, 
OAS reform is top on Pinera's agenda, with the President-elect 
having argued during his campaign that the Democratic Charter 
should be strengthened to guard against undemocratic actions taken 
by legitimately elected governments. 
 
 
 
¶13. (SBU) In June, the United States and Chile agreed to cooperate 
jointly in promoting development in other countries in the region. 
Under this trilateral initiative, we are already working together 
on infrastructure development in Costa Rica and sharing 
agricultural expertise with Central America.  We have agreed to 
focus new efforts on Paraguay and El Salvador, and hope to carry 
this promising initiative into the next Chilean administration.  We 
will need to quickly engage the new government on several upcoming 
meetings, notably President Obama's Nuclear Safety Summit and the 
Energy and Climate Ministerial of the Americas, both in April in 
Washington.  On the trade front, Chile is excited about the 
President's commitment to participate in the Trans-Pacific 
Partnership, which will hold its next meeting in Melbourne in 
mid-March.  The GOC has repeatedly expressed its interest in 
joining the G-20 to play a role in reforming the international 
financial architecture. 
 
 
 
Economic Excellence and Challenges 
 
--------------------------------------------- --- 
 
 
 
¶14. (SBU) Chile has been rightfully lauded for its sound economic 
policies over the past two decades, with a combination of steady 
growth and targeted social policies driving down poverty rates from 
40% to less than 15% since the restoration of civilian rule. 
President Bachelet and Finance Minister Andres Velasco built on 
that reputation with their skillful management of the Chilean 
economy during the global economic crisis.  Chile's trade-based 
economy suffered from the global contraction in demand, and GDP 
shrank 1-2% in 2009, while unemployment crept over 10%.  However, 
the negative effects were tempered by Chile's strong economic 
fundamentals and sound institutions, plus a more than $4 billion 
stimulus package.  The economy is showing strong signs of recovery 
and is expected to grow 4.5-5.5% in 2010. 
 
SANTIAGO 00000049  004 OF 004 
 
 
¶15. (SBU) Pinera has declared his aspiration for Chile to achieve 
developed country income levels in the next 15-20 years.  This is 
feasible, but also a huge challenge.  In recent years, growth rates 
have slowed compared to Chile's neighbors, and Chile's productivity 
has actually fallen over the past decade.  Chile seems to have 
realized most of the initial benefits brought by macroeconomic 
stability, free trade, and a commodities-led export strategy.  The 
new government will maintain the key features of the economic model 
that has brought Chile great success:  stability, strong 
institutions, fiscal discipline, and a prominent role for the 
private sector.  Pinera will look to generate greater economic 
growth and job creation by promoting investment, in part through 
tax reform, but also by creating a more business-friendly 
atmosphere throughout the Chilean bureaucracy, which can be slow 
and even stifling.  Education, innovation, and labor reform will be 
critical for improving productivity over the medium- and long-term. 
 
 
 
¶16. (SBU) In this context, Chile's accession to the Organization 
for Economic Cooperation and Development (OECD) is timely. 
Accession is a signature accomplishment for Bachelet and Velasco, 
and is an acknowledgement of Chile's high quality economic 
policies.  Furthermore, access to the OECD's expertise and 
experience can also help guide Chile's next wave of economic reform 
necessary to become a developed country. 
 
 
 
Environment and Energy Cooperation 
 
--------------------------------------------- ---- 
 
 
 
¶17. (U) Our energy and environment cooperation is already strong, 
and we will work with the incoming Pinera administration to further 
enhance it.  On January 20, U.S. and Chilean officials met in 
Washington to discuss progress under the environmental chapter of 
the U.S.-Chile FTA and Environmental Cooperation Agreement.  They 
also signed an environmental work plan for 2009-2011 which 
envisions supporting Chile's new Ministry of Environment; aiding 
renewable energy and energy efficiency sectors; reducing emissions; 
and promoting conservation and environmental management best 
practices and stewardship. 
 
 
 
¶18. (SBU) Our energy cooperation with Chile is robust.  In June 
2009, the U.S. and Chile signed a Clean Energy Technology MOU, one 
of the first concrete steps taken under President Obama's Energy 
and Climate Partnership of the Americas.  The Department of Energy 
(DOE) is providing technical support to a new Renewable Energy 
Center and two pilot solar plants in Chile.  Under its Global Treat 
Reduction Initiative, the DOE is also working with Chilean 
authorities to remove highly enriched uranium from research 
reactors before the April 2010 Non Proliferation Treaty Review 
Conference. 
 
 
 
¶19. (SBU) Chile is actively engaged on energy issues in the 
international arena.  It is a member of the new International 
Renewable Energy Agency (IRENA) and the International Atomic Energy 
Agency (IAEA), and has been helpful on Iran non-proliferation 
issues.  With our support, the International Energy Agency (IEA) 
published an in-depth review of Chile's energy policies in October 
¶2009.  Chile is already implementing recommendations from this 
study, including creating a new Ministry of Energy.  Chile 
announced at the Copenhagen Climate Change Conference that it would 
-- voluntarily and using primarily its own domestic resources -- 
reduce greenhouse gas emissions 20% below "business as usual" by 
¶2020.  On January 29, Chile adhered to the Copenhagen Accord, but 
did not formally commit to any specific mitigation actions, in part 
due to domestic disagreement on the baseline. 
 
 
 
SIMONS 
SIMONS