CREATION OF A BALTIC AMERICAN ENTERPRISE FUND

UNCLAS TALLINN 000644 SIPDIS SENSITIVE SIPDIS STATE FOR EUR, EUR/NB, EUR/ACE, AND USAID E.O. 12958: N/A TAGS: EAID ECON PGOV PREL EN LH LG SUBJECT: CREATION OF A BALTIC AMERICAN ENTERPRISE FUND LEGACY FOUNDATION ¶1. (SBU) Summary: Since its launch in 1995, the Baltic American Enterprise Fund (BalAEF) has played an important role in promoting economic growth in the three Baltic states. It is important for U.S. interests in the Baltics and beyond to create a successor institution that will be ready to start work at the very latest when BalAEF?s congressionally-mandated termination date arrives in 2009, perhaps sooner if the Fund identifies an appropriate exit opportunity. We believe that a legacy foundation should focus on educational and exchange programs. The foundation should be structured in a way that allows for private contributions from U.S. individuals and entities and preserves the American essence of the organization. End Summary. ¶2. (SBU) The Baltic American Enterprise Fund was founded in 1995 as one of several private, non-profit enterprise entities funded by USAID through the Support for East European Democracy (SEED) Act of 1989. BalAEF was capitalized at $50 million to support its role in strengthening and promoting private sector business growth in Estonia, Latvia and Lithuania. Over the past ten years, BalAEF has actively engaged in a broad private investment program which has included residential mortgages, innovative commercial financing and technical assistance. In 2004 BalAEF made history by offering the first residential mortgage-backed securitization ever issued in Central and Eastern Europe. ¶3. (SBU) While BalAEF continues to do good work, both economic conditions in the Baltics and U.S. policy priorities have changed radically since 1995. We want to ensure that BalAEF is succeeded by a foundation designed to address this new situation. We understand that the Department and USAID will work closely with the BalAEF board on the shape of a legacy foundation. We believe that this foundation should focus on funding educational and exchange programs. The new foundation should be able to receive private contributions from both U.S. and Baltic individuals and entities, and should be structured in such a way that the United States maintains a role in decision- making. -------------- OUR PROPOSAL: FOCUSING ON THE NEXT GENERATION -------------- ¶4. (SBU) For younger Estonians, historical memory of the Cold War, and the affinity it engenders for the United States, is fading away at the same time the country has become a member of the European Union. Estonian students have easy access to cheap education in Europe through the Erasmus and other programs, and they can work legally in many EU countries. As a result, we can no longer take it for granted that top young students from Estonia, or other countries in the region, will seriously consider the United States for work and educational opportunities. Failure to engage the rising generation will hasten the gravitation of future leaders and business people towards Europe and away from the United States. A BalAEF legacy foundation could play an important role in reversing this trend by funding scholarships and exchange opportunities in the United States for students and scholars from the Baltic States, as well as programs to bring American experts, scholars and cultural figures to the Baltics. ¶5. (SBU) Because we believe that the main goal of a legacy foundation should be to strengthen ties between the United States and the Baltic States, it will be essential that the board include strong U.S. representation. In addition, we recommend that the foundation be structured in a way that facilitates the acceptance of private contributions from U.S. and Baltic individuals and entities, which would lengthen the legacy foundation?s lifespan and create more opportunities for partnership between U.S. and Baltic institutions. ¶6. (SBU) We discussed these ideas during our meeting with the BalAEF Board in Tallinn last month. We understand the Board has already begun to consider its recommendations on the shape and goals of a follow-on foundation. We look forward to a continuing dialogue with the Department, USAID and the BalAEF Board as we work together to shape the BalAEF legacy foundation. WOS