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Cablegate: Banco Del Sur Launched in Buenos Aires December 9

VZCZCXRO8161
PP RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHQU RUEHTM RUEHVC
DE RUEHBU #2317/01 3441841
ZNY CCCCC ZZH
P 101841Z DEC 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 9874
INFO RUCNMRC/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3602
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 BUENOS AIRES 002317

SIPDIS

SIPDIS

NSC FOR DAN PRICE, DAN FISK
PASS FED BOARD OF GOVERNORS FOR KROSZNER, ROBITAILLE
PASS TREASURY FOR LOWERY, O'NEIL
PASS EXIM BANK FOR MICHELE WILKINS
PASS OPIC FOR JOHN SIMON, GEORGE SCHULTZ

E.O. 12958: DECL: 12/09/2017
TAGS: EFIN ECON PREL AR BL BR CO EC PA UY VE
SUBJECT: BANCO DEL SUR LAUNCHED IN BUENOS AIRES DECEMBER 9

REF: BUENOS AIRES 2216

Classified By: EconOff Chris Landberg for Reasons 1.4 (b,d)

Summary
-------
1. (C) As his last official act in office, President Nestor
Kirchner hosted five other South American Presidents for the
December 9 signing of the "Founding Act of the Bank of the
South" (Banco del Sur). In their public remarks, the
Presidents and President-elect Cristina Fernandez de Kirchner
emphasized South America's growing independence and
highlighted the Banco del Sur's expected contribution to
regional integration, poverty alleviation, and investment.
The ceremony was a purely political act, as the agreement
signed does not specify any key details. The countries'
Finance Ministers have 60 days to create the bank's charter.
GoA Economy Ministry officials confirm to Post that target
capitalization of the bank is $7 billion, with paid-in
capital only 10% ($700 million) of the total. Argentina,
Brazil, and Venezuela are expected to contribute about 60% of
the total committed capital (or about $400 million). These
officials deny rumors that China and Iran will provide
financial support. End Summary.

Six Presidents Sign, Emphasizing Region's Independence
--------------------------------------------- ---------
2. (C) Late on December 9, in a three-hour ceremony, the
Presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay,
and Venezuela signed the "Founding Act" of the Banco del Sur.
Uruguay's Ambassador represented Uruguayan President Tabare
Vazquez, who reportedly will sign the document later.
Colombia's President Uribe was included as a signatory in the
advance copy of the document that Post acquired last week,
but Uribe did not participate in the ceremony.

3. (C) The Finance Ministers of these seven countries
approved the founding act document on October 9 in Rio de
Janeiro. The Presidents initially planned to sign the
document in early November, but announced in late October
that they would postpone it to December. Kirchner's offer to
host the signing the day before his wife assumes the
Presidency was convenient for the other Presidents, who are
all attending the December 10 inauguration, but also assured
a higher profile for the event.

4. (U) In their public remarks, the six Presidents and
President-elect Cristina Fernandez de Kirchner emphasized
Banco del Sur's role in supporting South America's growing
independence from international lenders such as the IMF and
World Bank. Presidents Morales (Bolivia), Correa (Ecuador),
Duarte Frutos (Paraguay), and Chavez (Venezuela) made the
most forceful comments in this regard, criticizing the
international financial institutions' lending conditionality,
alleged mistreatment of clients, and "bad advice." President
Correa argued that the bank would put an end to the
"despicable and useless political and financial dependence of
South American states on the international organizations."
Chavez, in a remarkably short (15-20 minute) speech, stated
that the "creation of the Banco del Sur is the continuation
of the battle for independence."

5. (U) Several speakers, most notably Brazil's President Lula
da Silva and President-elect Cristina Fernandez de Kirchner,
highlighted the Banco del Sur's expected contribution to
regional integration, social development and poverty
alleviation, and investment in infrastructure, science, and
technology. Lula commented that the "Banco del Sur will be a
truly South American organization...will be fundamental to
the integration of our region...and will be the first
international bank truly controlled by the countries of our
continent." Lula also called on all other South American
countries to join the project.

Real Work to Create Bank Still Ongoing
--------------------------------------
6. (C) The signing ceremony was essentially a political
event, since the agreement does not specify key details such
as voting power or capitalization. These details are to be
defined in the Bank's Charter, which founding member
countries are still negotiating. Post's Economy Ministry
contacts comment that Argentine and Brazilian officials are
working behind the scenes to moderate Venezuela's influence

BUENOS AIR 00002317 002 OF 002


in the organization of the bank in order to avoid the overt
politicization of the Bank's lending policies. GoA and GoB
officials would prefer to create a financial institution that
might eventually have some positive impact in terms of
financing viable infrastructure projects in the region.

7. (C) Post's contacts acknowledge, nevertheless, that the
paid-in capital invested by member nations will be minimal.
They confirm that the target capitalization of the Bank is $7
billion, but emphasize that paid-in capital will be only 10%
($700 million) of the total. Argentina, Brazil, and
Venezuela reportedly will contribute roughly $4 billion of
the total, or about $130 million each in up-front payments.
These same officials deny rumors that China and Iran will
provide financial support (reported reftel). However, Post's
contacts are unable to provide details as to how remaining
committed capital will be financed, given the low budget
capacity of Bolivia, Ecuador, Paraguay, and Uruguay. They
also question the ability of the bank to leverage these
capital contributions and commitments by borrowing in
international financial markets.

Summary of Founding Act Agreement
---------------------------------
8. (C) According to Post's advance copy, the "Founding Act"
document has the signatories agreeing (in Spanish and
Portuguese) to the following:

-- Creation of the "Banco del Sur," with the main objectives
of financing economic and social development in the member
countries, reinforcing integration, and promoting equitable
distribution of investments among the members.

-- The Bank's headquarters will be based in Caracas, with
branches in Buenos Aires and La Paz.

-- The Bank will finance development projects in key economic
sectors, oriented towards improving competitiveness,
scientific and technological development, added-value
projects, prioritizing the use of primary materials from the
region, reducing poverty, and reinforcing South American
integration.

-- The Bank should be self-sustaining and should govern
itself in conformance with professional standards.

-- Members will have equal representation, within a
democratic voting structure.

-- Economy/Finance Ministers from the founding member
countries will conclude negotiations on the Charter
(Constituting Agreement) within 60 days of the signing of the
Founding Act.

-- The signatories invite other members of the "Union of
South American Nations" (UNASUR) to join the Banco del Sur.

Comment
-------
9. (C) The signatory countries are a long way from developing
a workable financial institution, and even farther away from
the point where such an institution could compete with other
multilateral lending institutions operating in the region --
assuming the rumors of large-scale external financing (from
Iran, China) are indeed false. In our conversations with
representatives of international financial institutions, we
do not detect much concern about Banco del Sur. Their
confidence is succinctly explained in this readout
contributed by our colleagues in the Economic Section in
AmEmbassy Caracas, following their meeting with the Chief
Economist of the Andean Development Corporation (Corporacion
Andina de Fomento -- CAF): "CAF officially welcomes the idea
and does not see it as a competing institution because Banco
del Sur will do social development projects that CAF might
not fund. Furthermore, it takes time and a track record to
build the ability to acquire capital on international
markets; it takes time for by-laws to be approved by all
countries involved; and development banks that are
politicized (especially in terms of staff) may not be as
effective as those that are shielded from political
appointments/direction. I.E., Banco del Sur has a long way
to go." End Comment.
WAYNE

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