VENENZUELAN INTEREST IN PARAGUAYAN BANKS

C O N F I D E N T I A L ASUNCION 000081 SIPDIS SIPDIS STATE FOR WHA/BSC, WHA/EPSC, EB/TPP TREASURY FOR OSIA AND OTA STATE PASS USTR FOR SUE CRONIN USAID FOR AA/LAC ADOLFO FRANCO, DAA/LAC MARK SILVERMAN USAID FOR LAC/SA JEFF BAKKEN NSC FOR DAN FISK SOUTHCOM FOR POLAD BARBARA MOORE E.O. 12958: DECL: 02/01/2016 TAGS: ECON EFIN ETRD PA PGOV PINR PREL SUBJECT: VENENZUELAN INTEREST IN PARAGUAYAN BANKS REF: ASUNCION 54 Classified By: DCM Michael J. Fitzpatrick for reasons 1.4 (b) and (d). -------------- Summary -------------- ¶1. (C) Venezuelan State Development Bank BANDES is investigating the possibility of purchasing a Paraguayan financial institution as it or other Venezuelan State entities have done in Bolivia and Uruguay, and may do in Ecuador and Nicaragua. BANDES intends to provide financing for micro-enterprises and in Paraguay, possibly to the second tier public bank as well. END SUMMARY. ¶2. (C) An Argentine attorney resident in Paraguay contacted econoff in mid-January regarding possible Venezuelan interest in purchasing a Paraguayan bank or otherwise gaining entry into the market for Venezuela State Development Bank BANDES. According to the attorney, the Venezuelan Ambassador to Paraguay had contacted him about the legalities involved. Purchasing an existing bank would be the easiest route, but there are only three Paraguayan banks with a majority of local capital. There are a large number of cooperatives in Paraguay, but the attorney suggested that it would be very difficult under Paraguayan law for an outside entity to purchase a cooperative. The attorney claimed that the Venezuelan Ambassador said the goal was to help spread the Bolivarian Revolution by providing financing, presumably at preferential rates, to cooperatives, the second-tier public bank (AFD) and perhaps to other entities. The Venezuelan Ambassador reportedly also commented that he had spoken personally to Hugo Chavez, who had told him that Paraguay was important to Venezuela,s regional efforts. -------------- VENEZUELA BUYING BANKS IN THE REGION -------------- ¶3. (C) According to information from USAID Ecuador, a BANDES delegation visited Ecuador recently and obtained permission to open an office there. They told financial sector representatives that they were investigating the possibility of purchasing an Ecuadorian financial institution to begin supporting micro-enterprises. The delegation said that BANDES also has plans to begin operating in Nicaragua and Paraguay. Venezuelan State Bank Banco Industrial de Venezuela purchased a microfinance institution in Bolivia (PRODEM with 250,000 clients) that originally had received support from USAID and US-based NGO ACCION. Sources told USAID that the Venezuelan bank paid three times the value of the paid-in capital that PRODEM had. BANDES reportedly also has a credit line in Bolivia for supporting micro-enterprises and other social programs. In Uruguay, BANDES purchased Credit Union Bank (COFAC) and changed its name to BANDES Uruguay. The bank has 45 branches and an outstanding loan portfolio of about $130 million. -------------- COMMENT -------------- ¶4. (C) While there are many in Paraguay who are skeptical of Venezuela and Chavez, the government is willing to accept assistance without questioning too closely most any source, much less the muscular &new kid on the block.8 Paraguay has already entered into a petroleum purchase agreement with Venezuela and is seeking to effect an in-kind swap of meat and other products for fuel in the near future. It is likely that Paraguay will find a way to permit BANDES to operate in Paraguay one way or another. In addition to all the obvious reasons for concern at Chavez,s persistent efforts to expand his influence here, Paraguay,s continuing lack of adequate counter-terrorism and anti-money laundering legislation ) to say nothing of its minimal enforcement of existing statutes ) only elevates our disquiet. CASON CASON