Cablegate: Treasury Das Mcdonald and Chilean Minister of Public Works

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TAGS: OVIP EAID ECON EFIN EINV ECIN PGOV PREL CI

SUBJECT: TREASURY DAS MCDONALD AND CHILEAN MINISTER OF PUBLIC WORKS
BITAR AGREE ON NEXT STEPS FOR IFEC

REF: Santiago 816

1. (SBU) SUMMARY: Treasury DAS McDonald and Minister of Public
Works Sergio Bitar agreed, September 30, on next steps to build an
Infrastructure Finance Expert Corps with U.S. and Chilean experts.
END SUMMARY.

2. (U) Ambassador Simons, U.S. Treasury DAS Larry McDonald, Treasury
Associate Director for Technical Assistance Debra von Koch, Director
for Western Hemisphere Luyen Tran, Advisor for Technical Assistance
Harry Tether, Western Hemisphere Economist Rachel Jarpe, Econoff,
and Econ Specialist attended a meeting, September 30, with Chilean
Minister of Public Works Sergio Bitar, Coordinator for Public
Infrastructure Projects Gonzalo Cordua, International Coordinator
Rigoberto Garcia, Chile's Agency for International Cooperation,
Bilateral Cooperation Chief, Enrique O'Farrill-Julien, and Program
Coordinator Ivan Mertens Galle.

USG And Chile Ready To Move Forward With IFEC
---------------------------------------------

3. (SBU) DAS McDonald explained his visit demonstrated the USG's
readiness to move forward in building the Infrastructure Finance
Expert Corps (IFEC), agreed to by Treasury A/S Lowery and Minister
Bitar September 1. The IFEC would bring U.S. and Chilean experts
together to provide technical assistance on building infrastructure
to countries in the region. He underlined Chile's impressive
history of using public private partnerships (PPP's) and concession
models to help finance infrastructure. This experience would be
critical in forming the IFEC. The Treasury delegation had spent the
last day and a half in Santiago finding out more about Chile's
concession process. They had met with Banco de Chile, Banco Estado,
the Association of Private Concession Holders, the Chamber of
Construction, the UN Economic Commission for Latin American and the
Caribbean (CEPAL/ECLAC), and the Association of Private Pension
Funds.

4. (SBU) DAS McDonald related that the Treasury's Office of
Technical Assistance had a wealth of experience in: budget policy
and management, financial institutions policy and management,
government debt issuance and management, financial enforcement
(including combating terrorism finance), and tax policy and
administration. OTA has representatives in 70 countries around the
world (with almost one half of those in the Western Hemisphere).
DAS McDonald recognized the U.S. lacked the historical experience of
PPP's and concessions.

5. (SBU) Minister Bitar agreed it was time to progress to the next
stage of setting up the IFEC. He acknowledged that the Ministry of
Public Works (MOP) together with the Ministry of Finance had
established a successful concession model for Chile. Chile's
private sector had significant experience in building public
infrastructure and some of the world's largest infrastructure
companies were currently at work in the country. The GOC wanted to
provide this expertise to other countries in the region, through the
Chilean Agency for International Cooperation (AgCI). Many countries
had already come to Chile to learn about the model. MOP was
organizing a November 9-10 conference for regional, infrastructure
ministers in cooperation with ECLAC. Bitar invited Treasury
representatives to participate.

Priority Countries And A Working Group
--------------------------------------

6. (SBU) Minister Bitar made three key proposals: 1) IFEC should
concentrate on Latin America, 2) Treasury and MOP should choose one
or two countries for an IFEC test project, 3) they should also
determine if technical cooperation would be best achieved through
exchanges or on-site projects. Bitar suggested candidate countries
for IFEC test projects should meet four minimum conditions. A
country should have: 1) institutions that can evolve in a way
necessary to support the concessions process, 2) a minimum financial
strength or set of financial institutions, 3) a small size to
facilitate coordination, and 4) Spanish or English language. Chile
had been engaged in Central America for some time and one of the
nations in that region might prove an attractive candidate.

