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).

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Summary
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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.

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VENEZUELA BUYING BANKS IN THE REGION
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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.

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COMMENT
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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