OPIC CEO MOSBACHER VISITS PARAGUAY

UNCLAS ASUNCION 000977 SIPDIS PASS TO: OPIC, TREASURY, WHA/BSC (KREAD, CCROFT) SIPDIS E.O. 12958: N/A TAGS: ECON ECPS PREL PGOV PA SUBJECT: OPIC CEO MOSBACHER VISITS PARAGUAY ¶1. (SBU) SUMMARY: Robert Mosbacher Jr., CEO of the Overseas Private Investment Corporation (OPIC),visited Asuncion October 31 to November 1 and met with officials from Banco Regional and Citibank to discuss an ongoing credit guarantee transaction. The parties agreed to close the deal in coming months. Mosbacher met with Minister of Finance Barreto. Minister of Finance Barreto encouraged OPIC to explore housing and access to credit transactions with Paraguay's state-owned bank, Financial Development Agency (AFD). Officials from the Inter-American Development Bank (IDB) separately discussed with Mosbacher a concrete proposal in the area of access to finance. Two separate events, a reception and a working lunch, offered local companies the opportunity to learn about OPIC. The private sector expressed a strong interest in OPIC's products and services and the Paraguayan-American Chamber of Commerce is planning to host a series of informational sessions on OPIC. END SUMMARY. -------------- A NEW CREDIT GUARANTEE -------------- 2.(SBU) Robert Mosbacher Jr., CEO of the Overseas Private Investment Corporation (OPIC),met October 31 with Citibank officials Ignacio Morello, Jersnimo Nasser, and Hugo Martinez and with Banco Regional officials Nicols Trociuk, Francisco Yanagida and Gustavo Matiauda to discuss an ongoing credit guarantee transaction. The meeting focused on the requirements for qualifying loans covered under an OPIC credit guarantee. Banco Regional described the market sectors (agriculture, cattle, and value added light manufacturing) and likely borrower profile (small and medium enterprises) for borrowers under the guarantee. The parties agreed to complete the transaction in a month and make the official announcement after completion. -------------- MINISTER OF FINANCE WELCOMES OPIC SUPPORT -------------- 3.(SBU) Mosbacher met November 1 with Minister of Finance Barreto and selected members of the Economic Cabinet: Hector Giardina, CEO of Paraguay's state-owned bank, Financial Development Agency (AFD); Enrique Yebran, Board Member, AFD; Victor Vazquez, Economic Advisor to the Minister of Commerce and Trade; and Celio Tunholi, President, Paraguayan Banks Association. Mosbacher introduced OPIC's mission, products and priority areas. He stressed OPIC's role in economic development, the requirement of 25% US equity participation, and its priorities to promote low and medium income housing and access to credit. As examples, Mosbacher mentioned OPIC's $100 million credit line with Citibank and its ongoing transaction with Banco Regional. ¶4. (SBU) Mosbacher highlighted how OPIC products encourage financing with longer terms and lower interest rates. With regard to housing, Mosbacher provided details of products and transactions that OPIC can offer and support. He explained how OPIC succeeded in promoting 15-to-20 year fixed rate mortgages in other countries in Latin America. Mosbacher described a leasing-like structure for low and medium income housing where borrowers are able to "lease" the property and pay with direct salary deductions. He explained how this mechanism increased the availability of housing for maquila workers in Central America. ¶5. (SBU) Minister Barreto explained that the Government of Paraguay (GOP) is trying to promote housing finance through AFD. He described how OPIC's focus on low and medium income housing and increased access to finance complements GOP goals. In the housing sector, he indicated that supply exceeds demand and the GOP needs to build mechanisms to facilitate access to housing, including subsidies. He spoke about the GOP's interest in exploring a trust fund structure through AFD to encourage lower interest rates. For small and medium enterprise (SME) financing, Minister Barreto explained that AFD provides direct financing and is exploring options to create a fund to support microfinance. Minister Barreto asked President of Paraguayan Banks Association, Tuhnoli, about coordination between AFD and the banks. Tuhnoli confirmed AFD's productive relationship with Paraguayan banks. ¶6. (SBU) Mosbacher emphasized that OPIC works to address market imperfections and will not work to undermine the competitiveness of the market or crowd-out the private sector. Minister Barreto said that likewise, AFD will not create market disruptions through subsidies and indicated that OPIC and the AFD should work together to improve access to credit and promote housing lending. Minister Barreto noted that the greatest challenge is how to promote a housing market of $10,000 per unit for individuals earning $300 per month. He also indicated that the GOP is exploring options to