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Cablegate: Planning Minister Interested in Trade Agreement

VZCZCXRO8207
PP RUEHLMC
DE RUEHLP #0732/01 0752024
ZNR UUUUU ZZH
P 162024Z MAR 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 2864
INFO RUEHAC/AMEMBASSY ASUNCION 6650
RUEHBO/AMEMBASSY BOGOTA 3973
RUEHBR/AMEMBASSY BRASILIA 7858
RUEHBU/AMEMBASSY BUENOS AIRES 5108
RUEHCV/AMEMBASSY CARACAS 2338
RUEHPE/AMEMBASSY LIMA 2453
RUEHMD/AMEMBASSY MADRID 3386
RUEHMN/AMEMBASSY MONTEVIDEO 4495
RUEHQT/AMEMBASSY QUITO 4980
RUEHSG/AMEMBASSY SANTIAGO 9566
RUEHLMC/MILLENNIUM CHALLENGE CORP
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0225
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 LA PAZ 000732

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
LIMA FOR USDA/FAS/EPHILHOWER
MCC FOR AKIRSCHENBAUM

E.O. 12958: N/A
TAGS: EAID ECON EINV ETRD BL
SUBJECT: PLANNING MINISTER INTERESTED IN TRADE AGREEMENT

-------
Summary
-------

1. (SBU) Planning Minister Loza told the Ambassador that he
is interested in pursuing a new type of trade agreement with
the United States and emphasized the importance of donor
coordination. He argued that the state development bank
would be a regulated, second tier institution that would have
little impact on the sector as a whole due to its small
amount of capital. He explained that the GOB's appointment
of a new executive secretary for the PL 480 secretariat,
funded by the USG and Japan, would only serve as an interim
secretary with a limited mandate of conducting an audit.

SIPDIS
Loza expressed interest in pursuing a compact with the
Millennium Challenge Corporation. End summary.

---------------
Trade Agreement
---------------

2. (SBU) Planning Minister Gabriel Loza told the Ambassador
on March 13 that, according to his vision, Bolivia must be
inserted into the world market, particularly the important
U.S. market. He is interested in pursuing a new type of
trade agreement with the United States and suggested forming
a technical working group supported by USAID and a GOB
think-tank to provide analysis that could be used to help
generate a GOB proposal.

------------------
Donor Coordination
------------------

3. (SBU) Loza emphasized the importance of donor coordination
and communication. The Ambassador explained that although
around 65 percent of U.S. aid it given directly to private
partners rather than to the GOB, our aid is coordinated with
the ministries, and USAID participates in the donor
harmonization process.

----------------------
State Development Bank
----------------------

4. (SBU) In response to Ambassador Goldberg's expression of
concern about the future of Bolivia's model microfinance
sector, Loza argued that the state development bank would be
a second-tier lending institution that would follow
prudential norms and be monitored by the banking regulator.
He asserted that the state should intervene in the financial
system to generate greater competition and lower interest
rates, forcing private banks to decrease the spread between
assets and liabilities. He added that the state development
bank would aim for single digit rates, potentially around
nine percent. He argued that because the bank would only
have USD 60 million in initial capital and a planned USD 200
million by year-end, it would not harm the sector, as the
whole system has around USD 4 billion. He explained that the
Andean Development Corporation would partner with the bank,
and that the bank would have a delimited "social production
arm" that would provide subsidies, donations, bonuses, etc.
The bank would focus on supporting five productive sectors:
textiles, leather, wood, food processing, and tourism, he
said. He said that the government does not support imposing
interest rate caps.

------------------

LA PAZ 00000732 002 OF 002


PL 480 Secretariat
------------------

5. (SBU) The Ambassador pointed out that, according to a
written agreement, the GOB must consult USAID before changing
leadership at the PL-480 secretariat, a GOB entity supported
by USG and Japanese funds to administer PL-480 Title I and
Title III and other donations. The Ambassador expressed
concern about the government's proposed appointment of a new
executive secretary who seems unqualified. Loza agreed to
put in writing that the new secretary would only be appointed
on an interim basis with the limited mandate of conducting an
audit of the secretariat and that USAID would be consulted
regarding the permanent replacement. He explained that the
audit was necessary due to allegations he had received from
the Bolivian controller general.

---
MCC
---

6. (SBU) The Ambassador noted that the GOB had submitted a
good proposal to the Millennium Challenge Corporation in
December 2005 and encouraged Loza to base the revised
proposal on the original one. He added that Bolivia would
need to continue complying with MCC requirements to work
towards a compact in 2008. Loza responded that MCC and other
programs that would benefit the Bolivian people, such as
ATPDEA trade benefits, are important and should be pursued.


-------
Comment
-------

7. (SBU) On donor coordination, Loza failed to mention that
one of the largest donors -- Venezuela -- does not
participate in the coordination process, reducing the
efficacy of the program. On the state development bank, Loza
failed to mention the possibility of the state-owned Union
Bank and the now Venezuelan-owned Prodem microfinance lender
working together with the state development bank to directly
lend to the public in unfair, subsidized competition with the
private sector. The addition of those two institutions to
the development bank program would have a significant impact
on the sector. End comment.
GOLDBERG

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