7. (SBU) DAS McDonald agreed with Minister Bitar's points and noted
the particular importance of legal structures and financial
strength. He suggested the formation of an IFEC Working Group,
comprised of those represented at the meeting. McDonald noted he
thought Costa Rica, the Dominican Republic, Guatemala, Honduras, and
Paraguay all fit Bitar's criteria. DAS McDonald noted these
countries also had Treasury advisors (save Guatemala, which had
requested one). This factor could help Treasury maximize existing
resources to assist in starting up the IFEC. DAS McDonald had come
to Chile after visits to Guatemala and Honduras where there was
great interest in working with the IFEC.

8. (SBU) Gonzalo Cordua agreed to the formation of the IFEC Working
Group. He said the World Bank and Inter-American Development Bank
had a significant presence in Central America including several
Chilean experts who could be helpful in an IFEC test project.
Enrique O'Farrill-Julien noted that AgCI maintained assistance
projects in all 5 candidate countries. He highlighted Paraguay as a
priority for Chile because of its new democratic government and the
need to strengthen institutions there.

Operational Constraints And Considerations
------------------------------------------

9. (SBU) DAS McDonald asked about using experts from MOP's
Department of Concessions in future IFEC projects. Cordua
underlined the importance of providing public sector actors with the
knowledge and capability (which they often lacked) to negotiate
skillfully with private sector counterparts on infrastructure
projects. MOP had some experience in this area, but it might prove
difficult to include their personnel in an IFEC project. Department
of Concessions employees were all on contract from the private
sector and by law were only paid according to their work on specific
concessions. They could not be "loaned-out" to a long-term project,
especially at their private sector salaries (i.e., pro bono work
outside of Chile would be extremely hard to do). Cordua undertook
to see if there was a workaround that MOP could use to overcome
these hurdles.

10. (SBU) Cordua explained MOP worked mostly with a group of 10-15
foreign, private companies interested in participating in
concessions in Chile. Those companies were not as interested in
working with other countries in the region, save Mexico or Brazil.
In addition, Costa Rica was the only investment grade country among
the five candidates. That meant private Chilean pension funds would
only be able to invest in infrastructure projects in Costa Rica and
only with insurance from an international provider (in accordance
with Chilean law). This would likely be a requirement for many
non-Chilean investors in the region as well. A guarantee from the
World Bank might allow for funding projects in non-investment grade
countries. This might prove a significant obstacle given the small
size of financial markets in the countries under discussion.

11. (SBU) DAS McDonald suggested a joint roll-out of the IFEC after
selection of a test project and country, perhaps in both Washington
and Santiago. He also warned that the group should be prepared to
manage "too much demand" from candidate countries. Both Treasury
and MOP/AgCI undertook to request more resources for IFEC in the
budgetary process, though AgCI warned this would be difficult given
Chile's 2009 Budget Proposal was already published (and reflected a
tightening in the GOC's fiscal policy). At a future meeting, the
group might consider a joint-demarche to the Inter-American
Development Bank. Director Tran noted the USG was already planning
for the Summit of the America's. The new U.S. president and
President Bachelet could highlight the IFEC at this venue, showing
both nations' commitment to regional development.

IFEC: Next Steps
-----------------

12. (SBU) DAS McDonald and Director Tran ended the meeting by
summarizing what Treasury, MOP, and AgCI had agreed to do by the
next meeting of the IFEC working group.
--Both Treasury and MOP/AgCI would rank order the five candidate
countries and select top choices before the MOP-ECLAC Infrastructure
Conference (November 9-10).
--Treasury officials would meet with multilateral organizations

(e.g., World Bank) in Washington to brief on the concept of the
IFEC.
--Treasury would draft an outreach document and a scope model.
--AgCI would provide a list of its ongoing projects in the region to
Treasury.
--USG and GOC officials would raise the IFEC concept at the October
11 meeting of Finance Ministers in Washington (on the margins of the
World Bank/IMF Meetings).
--Treasury and MOP would arrange exploratory trilateral meetings
with possible candidate countries during the MOP-ECLAC
Infrastructure Conference in Santiago.
--The USG and GOC would investigate readying the IFEC as a
deliverable at the Summit of the Americas in Spring 2009.
--Treasury and MOP would schedule joint-visits to the agreed
candidate countries for test project planning.

13. (U) Treasury has cleared this message.
SIMONS

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