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C O N F I D E N T I A L SECTION 01 OF 03 SANTIAGO 000566

SIPDIS

NSC FOR DENIS MCDONOUGH/DAN RESTREPO
OVP FOR BRIAN MCKEON

E.O. 12958: DECL: 06/16/2019
TAGS: PGOV PREL ECON ETRD MARR CI ENRG SOCI
SUBJECT: SCENESETTER FOR PRESIDENT BACHELET'S VISIT TO
WASHINGTON

Classified By: AMBASSADOR PAUL SIMONS FOR REASONS 1.4 (B/D).

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SUMMARY
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¶1. (C) Chilean President Michelle Bachelet's June 23-24 visit
to Washington represents an opportunity to broaden and deepen
the "equal partnership" we enjoy with one of the
hemisphere,s most successful democracies. Chile is off to a
strong start with the Obama Administration. The Vice
President,s March visit to Chile powerfully signaled
Washington's interest in engaging with Chile and the region,
while Presidents Bachelet and Obama worked effectively
together at the Summit of the Americas. Meanwhile, in early
June, Chile played a constructive role in backing the U.S.
resolution on Cuba's conditional re-entry into the OAS.
President Bachelet is keenly interested in forging even
stronger bonds with the Obama Administration. The visit will
offer an opportunity to review regional developments with a
trusted partner and deepen cooperation on new issues ranging
from renewable energy to assistance for Haiti and Central
America.

--------------------------------------------- ---
Sky High Approval Ratings for President Bachelet
--------------------------------------------- ---

¶2. (C) Chile's first female president, Michelle Bachelet, is
wildly popular, enjoying the highest approval rating ever
(76%) of any Chilean president. Under talented Finance
Minister Andres Velasco, Chile has responded effectively to
the global financial crisis, drawing down on Chile's
sovereign wealth funds to finance a USD 4 billion economic
stimulus program featuring new jobs, labor subsidies for
youth workers, and targeted tax cuts. Despite her economic
success, Bachelet views her legacy primarily in the social
sphere. Her initiatives have expanded Chile's privatized
pension scheme to vulnerable lower-income populations,
offered free day care and basic nutrition for low-income
families, expanded access to health care, and strengthened
public education.

--------------------------------------------
A Tight Race Ahead: December 2009 Elections
--------------------------------------------

¶3. (C) Despite President Bachelet's popularity, the ruling
center-left Concertacion coalition faces a tight race in
December's presidential and parliamentary elections. The
President is constitutionally precluded from immediate
re-election, and candidates from the two main political
coalitions are at a loss as to how to portray themselves.
Chileans are tired of 20 years of Concertacion rule, some
inefficiency and mismanagement in government, and the same
faces dominating Chilean politics. On the other hand,
President Bachelet is enormously popular, her policies are
generally well-regarded, and Chileans are grateful that the
financial crisis has not hit their country harder.
Billionaire entrepreneur Sebastian Pinera, representing the
center-right Alianza coalition, has a 10 to 15 point lead
over likely Concertacion candidate Eduardo Frei, a Senator
and former President (1994-2000). Upstart challenger Marco
Enriquez-Ominami, a 36-year old legislator, is bucking the
Concertacion establishment to run a surprisingly successful
independent candidacy, but it is more style than substance in
our estimation. Either of the two leading candidates would
be strong partners for the Obama Administration.

-------------------------------------
A Bruised Economy Poised for Recovery
-------------------------------------

¶4. (SBU) Chile is fortunate to be in a strong economic
position to face the global economic downturn. The country
traditionally runs budget surpluses (5.2% of GDP in 2008),
has virtually no public debt, and has over USD $20 billion in
offshore sovereign wealth funds, much of it from record
copper revenues. One of world,s most open economies, Chile
boasts trade agreements with 58 countries. Thanks to strong
economic growth and targeted initiatives, poverty has dropped
from 40% of the national population in 1990 to 14% in 2006.
Nonetheless, the global economic downturn has significantly
impacted Chile,s real economy, with unemployment rising to
double digit levels and the economy set to contract by 1%
this year.

