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.

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A NEW CREDIT GUARANTEE
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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.

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MINISTER OF FINANCE WELCOMES OPIC SUPPORT
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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.

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PROPOSAL FROM IDB
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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.


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Private Sector Learns About OPIC
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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.

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COMMENT
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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.