Identifier
Created
Classification
Origin
06LAPAZ2599
2006-09-26 20:18:00
CONFIDENTIAL
Embassy La Paz
Cable title:  

CENTRAL BANK INDEPENDENCE THREATENED

Tags:  ECON EFIN PGOV BL 
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PP RUEHWEB

DE RUEHLP #2599/01 2692018
ZNY CCCCC ZZH
P 262018Z SEP 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 0687
INFO RUEHAC/AMEMBASSY ASUNCION 6121
RUEHBO/AMEMBASSY BOGOTA 3438
RUEHBR/AMEMBASSY BRASILIA 7296
RUEHBU/AMEMBASSY BUENOS AIRES 4558
RUEHCV/AMEMBASSY CARACAS 1815
RUEHPE/AMEMBASSY LIMA 1855
RUEHMD/AMEMBASSY MADRID 3130
RUEHME/AMEMBASSY MEXICO 1784
RUEHMN/AMEMBASSY MONTEVIDEO 4030
RUEHQT/AMEMBASSY QUITO 4451
RUEHSG/AMEMBASSY SANTIAGO 9024
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L LA PAZ 002599 

SIPDIS

SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: DECL: 09/25/2016
TAGS: ECON EFIN PGOV BL
SUBJECT: CENTRAL BANK INDEPENDENCE THREATENED

REF: A. LA PAZ 2196


B. LA PAZ 2515

Classified By: Charge Krishna Urs for reasons 1.4 (b) and (d).

C O N F I D E N T I A L LA PAZ 002599

SIPDIS

SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: DECL: 09/25/2016
TAGS: ECON EFIN PGOV BL
SUBJECT: CENTRAL BANK INDEPENDENCE THREATENED

REF: A. LA PAZ 2196


B. LA PAZ 2515

Classified By: Charge Krishna Urs for reasons 1.4 (b) and (d).


1. (C) Summary: A Central Bank Director told Econoff on
September 21 that GOB cabinet members were increasingly
interfering in the bank's daily policy decisions. He
lamented "disarray" at the bank due to high level personnel
changes and feared that the GOB would change the Central Bank
Law to force it to lend to unproductive state enterprises.
He said that investigation of former bank staff was
politically-motivated. He predicted that the interim bank
president and board members would remain in their positions
in the near term because naming permanent staff would require
political negotiation which was not possible at this time.
Despite these political problems, normal bank operations, and
a positive macroeconomic situation, have continued to date.
End summary.

Central Bank Independence Threatened
--------------

2. (C) In a meeting on September 21, Central Bank Director
Enrique Ackermann (strictly protect) told Econoff that
although the Central Bank was isolated in that it did not
have the opportunity to provide input into the GOB's National
Development Plan, it was not left alone by the GOB, which
increasingly sought to interfere in daily bank policy. He
noted that the cabinet had criticized the bank for a slight
revaluation of the currency three weeks ago. He lamented
that the bank was in disarray since the government had
replaced President Juan Antonio Morales with interim
President Raul Garron and four out of five board members (all
but himself) with inexperienced people. He added that other
experienced bank personnel were leaving due to salary cuts
and fear of eventually being replaced. As the only remaining
Director appointed by a previous administration, he spoke
openly of his disillusionment with recent developments under
the MAS administration.

GOB Plans to Change Central Bank Law
--------------

3. (C) The Central Bank is independent by law, but the GOB
has indicated that it intends to change the Central Bank Law.

The previous Minister of Hydrocarbons announced that the
Central Bank would fund the restructuring of the state oil
company, YPFB (ref A). The Central Bank informed the
Minister that such actions would be illegal, and the Minister
responded by proposing a change to the law. Ackermann feared
that the MAS could easily push the necessary changes through
Congress.

Political Persecution of Former Staff
--------------

4. (C) Ackermann said that the investigation of former bank
President Juan Antonio Morales and the two-month detention of
former bank Director Marcela Nogales for supposed irregular
withdrawals in 2003 were politically-motivated (ref B).
(Note: Nogales was provisionally released on September 25
after paying the USD 12,500 bail ordered by a judge on
September 21. End note.) Ackermann said the GOB wanted
"trophies" for its anti-corruption campaign. He explained
that the withdrawal issue was settled by a previous
investigation, which found administrative fault but no
corruption. He feared that Juan Antonio Morales would soon
be detained.

Naming of Permanent Leaders on Hold
--------------

5. (C) Ackermann said that the process for naming a permanent
bank president and board members was on hold due to political
conflict. He explained that the lower house would approve
three names for each position, from which President Morales
would select one. He predicted that eventually MAS would get
to name the president and three directors, while the
opposition would get two directors. He said that the names
would have to be negotiated in congress, and that such
negotiation was not possible now due to the conflicts in the
Constituent Assembly.

High Reserves, No Capital Controls, Deposits Stable
-------------- --------------

6. (C) Despite political interference, which could affect the
bank's future, operations have continued normally to date.
As a result of increased export levels and an increasing
demand for local currency versus dollars, the Central Bank is
holding record high international reserves of USD 2.35
billion. Because businesses only bring in the dollars that
they need for local expenses while keeping the majority of
their revenues abroad, the local currency is not receiving
serious exchange rate pressures from the dollar inflows,
Ackermann explained. He added that the Central Bank's
exchange rate policy implied slow, slight revaluations of the
boliviano, based on revaluations by neighboring countries.
Despite earlier rumors, he did not think it likely that the
bank would implement capital controls. He said that deposits
were stable and that loan portfolios were increasing.
Although he did not think a major bank run was likely, he
said that the Central Bank would be able to sustain a major
run if one occurred due to its high reserve levels.


7. (C) Comment: Although to date the Central Bank has
continued its previous sound policies and the macroeconomic
situation remains positive, political interference in Central
Bank affairs could threaten future macroeconomic stability.
End comment.
URS