Cablegate: Troubled Nz Fm Steps Aside; Pressure Remains On Pm Clark

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UNCLAS SECTION 01 OF 02 WELLINGTON 000287

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E.O. 12958: N/A
TAGS: PGOV KCRM KDEM NZ
SUBJECT: TROUBLED NZ FM STEPS ASIDE; PRESSURE REMAINS ON PM CLARK

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1. (SBU) Summary. On August 29, Winston Peters agreed to step down
as New Zealand's Foreign Minister pending investigation over fraud
allegations involving his New Zealand First party. PM Helen Clark
has assumed Peters' portfolios but left the door open for him to
resume his ministerial duties if cleared of wrongdoing. With the
prospect of being called before Parliament's Privileges Committee
regarding her knowledge of Peters' financial affairs, Clark herself
faces scrutiny over this matter. National has ruled out working
with Peters in a future governing coalition, which many view as a
political gamble given the tightening of the political race between
Clark and Key. End Summary.

Peters Steps Aside as FM; Clark Takes Over
------------------------------------------

2. (SBU) On August 29, Prime Minister Helen Clark announced that
Winston Peters had voluntarily stepped aside as New Zealand's
Minister of Foreign Affairs while allegations of fraud relating to
political donations to his party are investigated. Peters and his
New Zealand First Party (NZ First) have been subjected to
allegations of providing misleading statements about party donations
from several wealthy contributors and financial misconduct for
several months. On August 28, New Zealand's Serious Fraud Office
(SFO) launched an investigation into NZ First finances, and what
happened to donations made to the party by wealthy New Zealand
businessmen. Said Clark, "It's very clear to me and very clear to
(Peters) that the appropriate thing is for him to stand aside from
his portfolios while the Serious Fraud Office conducts its
investigation."

3. (SBU) In addition to the SFO investigation, the parliamentary
privileges committee is looking into whether Peters should have
declared a donation paid to legal costs he incurred arising from the
2005 election. Peters has continued to deny any wrongdoing and has
called all allegations against him and the party "vile, malicious
and malevolent." At Peters' request, Clark has taken over his
ministerial responsibilities, which also include the portfolios of
racing and senior citizens, in the intervening time. Clark,
however, suggested that the door is open to Peters to resume his
ministerial duties should he be cleared by the SFO.

Face-saving Gesture Ensures Peters' Support
-------------------------------------------

4. (SBU) By taking on Peters' ministerial portfolios at his
request, Clark spared him the humiliation of firing him and
distributing his portfolios between more junior ministers. Some
commentators speculated that a change in Peters' ministerial
circumstances would damage the hitherto good relationship between
Clark and Peters and thus destabilize the Government. However,
Clark's face-saving gesture, in addition to her strong rapport with
Peters, was instrumental in maintaining NZ First support for the
Labour-led Government. As a result, NZ First has promised its
support for the Government's Emissions Trading Scheme (ETS)
legislation, expected to pass parliament this week.

National Will Not Work with Peters
----------------------------------

4. (SBU) While Clark maintains support for the besieged Peters, the
opposition National Party has explicitly ruled out working with him
in a National-led Government. On August 27 and in a calculated
political move, National leader John Key announced that Peters would
not have a role in any future National coalition regardless on
whether he is cleared of any wrongdoing. Most political analysts
see this as a significant political gamble, as Key may not have the
luxury of turning away potential coalition partners in a
post-election environment where neither Labour or National gain a
clear majority. At the moment, Key is banking on National
maintaining its lead over Labour in the polls and the very real
possibility that NZ First will not get enough votes to return to
parliament at the election. Key has also calculated that public
patience with Peters has run out.

5. (SBU) Key's categorical rejection of a post-election deal with
Peters, no matter the election outcome, has effectively bonded NZ
First to Labour. National is now expected to campaign that a vote
for NZ First is a vote for Labour, which could damage support for
both NZ First and Labour. Many NZ First supporters prefer a
coalition with National and may shift their votes to National.
Another potential beneficiary of NZ First voters may be the ACT
party, whose leader (Rodney Hide) has been leading the charge
against Peters by submitting the complaint against Peters to the
SFO.

WELLINGTON 00000287 002.2 OF 002

Clark's Actions Face Scrutiny
-----------------------------

6. (SBU) The fallout from the Peters donation affair has also
tainted Helen Clark, and prompted the NZ media and political rivals
to question her integrity. Clark has faced accusations that she
shielded Peters from facing tough questions in Parliament, and
applied a double standard for a minister whose support her
Government needed when she took a tougher line against Labour Party
ministers who committed lesser offences, and withheld prior
knowledge about an alleged offence committed by Peters for six
months. Clark is fighting suspicion that her reluctance to come
down hard on Peters suggests she is places greater importance on
politics rather than principle.

Peters' Actions Concern the Greens
----------------------------------
7. (SBU) Clark also faces fallout over the Peters affair from the
Greens, which could affect her ability to form a government after
the next election. Present polling suggests that Labour would want
NZ First to return to parliament in order to get its support as it
seeks to form a governing coalition. The Green Party, a key
traditional ally of Labour whose support it would likely rely on to
form the next government, has expressed unease about a post-election
governing arrangement that would include NZ First. On August 29,
the co-leader of the Green Party, Jeannette Fitzsimons, revealed
that she would find it difficult to be in government with Peters.
Her co-leader, Russell Norman, also stated that the Greens would
find it "incredibly difficult" to work with Peters in government.
8. (SBU) Comment. This week, Parliament's privileges committee
will hear further testimony surrounding the New Zealand First
donation controversy. On September 9, Owen Glenn, one of the
wealthy New Zealand donors at the center of the controversy, will
give his version of events before the privileges committee; Peters
is scheduled to appear the same day. Glenn's testimony could prove
damaging to Peters if, as expected, it differs from Peters'
recollection. Clark also may be called to give testimony before the
committee, but Labour MPs are working to prevent her from being
called. It remains unclear how this issue will ultimately affect
both Peters and Clark at election time; at the moment, it's the
media's favorite political sideshow and has effectively sidelined
other major issues. End Comment.
McCormick

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