CAF PRESIDENT DISCUSSES INSTITUTION'S GROWING ROLE

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 003652 SIPDIS SIPDIS TREASURY FOR KLINGENSMITH AND NGRANT COMMERCE FOR 4431/MAC/WH/MCAMERON NSC FOR DTOMLINSON HQ SOUTHCOM ALSO FOR POLAD E.O. 12958: DECL: 12/19/2016 TAGS: ECON EFIN VE SUBJECT: CAF PRESIDENT DISCUSSES INSTITUTION'S GROWING ROLE AND CHAVEZ REF: SANTIAGO 5242 Classified By: Economic Counselor Andrew N. Bowen for reasons 1.5(b) an d (d). -------------- SUMMARY -------------- ¶1. (C) SUMMARY: The President for the Andean Development Corporation (CAF) Enrique Garcia detailed recent successes and plans for the future at a meeting with Econoffs on December 13. Garcia noted the significant increase in CAF funding and its prominent development role in Latin America. Garcia also took the opportunity to describe Chavez's remarkable behavior at the recent summit in Cochabamba, Bolivia and downplayed the likelihood of some of Chavez's grander goals, including the Bank of the South and gas pipeline of the South, coming to pass. END SUMMARY. -------------- OPERATIONS -------------- ¶2. (SBU) EconCouns, econoff, and econ specialist met with CAF President Enrique Garcia and CAF Chief Economist Luis Castilla in their offices on December 13. The CAF was founded in 1968 and is a development bank with 17 Latin American member countries. Principal shareholders are Bolivia, Colombia, Ecuador, Peru and Venezuela and its headquarters is in Caracas. The corporation loaned over USD 5.7 billion in 2006 (a 19 percent increase over 2005) and is by far the largest multilateral lender in Latin America, funding more than the World Bank and InterAmerican Development Bank (IADB) combined. Garcia has been the CAF President since 1991 and his current 5-year term will end in ¶2011. ¶3. (SBU) In 2006, the CAF lent Venezuela USD 892 million, mostly for building housing (USD 400 million) and improving transportation infrastructure (USD 400 million). Overall, approximately 70 percent of CAF loans are to the public sector and the remaining 30 percent to private entities. In 2006 CAF expects to earn USD 300 million, of which 20 percent will be given out as grants and the remaining 80 percent will be rolled into equity. ¶4. (C) The CAF's principle advantage is its A/A rating, allowing it to offer preferential lending rates without the bureaucratic red tape associated with the World Bank or IADB. Garcia can approve loans up to USD 75 million without board approval, and the CAF eschews hiring quotas or nationality requirements for sourcing contracts. According to Garcia, they can process a request within 3 months, as compared to the year or more required by other institutions. Many Latin American countries are more receptive to the CAF's advice than that of the other multilateral lenders, as the CAF is a Latin American institution untainted by the "Washington Consensus." Garcia claimed that on occasion some of these other institutions have consulted with the CAF to advance prescriptions in countries where such measures would not otherwise have been welcome. -------------- CAN -- BETTER OFF WITHOUT VENEZUELA -------------- ¶5. (C) Despite its name, the CAF is independent from the Andean Community (CAN),ergo Venezuela's departure from the CAN and entrance in MERCOSUR will not affect the CAF's operations. Garcia opined that Venezuela's departure from the CAN may actually help it in the long run by giving the CAN's remaining members reason to consolidate to remain viable. Contrarily, MERCOSUR will be hurt by Venezuela's entrance as Chavez views it more as a forum to promote his political vision than commerce and trade. As Garcia put it, Chavez does not understand that "members accept the rules of the club, the club does not accept the rules of one of its members." -------------- ON CHAVEZ -------------- CARACAS 00003652 002 OF 002 ¶6. (C) Garcia participated in the recent summit of Latin American Presidents in Cochabamba, Bolivia and was critical of Chavez's behavior. He recounted that, upon arrival, Chavez insisted on a complete re-write of the draft communique. Chavez demanded that terms such as "trade" and "globalization" be removed and his brashness upset many of his counterparts (reftel). According to Garcia, Lula in particular was quite upset and his speech a few days later on democracy was directed at Chavez. ¶7. (C) Garcia underlined that the CAF would not be the nucleus for a new Venezuelan-led "Bank of the South" and dismissed as unfeasible the possibility of a gas pipeline from Venezuela to Argentina. He noted that these are some of Chavez's pet projects, but not economically viable. In addition, Garcia said that the recent decision by the Venezuelan development bank (BANDES) to purchase an Argentinean milk factory was entirely political. The plant produces some of the most popular dairy products in Argentina and associating these products with Venezuela may improve Venezuela's image in that country. He also observed that, while Chavez may have taken it to new levels, Venezuela has a history of throwing its money around Latin America during times of high oil prices. -------------- COMMENT -------------- ¶8. (C) COMMENT: The CAF plays an increasingly significant role in Latin America. Garcia's commentary on Chavez's antics offers another insight into Latin American politics by a Bolivian at the top of his profession, who has remained there as head of the CAF for over fifteen years. The CAF's success and growth in recent years also demonstrates the ability of institutions in Latin America to survive and thrive when well-run and left relatively free of political influence. END COMMENT. BROWNFIELD