this end, including mechanisms to encourage lending, but the plan will require several steps with further market segmentations. Minister Barreto again emphasized that the GOP is not planning to distort the market but will address imperfections to improve the enabling environment and facilitate access. The GOP's plan, Barreto said, is to reach a market segment of individuals with at least $1.7 millions guaranis ($343 USD) per month (medium low income housing) for 50,000 to 100,000 houses. He indicated that below this segment, the lower income households account for at least 150,000 houses. He emphasized that before reaching those lower income segments improvements in the operational mechanisms to facilitate access are needed. ¶7. (SBU) Giardina, CEO of AFD, indicated that the current phase of the housing plan is targeting people with a median income of $800 per month. He indicated that the initial target of a median income of $800 per month is for housing units of $20,000 per unit. He described that in collaboration with 8 local banks, 20 year financing is now available for this market segment and, so far, 150 housing unit have been provided. Giardina explained that the two key constraints are: i) what type of mechanism to offer in order to increase access to mortgage finance to market segments in lower income groups, and ii) how to encourage the construction industry to build houses for these segments. Barreto again requested OPIC support and suggested that OPIC explore options with AFD to make housing available for additional market segments. 8.(SBU) Mosbacher emphasized that local banks need to recognize that low and medium income borrowers are good clients that usually have low default rates. He offered two suggestions to AFD: i) rather than using AFD funds as direct subsidies, AFD can promote lending using funding structures to cover the down payment for new housing units, which has worked in other countries in Latin America; and ii) explore options to use funds to support risk sharing agreements in the same manner as OPIC, encouraging lending at reasonable terms and to market segments that otherwise would not be considered; AFD can use its funding to support risk sharing agreements with local banks and promote lending with lower interest rates and longer tenors. ¶9. (SBU) Regarding access to finance for SMEs, Giardina explained that banks have a higher perception of risk than otherwise warranted and the current product offering is not only limited but has inadequate tenor and rates for the market. Giardina indicated that products such as leasing and financing on discounted account receivables (factoring) are needed. He mentioned that next year he will try to offer factoring products in a structure similar to the one used in Mexico with the company FINSA, and asked if OPIC could support such an initiative. Mosbacher explained that OPIC is working in collaboration with US Treasury and the IDB to address constraints to SME financing and indicated that in these efforts there are many opportunities to engage with AFD. -------------- PROPOSAL FROM IDB -------------- ¶10. (SBU) Mosbacher met November 1 with IDB's Country Representative, Vladimir Radovic, Senior Financial Specialist, Felipe Gomez-Acebo, and Financial Institution Specialist, Joaquin Jorge Dominguez. Mosbacher made a brief presentation which included OPIC's initiative to collaborate with Treasury and IDB to address lending constraints to SMEs. Gomez-Acebo offered a presentation of the areas in the financial sector where the IDB and OPIC can collaborate, and proposed a financing structure to increase credit access with the establishment of an independent investment vehicle funded by AFD, IDB, OPIC and the private sector. The proposal was briefly discussed and the IDB will email a more detailed version to OPIC for future discussion. -------------- Private Sector Learns About OPIC -------------- ¶11. (SB) Two separate events, a reception and a working lunch, offered local companies the opportunity to learn about OPIC. The reception included key representatives from the main trade and industrial associations in Paraguay as well as officials from the GOP. The Paraguayan-American Chamber of Commerce hosted a working lunch with local companies and members where Mosbacher explained in greater detail OPIC's products and services. -------------- COMMENT -------------- ¶12. (SBU) The visit generated strong interest from the GOP and the private sector community. Minister Barreto stressed common objectives and repeatedly recommended that OPIC works with AFD on housing and access to finance transactions. The private sector expressed a strong interest in OPIC's products and services and the Paraguayan-American Chamber of Commerce is planning to host a series of informational sessions on OPIC. END COMMENT. OPIC CEO Mosbacher cleared this message.