Scoop has an Ethical Paywall
Licence needed for work use Learn More

Search

 

Cablegate: Gob Revises National Development Plan

VZCZCXYZ0022
PP RUEHWEB

DE RUEHLP #2457/01 2542050
ZNR UUUUU ZZH
P 112050Z SEP 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 0500
INFO RUEHAC/AMEMBASSY ASUNCION 6086
RUEHBO/AMEMBASSY BOGOTA 3405
RUEHBR/AMEMBASSY BRASILIA 7257
RUEHBU/AMEMBASSY BUENOS AIRES 4521
RUEHCV/AMEMBASSY CARACAS 1786
RUEHPE/AMEMBASSY LIMA 1821
RUEHMN/AMEMBASSY MONTEVIDEO 4000
RUEHQT/AMEMBASSY QUITO 4421
RUEHSG/AMEMBASSY SANTIAGO 8990
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 002457

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON EFIN BL
SUBJECT: GOB REVISES NATIONAL DEVELOPMENT PLAN

REF: A. LA PAZ 2197
B. LA PAZ 279
C. LA PAZ 1614

1. (SBU) Summary: The GOB is revising its National
Development Plan (NDP) based on suggestions from businesses
and social organizations and conducting a debt sustainability
analysis with German aid. It appears that the National
Development Bank will likely be a second-tier institution,
but with "parallel" GOB direct-lending efforts. The
government announced the formation of a second-tier system in
June with an initial USD 100 million grant from Venezuela.
However, Venezuela purchased a large share of Bolivia's
state-owned Union Bank, which may become part of the
second-tier system or may supplant it as a direct lender. In
addition, according to the Vice Minister of Industry,
Venezuela granted a second USD 100 million which the Ministry
plans to lend directly to small businesses based on political
criteria. The GOB's desire to incorporate business feedback
into the NDP, define its vague terms, and consider the
realistic financial constraints on the plan are positive
steps. However, the government's political-based, first-tier
lending plan represents a worrisome trend. End summary.

Advertisement - scroll to continue reading

GOB Revises National Development Plan
-------------------------------------
2. (U) The GOB announced on August 31 that it is making
changes to its National Development Plan (NDP) based on
suggestions from businesses and social organizations and that
a new, more detailed version of the plan would be released
the third week of September. Planning Minister Carlos
Villegas told the press that three aspects of the plan would
be refined, including the Development Bank and production
programs. The Planning Ministry is conducting an external
debt sustainability analysis with support from the German
government to ascertain the amount of financing required to
meet the Millennium Development Goals "within the framework
of the NDP." The study is scheduled to be completed in
November, in advance of the donor consultative group meeting
scheduled for February 2007.

Second Tier National Development Bank
-------------------------------------
3. (SBU) The original National Development Plan stated that
the GOB would create a second tier development bank that
would channel loans to small businesses via existing
financial institutions, but that if that plan did not produce
satisfactory results, a first tier development bank would be
instituted to lend directly to clients. The GOB announced in
June that it had established a second tier system, which
would channel funds through an existing state financial
entity (NAFIBO) with initial financing of USD 100 million
granted by Venezuela (ref C). The press reported on
September 11 that the National Development Bank would be
formed by fusing three state financial entities already in
existence (NAFIBO, FONDESIF, and FNDR), which would channel
capital from the state to small businesses.

Venezuela Purchases Shares of Union Bank
----------------------------------------
4. (SBU) Meanwhile, embassy contacts informed us that
Venezuela purchased a large percentage of the Bolivian
state-owned Union Bank. Union Bank published its strategy in
late August stating that it would divide the bank into two
units -- one for traditional business and one devoted to
development. It indicated that the development unit, with
state capital and bank profits, would work through
microfinance NGOs to on-lend. However, the bank's strategy
is dependent on GOB approval, and it remains unclear what the
government's intentions are with respect to the structure of
the development unit of Union Bank, i.e. whether it will be
first-tier or second.

Parallel Direct-Lending Effort
------------------------------
5. (SBU) According to the Vice Minister of Industry, the GOB
has received another USD 100 million grant from Venezuela to
fund small business production, which is a "parallel effort"
to the national development bank. (Note: This USD 100
million is in addition to the previous Venezuelan pledge of
USD 100 million that the GOB is using to fund a second tier
development bank (ref C). End note.) The Vice Minister
explained that 45 businesses have already been selected by
the GOB for political reasons to receive loans which will be
handed out directly by the Minister of Production, rather
than channeled through a formal financial institution. The
loans will have two-year grace periods, ten-year repayment
periods, low interest rates of around five percent, and
either lax or no collateral requirements. The 45 chosen
businesses are in the quinoa, soy, honey, textiles, tourism,
wood, leather, and jewelry sectors. Given the lack of credit
checks and the soft conditions of the loans, repayment rates
are likely to be poor.

6. (SBU) Comment: The GOB's desire to incorporate business
feedback into the NDP, define its vague terms, and consider
the realistic financial constraints on the plan are positive
steps. The GOB's indications that the National Development
Bank will be a second-tier institution is also positive,
because, as noted previously (ref B), a second tier
development bank that provided capital to lenders would do
less harm to the financial system, particularly microfinance
institutions, than a first tier institution that lent
directly to clients. However, the government's "parallel
effort" of political-based, first-tier lending sets a
worrisome precedent. End comment.
GREENLEE

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
World Headlines

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.