BOLIVIA: IMF, IDB, AND WORLD BANK UPDATES

C O N F I D E N T I A L LA PAZ 001384

SIPDIS

SIPDIS

STATE FOR WHA/AND
STATE FOR EB/IFD/ODF
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: DECL: 05/18/2016
TAGS: EAID ECON EFIN PREL PGOV BL
SUBJECT: BOLIVIA: IMF, IDB, AND WORLD BANK UPDATES


Classified By: Ambassador David N. Greenlee for reasons 1.4d and b.


1. (U) This is an action request. Please see Paragraph 6.


2. (C) Summary: Please see paragraph 6 for action request.
The World Bank Andean Director met with the Ambassador to
solicit support from the U.S. government for the approval of
its interim Bolivian strategy during the next World Bank
board meeting on July 20. The Director told both the
Ambassador and President Morales in separate meetings that
board concern about Bolivia's hydrocarbons nationalization
could impact funding. The IDB Resident Representative told
the Ambassador that USD 23 million of funds for Bolivia would
soon go before the IDB board to approve a reallocation to
Plan Pro Pais, billed by the GOB as emergency job creation,
and viewed by the Embassy and the resrep as an inappropriate
use of funds. The IMF completed an Article 4 assessment of
Bolivia's economy on May 19, concluding that the
macroeconomic situation would be positive through the end of
2006, this year's deficit would be low, and that Bolivia
would not seek an IMF agreement in the short-term. End
summary.

World Bank Seeks U.S. Support of Interim Strategy
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3. (SBU) World Bank Andean Director Marcelo Hiugale told the
Ambassador on May 9 that Italian and Spanish World Bank board
members had requested a board briefing regarding Bolivia's
hydrocarbons nationalization on May 22. Hiugale feared that
negative reactions to Bolivia's natural resource policy and
concerns that gas and oil revenues could be swallowed up by
corruption might delay the approval of its interim strategy,
which they planned to present to the board on July 20.
Without an interim strategy in place, Hiugale explained, the
World Bank would have no mandate to operate in Bolivia and no
funding for providing technical assistance for the next two
years. Hiugale urged the United States to support its
interim strategy before the board.


4. (SBU) Hiugale said that he had told President Morales that
World Bank board members were concerned about the GOB's
hydrocarbons policies and explained that such concern could
impact funding. Hiugale was surprised that the GOB seemed to
understamd the ramifications of its actions and had even
gamed out four different scenarios about possible donor
reactions. Hiugale offered to provide the GOB with a
technical team to model growth and budget figures assuming
zero foreign investment during the next few years to
demonstrate the negative impact that GOB policies could have
on the economy. Morales responded noncommittally. Hiugale
told the Ambassador that the World Bank would not be
providing budget support to Bolivia this year due to its
unclear macroeconomic framework and its lack of an IMF
agreement.

Inter-American Development Bank
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5. (C) Inter-American Development Bank (IDB) Resident
Representative Joel Branski told the Ambassador on May 4 that
the IDB had more than USD 400 million of previously allocated
Bolivia funds that had to be reprogrammed. He explained that
USD 43 million would be reallocated in an upcoming IDB board
meeting. USD 20 million would be allocated to emergency
flood relief, while USD 23 million would go to Plan Pro Pais
for infrastructure and emergency job creation in locations
such as El Alto, where Bolivia stands to lose up to 100,000
manufacturing jobs upon the expiration of APTDEA trade
benefits at the end of the year. The Ambassador expressed
concern, with which Branski agreed, that the funds would be
used by the GOB to subsidize poor economic policy,
particularly the GOB decision not to pursue a trade agreement
with the U.S. and the resulting job losses for Bolivia.
Branski explained that the reprogramming decision would be up
for approval through a fast track procedure, but that the
process could be delayed if any board member raised a

question or objection to the project.


6. (U) Action request: As discussed with EB, we recommend
that State work with Treasury to delay the approval of the
funds for Pro Pais. We have raised the issue with Brazilian
Embassy representatives, who plan to have their IDB
representative discuss strategies with the U.S. IDB
representative. The Brazilians concurred that blocking the
Pro Pais plan would send an appropriate signal to the GOB.

International Monetary Fund
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7. (SBU) An IMF Article 4 mission concluded its assessment of
Bolivia's economic situation on May 19. IMF representatives
told us on May 18 that predictions about Bolivia's economy
would be difficult to make, because of the uncertainty
associated with the hydrocarbons and other sectors. They
would assume that hydrocarbons production and export levels
would remain steady in the medium term based on the
assumption that the GOB will be able to work out solutions
with the companies for compensation and other details
following the semi-nationalization. Because the GOB was
flush with resources due to high gas and mineral export
prices and increased hydrocarbons taxes, it seemed that the
macroeconomic situation would be in good shape until at least
the end of the year and that the overall deficit would be
near zero, they said. (Note: This low deficit forecast does
not take into account contingent expenditures that are not
yet part of the budget, and also assumes, perhaps
erroneously, that the GOB will not increase spending as a
result of the additional tax revenue. End note.) The
mission pointed out mid-term risks, including the explosive
land reform issue and the unknown performance of the new
Central Bank President Raul Garron. They said that the
banking system and deposits were currently stable, but rumors
that the GOB would implement financial controls, which the
GOB has denied, could spur a run. They concluded that an IMF
program with Bolivia is unlikely in the short term, as
neither Bolivia nor the Fund wished to pursue one.
GREENLEE