Identifier
Created
Classification
Origin
06LAPAZ3079
2006-11-15 21:15:00
CONFIDENTIAL
Embassy La Paz
Cable title:  

FINANCE AND PLANNING MINISTERS LAY OUT GOB

Tags:  EAID ECON EFIN EINV BL 
pdf how-to read a cable
VZCZCXRO0130
PP RUEHLMC
DE RUEHLP #3079/01 3192115
ZNY CCCCC ZZH
P 152115Z NOV 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 1299
INFO RUEHAC/AMEMBASSY ASUNCION 6287
RUEHBO/AMEMBASSY BOGOTA 3608
RUEHBR/AMEMBASSY BRASILIA 7469
RUEHBU/AMEMBASSY BUENOS AIRES 4730
RUEHCV/AMEMBASSY CARACAS 1980
RUEHPE/AMEMBASSY LIMA 2041
RUEHME/AMEMBASSY MEXICO 1888
RUEHMN/AMEMBASSY MONTEVIDEO 4176
RUEHQT/AMEMBASSY QUITO 4619
RUEHSG/AMEMBASSY SANTIAGO 9201
RUEHLMC/MILLENNIUM CHALLENGE CORP
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 SECTION 01 OF 03 LA PAZ 003079 

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 11/15/2016
TAGS: EAID ECON EFIN EINV BL
SUBJECT: FINANCE AND PLANNING MINISTERS LAY OUT GOB
DEVELOPMENT AGENDA

REF: A. LA PAZ 2831


B. LA PAZ 2945

C. LA PAZ 3040

Classified By: Ecopol Counselor Andrew Erickson for reason 1.4 (b).

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 003079

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 11/15/2016
TAGS: EAID ECON EFIN EINV BL
SUBJECT: FINANCE AND PLANNING MINISTERS LAY OUT GOB
DEVELOPMENT AGENDA

REF: A. LA PAZ 2831


B. LA PAZ 2945

C. LA PAZ 3040

Classified By: Ecopol Counselor Andrew Erickson for reason 1.4 (b).


1. (C) Summary: In a meeting on November 10, Finance
Minister Arce told the Ambassador that Bolivia has a positive
fiscal balance, but that the government must resolve the
inequitable distribution of resources among the central
government and regional governments. Arce said that the
ministry is "coordinating" with the central bank, implying
some interference in bank operations. Arce explained that
the government's national development plan seeks to improve
health care and education by using the capital generated in
the hydrocarbons and mining sectors. He added that the
government plans to stimulate microenterprise by providing
access to credit, technology, and productive infrastructure
through a second-tier state development bank. On November
13, Development Planning Minister Larrazabal told the
Ambassador that GOB and donor representatives have formed
five working groups to harmonize funding and align it with
the national development plan. Larrazabal noted that the GOB
is interested in receiving MCC funds and will take the
necessary steps to move forward towards a compact.
Larrazabal and Arce plan to attend the upcoming IDB meeting
in Washington to lobby for debt relief and continued access
to concessional funds. Arce told the Ambassador that the
government supports the passage of a bill containing money
laundering provisions. End summary.

--------------
Positive Fiscal Balance
--------------


2. (SBU) Finance Minister Luis Arce told the Ambassador on
November 10 that the GOB has a positive overall fiscal
balance (ref A),with sub-national governments having a
positive balance of USD 640 million and the national treasury
having a near zero balance. He said that the way in which
hydrocarbons revenues were distributed among sub-national and

national governments must be revised, as the imposition of
the direct hydrocarbons tax by the May 2005 law has caused an
inequitable distribution of resources, in which the national
treasury and non-gas-producing regional governments do not
receive sufficient shares of the income. If the distribution
system remains the same, Arce predicted that the national
treasury would have a 3 percent deficit in 2007. Arce met
with the regional governors on November 9 to discuss the
divisive issue of redistributing gas revenues, which he said
would be difficult to solve (ref B).


3. (SBU) Arce attributed the positive fiscal situation to
increased tax collection partially due to the government's
efforts to broaden the tax base to include businesses such as
bus companies. He said that the finance ministry's main goal
for 2007 was to eliminate tax exemptions enjoyed by many
companies. Arce said that the national government has
reactivated public investment, particularly spending related
to road construction after the founding of the new road
service. (Note: the prior road service was disbanded for
corruption. End note.)

