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

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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).

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SUMMARY
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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.

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OPERATIONS
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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.

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CAN -- BETTER OFF WITHOUT VENEZUELA
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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."

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ON CHAVEZ
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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.

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COMMENT
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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