CONFLICT AND GOB'S LACK OF CAPACITY HINDERS

UNCLAS LA PAZ 002831

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: EAID ECON EFIN EINV BL
SUBJECT: CONFLICT AND GOB'S LACK OF CAPACITY HINDERS
DEVELOPMENT

REF: A. LA PAZ 2599


B. LA PAZ 2197

C. LA PAZ 2457


1. (SBU) Summary: On October 17, the resident coordinator of
the United Nations (UN) told the Ambassador that the UN
supported the Constituent Assembly as a way to unify
Bolivia's population, but was worried that it would end up
dividing it instead. The International Monetary Fund (IMF)
resident representative said that Bolivia's macroeconomic
situation is continuing its positive trend, but that several
risk factors threaten mid-term growth. The resident
representative of the Inter-American Development Bank (IDB)
explained that IDB disbursement would only reach around USD
50 million this year due to the GOB's lack of capacity to
execute projects. He added that donor coordination is
failing due to GOB ineffectiveness and the lack of
participation of Cuba and Venezuela in the process. The GOB
has not yet released its revised national development plan
and has postponed the next donor consultative group meeting
until April. End summary.


2. (SBU) UN Resident Coordinator Antonio Molpeceres told the
Ambassador on October 17 that Bolivia was like a pressure
cooker that would not explode, because it frequently let off
steam through political protests. However, the constant
political upheaval impedes development. He said that the UN
has been a long-time supporter of Bolivia holding a
Constituent Assembly in order to resolve political problems
and unify the country, but is worried that the process may
end up dividing it instead. He viewed a Constituent Assembly
multi-party commission's recent request for international aid
as a positive sign that the Assembly members want to move in
the right direction. He said that the UN has a good
relationship with the government, partially because of the UN
assistance provided during last year's flooding.


3. (SBU) IMF Resident Representative Esteban Vesperoni said
that Bolivia's macroeconomic situation continues to be
positive due to a favorable external environment and the
GOB's continuation of its predecessors' prudent management
during its first ten months in office. Fiscal figures are
positive, in large part because of the GOB's lack of capacity
to execute spending plans, but also because of proactive
government measures to broaden the tax base. However,
mid-term prospects depend on the government's management of
several risk factors, including unemployment, respect for
property rights, improving the poor investment climate, land
reform, and loss of U.S. trade benefits in December. He
added that although the Central Bank has not moved in the
wrong direction yet, some congressmen are interested in
exerting greater political pressure on the Bank (ref A).


4. (SBU) IDB Resident Representative Joel Branski said that
IDB has a USD 400 million portfolio waiting to be disbursed
in Bolivia, but that because of the GOB's lack of capacity it
expects to disburse only USD 50 million this year, focusing
on productive infrastructure, competitiveness, and
governmental administrative capacity. Because Bolivia's
annual debt payment to the Bank is USD 120 million, Bolivia
will have a negative cash flow to the Bank this year. This
negative flow is causing the government to increase its
pressure on the local IDB office for debt relief, which
Branski explained would be discussed at the November 17 IDB
Debt Committee meeting in Washington. The Bank is scheduled
to release its new country strategy for Bolivia during the
first quarter of 2007.


5. (SBU) Branski added that the donor coordination process,
tested at a donor coordination meeting in Santa Cruz the week
of October 9, is not functioning due to lack of capacity in
the government and lack of participation in the process by

Cuba and Venezuela. The GOB had originally planned to convene
a donor consultative group meeting in February in Paris (ref
B),but has postponed the meeting until April in Brussels.
According to Branski, the government has not yet released a
revised, more detailed version of its national development
plan, which the government had promised to release the third
week of September (ref C).


6. (SBU) Comment: Without a detailed, practical national
development plan, the GOB will have trouble drumming up donor
support. As the plan relies on donor support for around 50
percent of its financing, the GOB will not be able to
implement its economic agenda without this support. End
comment.
GOLDBERG