--------------
Central Bank Independent?
--------------


4. (C) In response to the Ambassador's expressed concern
regarding the independence of the central bank (ref A),Arce
said that the finance ministry is "respecting" the bank and
"coordinating" with it, (note: implying a lack of

LA PAZ 00003079 002 OF 003


independence). He said that the international reserves held
by the bank had increased by USD 1.2 billion this year
because of high mineral and hydrocarbon export prices and
remittances. Although the economy was growing, Arce said,
the treasury had successfully kept inflation at a low 4
percent (0.9 percent lower than last year) by not putting
more bills into circulation.

--------------
National Development Plan
--------------


5. (SBU) Arce explained that the national development plan
focused on increasing government access to the capital
generated by the mining, hydrocarbons, and electricity
sectors to use for health, education, and employment
generation. In order to decrease migration to urban areas,
the government was seeking to improve life in the countryside
by mechanizing agriculture and providing irrigation systems,
seeds, electricity, telephones, education, and health care.
In urban areas, the government wants to stimulate
microenterprise by providing access to credit,
technology/modern equipment, and productive infrastructure
through a second-tier state development bank. Larrazabal
explained that development bank loans would be channeled
through existing financial institutions to borrowers.
Larrazabal added that the capital generated by the
hydrocarbons and mining sectors would be used to diversify
the productive sectors and generate sustainable development
in the long-term.

--------------
Donor Coordination
--------------


6. (C) Arce mentioned that the vice ministry of public
investment and external finance was currently in charge of
donor coordination, but that the government was considering
forming a Bolivian cooperation agency. The Ambassador told
Planning Minister Larrazabal on November 13 that USAID, with
USD 85 million in aid budgeted for this year, is supporting
the GOB's development goals. Larrazabal expressed thanks for
this support and said that he has easily achieved agreements
with USAID in the past. Larrazabal explained that GOB and
donor representatives have formed five working groups --
productive development, millennium development goals,
democracy, macroeconomic stability, and organization -- which
have met a few times to harmonize donor funds and align them
with the national development plan. The goal is to find out
how much donors plan to commit, how much the government has
to commit, and determine how large the gap will be to finance
the development plan. Larrazabal hoped that donors would
present draft cooperation agreements by year-end and that
Bolivia could hold a consultative group meeting with donors
in Brussels by April 2007.

---
MCC
---


7. (SBU) The Ambassador noted to Minister Larrazabal that it
was positive that Bolivia had named a national coordinator
for working with the Millennium Challenge Corporation (MCC)
and that Bolivia had been deemed eligible to seek funding by
MCC in 2007. He added that it was important for the
coordinator to form a technical team to move the process
forward. Larrazabal said that the government was interested
in obtaining MCC funds and would take the necessary steps to
go forward with a compact.

--------------

LA PAZ 00003079 003 OF 003


IDB Debt Relief
--------------


8. (SBU) Planning Minister Larrazabal and Finance Minister
Arce will attend the upcoming Inter-American Development Bank
(IDB) meeting in Washington, according to Arce. Bolivia is
requesting debt forgiveness, refounding of the concessional
loan fund, and future access to credit. Minister Larrazabal
told the Ambassador that although Bolivia hoped to rely on
its own resources and be independent, it needed liquidity,
and had thus joined other HIPC (highly indebted poor country)
countries in a meeting in Haiti last week to lobby for IDB
debt forgiveness without conditions and with access to future
financing.

--------------
GOB Supports Anti-Money Laundering Bill?
--------------


9. (SBU) The Ambassador encouraged Finance Minister Arce to
provide input to the working group on the GOB's draft
anti-corruption law, which contains provisions about money
laundering and the financial investigation unit which will be
under the control of the finance ministry (ref C). Arce
evinced the lack of coordination within the executive branch,
claiming that the draft bill includes terrorism finance,
which it does not, despite encouragement by the Embassy to
include it. (Note: the working group is led by President
Morales' Legal Adviser Eusebio Gironda. Econoff participates
in the group. Participants from the finance ministry have
attended in the past, and draft money laundering legislation
produced by finance was taken into consideration by Gironda.
However, the finance ministry has not played as active of a
role as it should have in the process. End note.)


10. (C) Comment: GOB efforts to change the distribution of
hydrocarbons revenue -- and take away "entitled" resources
from the eastern producing regions -- are likely to stir up
conflict during the coming year. According to donors, the
coordination process mentioned by Larrazabal is not
functioning well (ref A),and the GOB is unlikely to get the
commitments that it needs to finance its national development
plan. End comment.
GOLDBERG