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Cablegate: Banco Del Sur: Ministers Agree On Draft Charter,

VZCZCXYZ0000
PP RUEHWEB

DE RUEHMN #0266/01 1282006
ZNY CCCCC ZZH
P 072006Z MAY 08
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC PRIORITY 8185
INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY
RUEHQT/AMEMBASSY QUITO PRIORITY 1954
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MONTEVIDEO 000266

SIPDIS

E.O. 12958: DECL: 05/07/2023
TAGS: EFIN PREL AR BL BR PY EC VE UY
SUBJECT: BANCO DEL SUR: MINISTERS AGREE ON DRAFT CHARTER,
BUT MUCH WORK REMAINS


Classified By: DCM Robin Matthewman for reasons (b)
and (d)

-------
SUMMARY
-------
1. (C) SUMMARY: Ministers of finance from Bolivia, Brazil,
Ecuador, Paraguay, Uruguay and Venezuela met in Montevideo on
April 25 for the fourth Banco del Sur (Bank of the South)
ministerial meeting. Argentina did not participate in the
meeting following the resignation of its Minister of Economy
one day earlier. The other ministers developed a proposal
for the bank's charter, but the draft still requires
Argentine input, approval of the members' presidents, and
ratification in their respective congresses. Minister of
Finance Danilo Astori privately told us that he did not
believe the Bank project to be useful and that Uruguay agreed
to participate only so as not to be isolated. He considered
it unlikely for the Bank to be approved, formed and start
operating any time soon. END SUMMARY.

---------------------------
THE CHARTER PROPOSAL SO FAR
---------------------------
2. (U) At the April 25 Ministerial, the six participants
agreed on a proposal for the Banco del Sur charter that
included an initial capitalization of USD 7 billion. Brazil,
Argentina and Venezuela would contribute USD 2 billion each;
Uruguay and Ecuador USD 400 million each; and Bolivia and
Paraguay USD 100 million each. Capital would later be
augmented to $20 billion, with smaller countries allowed more
time to complete their contributions. Ministers also agreed
that large partners (Brazil, Argentina and Venezuela) would
have access to credit up to four times their contribution,
while smaller members could borrow up to eight times their
contribution.

----------
NEXT STEPS
----------
3. (SBU) While the Montevideo meeting was a step forward
towards creating the bank championed by Venezuelan President
Chavez and former Argentine President Kirchner, several key
issues still need to be addressed before it is launched.
Once the Government of Argentina has considered the draft
charter, member countries will have to determine each
country's voting power and the composition of the bank's
Board. Such negotiations could be protracted since smaller
partners, like Uruguay, will likely push for equal voting
power while large ones will seek a vote proportional to
capital invested. Once approved, the bank's charter will
also need to be ratified by the seven member congresses.
This is likely to be a lengthy process.

--------------------------------------------
URUGUAY IS NOT IN THE BANK OUT OF CONVICTION
--------------------------------------------
4. (C) Minister of Finance Danilo Astori confided in a
meeting with the DCM on May 2 that the formation of the bank
would be "a very slow process" and that he liked it that way.
Uruguay had to join the bank because it could not remain the
only country outside, he explained. Astori predicted that
the Bank would run into many hurdles as each of the countries
analyzed the proposed charter and their respective congresses
considered it. He did not expect any progress in the near
term. The Minister said the new bank would replicate the
role of other international financial institutions like the
Inter-American Development Bank and especially the Andean
Development Corporation (CAF in Spanish). Uruguay is
benefiting significantly from its participation in these
banks.

-------------------------------------------
BACKGROUND: BANCO DEL SUR'S SLOW CONCEPTION
-------------------------------------------
5. (SBU) Mercosur countries first discussed the creation of a
regional development bank in a July 2006 ministerial meeting,
as a means to deepening regional financial integration. The
bank was championed by Venezuela and Argentina which both
signed a memorandum of understanding in February 2007 to
create it. Bolivia signed in March 2007 and Brazil,
initially cool to the idea, signed in May 2007. In Uruguay,
the debate to support Banco del Sur was part of a tough
arm-wrestling between Minister of Finance Danilo Astori and
former Minister of Foreign Affairs Reinaldo Gargano, who was
extremely favorable to Venezuela. Uruguay, initially elected
to participate as an observer, but later signed in June 2007.
The bank was formally launched --with no charter-- in
December 2007 by seven South American presidents on the
margins of Argentine President Cristina Fernandez'
inauguration.

Baxter

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