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.


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OUR PROPOSAL: FOCUSING ON THE NEXT GENERATION
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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