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A Strong and Dynamic Bilateral Relationship
-------------------------------------------

¶5. (SBU) The U.S. and Chile have forged a vibrant bilateral
partnership over the years, with strong institutions in both
countries ensuring continued cooperation from the bottom up
as well as from the top down. The new Chile-California
Partnership for the 21st Century, launched by President
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.
Bilateral military and law enforcement ties are among the
very best in the Hemisphere. Under the U.S.-Chile Free Trade
Agreement, annual bilateral trade has nearly tripled in five
years to $20 billion, with Chile our fifth largest trading
partner in Latin America. Weak intellectual property
protection is among the very few strains in an otherwise
thriving trade and investment relationship.

--------------------------------------------- -----------
Clean Energy, Health, and Education -- Shared Priorities
--------------------------------------------- -----------

¶6. (SBU) U.S. Chile cooperation is set to expand into
several Obama Administration priorities -- clean energy,
health and education.

-- Chile,s renewable energy endowments -- solar, wind, and
geothermal -- are among the best in the hemisphere. A strong
proponent of the Energy and Climate Partnership for the
Americas initiative, Chile will sign a Memorandum of
Understanding with the U.S. Department of Energy to
strengthen Chile's new renewable energy center and help
launch solar energy pilot projects in northern Chile.

-- Improving health care is a key part of President
Bachelet's legacy. She has expanded coverage to those most
in need, developing health care facilities in poorer
neighborhoods and improving coverage for dozens of the most
frequent illnesses. The U.S. and Chile are now exploring
ways to deepen cooperation in providing health care to third
countries. With infant and maternal mortality rates similar
to developed countries, Chile has focused its assistance in
South American countries to lower the mortality rates where
it is highest -- Bolivia, Paraguay, and Ecuador. U.S. and
Chilean experts could expand further Chile's effective
assistance to help reduce infant and maternal mortality rates
in Central America and Haiti.

--President Bachelet has sought with less success to improve
Chile's public education system. However, she has launched
important initiatives and worked with us to expand
post-graduate studies in the United States. Under the Equal
Opportunities Scholarship Program launched in 2007, up to 100
talented and less advantaged Chileans with limited English
are able to study English and pursue PhD programs at U.S.
universities each year. This initiative is funded in part by
a $6 billion GOC endowment that helps finance a broader
expansion of graduate education, much of it focused on U.S.
universities.

-----------------------------------
Possible Bachelet Discussion Topics
-----------------------------------

¶7. (SBU) President Bachelet or other members of her
delegation may raise the following topics -- that loom large
in the Chilean context -- during her visit with President
Obama or other USG officials:

--Regional overview. Bachelet may wish to present her views
on regional trends in the two months following the Trinidad
summit. Chile may offer to weigh in with Bolivia and Ecuador
to promote more moderate, pro U.S. policies.

--Haiti/Central America. Bachelet may raise the potential
for triangular U.S. Chile cooperation in heath, law
enforcement, and agriculture with other partners in the
hemisphere including Haiti and Central America.

--Global economic recovery. Chile,s strong economic
institutions, sound fiscal policies, and intellectual
leadership give its voice weight in Latin America. Bachelet

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may wish to provide Chile's
input on the global economic recovery, and could ask to join
the G-20.

-- AH1N1 Flu Virus. Chile is the fourth country with the
most registered AH1N1 cases, and the flu virus is spreading
rapidly in the current wet winter climate. CDC is working
closely with its Chilean counterparts to monitor the
outbreak. Bachelet may discuss the flu outbreak and seek
more anti-viral medicine, Tamiflu, from the large U.S.
stockpile.

--Black Liquor/Intellectual property. Chile is seeking early
elimination of a tax credit received by U.S. paper companies
for mixing a pulp by-product with diesel fuel. The Chilean
pulp and paper industry has decried the measure as a subsidy
that makes their companies uncompetitive. We have been
working with Chile,s trade ministry to see if progress on
this issue could be combined with advances in fulfilling
Chile,s intellectual property commitments.
SIMONS