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Cablegate: Venezuela's Bandes Opens Its Doors in Nicaragua

VZCZCXRO2361
RR RUEHLMC
DE RUEHMU #1615/01 1831615
ZNR UUUUU ZZH
R 021615Z JUL 07 ZDK
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 0674
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1119
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 001615

SIPDIS

SIPDIS
SENSITIVE

STATE FOR WHA/CEN, WHA/EPSC, WHA/AND, AND EEB

E.O. 12958: N/A
TAGS: EFIN ECON PGOV PREL NU VE
SUBJECT: VENEZUELA'S BANDES OPENS ITS DOORS IN NICARAGUA
(C-AL7-00733)


MANAGUA 00001615 001.5 OF 002


1. (SBU) Summary: On June 21, President Ortega officially opened
the Venezuelan Bank for Economic and Social Development (BANDES) in
Nicaragua. He personally handed out USD 9.65 million in loans to
six cooperatives for small agricultural projects and USD 10 million
in grants to five parastatals. The Venezuelan President of BANDES
presented the money as "proof" of Venezuela's continued assistance
to Nicaragua. BANDES' current operation raises questions about its
viability as a bank, however. The capital reserves are below
Nicaragua's mandated limits; the cooperatives receiving the money
are, for the most part, not experienced micro-lenders; and the
lending rate of 5% is far below the market rate. Currently, BANDES
looks less like a bank and more like a development agency handing
out project grants. It could well become Ortega's chosen instrument
to funnel Venezuelan assistance to the FSLN away from the prying
eyes of the National Assembly and donors. End Summary.

2. (U) On June 21, President Ortega officially opened the Venezuelan
Bank for Economic and Social Development (BANDES) in Nicaragua, as
part of the cooperation between Nicaragua and Venezuela under ALBA.
The bank, a representative office of BANDES Venezuela, opened its
doors for operation with USD 20 million in capital, which it
promptly disbursed. Also in attendance at the inauguration were
First Lady Rosario Murillo, Venezuelan Agricultural Minister Elias
Jaua, the President and Vice President of BANDES, and several
Nicaraguan cabinet members.

Money to Burn
-------------
3. (U) During the opening ceremonies, President Ortega personally
handed out checks totaling USD 9.65 million to six cooperatives for
small agricultural projects. The dollar-denominated loans carry 5%
interest with a two year grace period (the length of these loans was
not disclosed.) The cooperatives are to make the money available to
almost 11,000 small agricultural producers.

4. (U) President Ortega also handed out USD 10 million in grants to
five parastatals:

-- USD 3.3 million to the national water company (ENACAL) for
maintenance of its equipment, networks and water treatment plants

-- USD 3.2 million to the national electric company (ENEL) to build
hydroelectric plants

-- USD 2.9 million for to the Ministry of Health to improve medical
services

-- USD 350,000 to the National Police to prevent crime

-- USD 308,000 to the National Postal System to buy supplies.

Support for the National Police came in the form of cash as well as
32 motorcycles and 18 patrol cars, all with "BANDES...the ALBA Bank"
painted on the doors.

From Venezuela With Love
------------------------
5. (U) The event was an opportunity for Venezuelan officials to make
a big splash about Venezuelan assistance. Venezuelan Minister of
Agriculture Elias Jaua stated that "Nicaragua does not owe Venezuela
anything, since Venezuela already forgave the USD 32 million of
bilateral debt." Jaua also promised more power generators to
produce 60 MW or more, a housing development and school development
plan, improvements to the water system, five tons of basic
medicines, 150 tractors, 400,000 school backpacks, 50,000 teacher
briefcases, and almost 31 tons of urea (fertilizer); in addition to
the shipments of diesel, gasoline, and cooking gas. The President
of BANDES said that Venezuela will continue supporting Nicaragua, as
promised by President Chavez, emphasizing that the purpose of this
support was to "heal the social debt that was brought by the
neo-liberal wave that crushed the entire continent."

The Cooperatives
----------------
6. (SBU) The reason why the benefiting cooperatives will receive the
money directly is that traditional micro-finance institutions would
not agree to re-lend the money at 5%, according to one cooperative
director. At least three of the six cooperatives have strong ties
to the FSLN. Only two, CARUNA and SIFINA, already focus on
micro-lending. Another, Nicaraocoop, only produced organic honey
before being tapped by President Ortega to handle all of the urea
(fertilizer) imports from Venezuela. According to the President of
the National Association of Micro-Finance Institutions, micro-loans
at 5% require a subsidy, as interest does not even cover
administrative costs. Some cooperatives, like CARUNA, will pass the

MANAGUA 00001615 002 OF 002


administrative costs on to the borrower, resulting in real interest
rates of 8 to 9.5%. Others, like SIFINA and Nicaraocoop, will
absorb the administrative costs and lend the money at 2% to its
member cooperatives, which will then lend the money at 5%. (Note:
Current long-term dollar denominated loan rates for agriculture are
11.9%. Micro-finance institutions rates range between 20-40%. End
note.)

Comment - But Is It Really a Bank?
----------------------------------
7. (SBU) Though registered as a representative office (loans only,
no deposits) by the Superintendent of Banks (SIBIOF), BANDES is
behaving more like a development agency than the second floor bank
it has purported to be, at least for this first round of
disbursements. It quickly disbursed half of its capital and has not
properly capitalized these loans. (Note: SIBIOF requires a 10%
reserve against loans - only USD 350,000 remains in BANDES' coffers.
End Note.) Even as a development agency, its procedures do not
guarantee effectiveness. The loans, at 5% (or even 9.5%), are below
market rates, creating opportunities for rent-seekers, who would not
necessarily be the small producers BANDES purports to help. BANDES
could well become Ortega's chosen instrument to funnel Venezuelan
funds directly to FSLN supporters. As a private banking
institution, BANDES and its funds can be kept away from the national
budget, its earmarks, and congressional and donor scrutiny. End
Comment.

TRIVELLI

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