VENEZUELAN INVOLVEMENT IN BOLIVIAN BANKING

C O N F I D E N T I A L LA PAZ 001614

SIPDIS

SIPDIS

STATE FOR WHA/AND L.PETRONI
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: DECL: 06/13/2016
TAGS: ECON EFIN BL
SUBJECT: VENEZUELAN INVOLVEMENT IN BOLIVIAN BANKING


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


1. (C) Summary: Venezuela has agreed to buy USD 100 million
of Bolivian bonds in May to be used to finance Bolivian
Treasury gaps or fund a portion of the deficit, but Finance
Ministry contacts tell us that the deal is uncertain.
Venezuela has also promised Bolivia another USD 100 million
to provide low-interest rate loans to small business owners;
contacts report that USD 30 million has been disbursed thus
far. Two Venezuelan state-owned banks have expressed
interest in opening branches in Bolivia, potentially through
purchasing the Bolivian state-owned Union Bank. End summary.

Bolivia-Venezuela Bond Deal
--------------

2. (C) According to Bolivian Finance Ministry contacts,
members of the Ministry traveled to Venezuela in May to
negotiate a bond placement deal with the government of
Venezuela. Venezuela agreed to buy USD 100 million of
Bolivian bonds at the LIBOR (London Interbank Offered Rate)
six-month rate, currently 5.4 percent, with a two year
repayment period. Bolivian Finance Ministry contacts
speculate that Venezuelan banks would profit from the deal by
buying the bonds, reselling them to international investors
for U.S. dollars, selling the dollars on the black market in
Venezuela for Bolivars, and then selling the Bolivars to the
Venezuelan Central Bank for dollars. This would imply a
subsidy from the Venezuelan Central Bank to Venezuelan banks
of around 20 percent. Bolivia would use the USD 100 million
to help finance an expected Treasury gap or fund the
anticipated fiscal deficit of around USD 270 million.
However, Finance Ministry contacts told us on June 13 that
the deal may not go through and no date has been set for the
sale.

Venezuela-Funded Bolivian Development Bank
--------------

3. (C) According to press reports, the Venezuelan government
recently granted Bolivia another USD 100 million to create a
development bank to lend low-interest rate credit (4 percent)
to micro, small, and medium enterprises. The funds are being
channeled through an existing financial institution, the
Bolivian National Financier (NAFIBO). NAFIBO contracted
Banco Ganadero, Prodem, and Fortaleza to provide money
transfer services to beneficiaries for a less than one
percent fee. Although regulations require that credit
decisions be evaluated by the lending institutions, these
institutions told us that the GOB said "not to worry about
credit due diligence" because NAFIBO and a GOB committee
would check the credit-worthiness of the borrowers. The
press reported that applicants could solicit loans of up to
USD 250,000, which would not require collateral but would be
issued on the basis of group solidarity agreements to repay.
According to banking sector contacts, NAFIBO has already
disbursed USD 26 million to 214 beneficiaries identified by
the executive branch, including textile and agricultural
producers. Banking contacts told us that Venezuela has
disbursed a total of USD 30 million to the Bolivian Central
Bank to date.

Opening of Venezuelan Banks in Bolivia
--------------

4. (C) According to press reports, two Venezuelan state banks
-- the Industrial Bank and the Economic and Social
Development Bank -- plan to open branches in Bolivia.
Contacts from the Banking Superintendency told us that these
banks are interested in acquiring ownership interest in the
Bolivian state-owned Union Bank, but have not yet begun the
required procedures to purchase Union Bank or open branches.
The press reported that the Venezuelan Industrial Bank had
received USD 25 million from the Venezuelan government to
intervene in the Bolivian financial system.


5. (C) Comment: Repayment rates for the "development bank"
loans will likely be poor due to the lack of credit rating
requirements by the actual lending institutions, the lack of
collateral requirements, and the grant nature of the
Venezuelan donation, which takes the pressure off of the GOB
to recoup the funds. With low repayment rates, the
development bank would either be short-lived or become a
financial drain on the GOB as it would quickly run out of
loan funds. Low repayment rates on these loans could damage
the national repayment culture, while the low interest rates
could impact the rest of the Bolivian banking system,
including Bolivia's world-model microfinance lending system,
by creating unfair competition. End comment.
GREENLEE