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Cablegate: Chile's Transantiago: Searching for Consensus

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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

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