IFI'S CONCERNED ABOUT POLITICAL TRENDS IN BOLIVIA

C O N F I D E N T I A L LA PAZ 000123

SIPDIS

SIPDIS

STATE FOR WHA/AND
STATE FOR EB/IFD
TREASURY FOR SGOOCH

E.O. 12958: DECL: 01/18/2017
TAGS: EAID ECON EFIN BL
SUBJECT: IFI'S CONCERNED ABOUT POLITICAL TRENDS IN BOLIVIA

REF: A. LA PAZ 80

B. 2006 LA PAZ 1936

C. 2006 LA PAZ 3361

Classified By: Acting Ecopol Councilor Brian Quigley for reasons 1.4 (d
) and (e).

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Summary
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1. (C) World Bank Resident Representative Connie Luff told
the Ambassador on January 12 that the Bank has maintained a
good relationship with the GOB, although the Bank is
concerned about the government's increasing interference in
key economic sectors. In a January 17 meeting with Econoff,
representatives from the International Financial Corporation,
the Inter-American Development Bank, and the Andean
Development Corporation noted that they had had varying
success in supporting private sector development, in part
because of this increasing state interference. However, all
of the representatives agreed that the GOB's main problems
are political, not economic. They expressed concern for the
future of democracy, while noting that the GOB had maintained
macroeconomic stability, exercised fiscal restraint, and
solved the hydrocarbons fiasco reasonably in 2006 (ref C).
End summary.

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World Bank Program Background
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2. (C) World Bank Resident Representative Connie Luff told
the Ambassador on January 12 that the World Bank is operating
under an interim two-year strategy, under which it is
providing concessional lending of USD 80 million for
investment projects for the two years. To date the Bank has
had fairly good relations with the GOB, partially due to the
USD 1.5 billion of debt relief granted in 2006. However,
Luff expressed concern about the GOB's increasing
interference in the telecommunications, electricity, and
microfinance (septel) sectors.

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IFIs Have Varying Success Supporting Private Sector
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3. (C) Because of the increasing interference in key sectors,
social protests, and just plain bad business luck, the
international financial institutions (IFI's) have had varying
success supporting the private sector, which they described
in a January 17 meeting with Econoff. International Finance
Corporation (IFC) Representative Marcene Broadwater noted
that the IFC's private sector loans were going fairly well,
but that she was concerned about its investments in the
mining sector with the Swiss company Glencore, which bought
former President Gonzalo "Goni" Sanchez de Lozada's mining
interests. The Inter-American Bank Resident Representative
Joel Branski lamented that many of the IDB's private sector
loans had run into trouble, including Aguas de Illimani
(water company whose contract was recently rescinded by the
GOB after years of social protest, in which the World Bank
had also invested - ref A),Transredes (IDB placed its loan
to the gas pipeline operator on hold after the GOB announced
plans to take over majority ownership - ref B),and AXS (a
U.S.-invested telecommunications company that defaulted on
its IDB loan). Andean Development Corporation (CAF)
Representative Jose Carrera noted that CAF lending is focused
on infrastructure projects, like roads, electricity, and
water and sanitation, but said that it did intend to provide
private sector support to agro-businesses this year.


4. (C) Although the World Bank Resrep told the Ambassador
that the GOB's plan to replace Aguas de Illimani with a
state-run water provider does not make sense, the CAF and IDB
representatives said they would likely support the GOB's
water efforts if the GOB presented them a reasonable,
sustainable plan. The IDB Resrep said that considering the
tremendous social pressure to remove the private water
company Aguas de Illimani (ref A),the GOB had handled the
issue fairly well and the IDB felt sufficiently compensated.


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It's All About Politics
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5. (C) Although the World Bank Resrep expressed concern about
increasing state interference in key economic sectors, all of
the IFI representatives agreed that the GOB's main problems
are political, not economic. The IDB Resrep expressed
concern about democracy's future, threatened by GOB actions
against the judiciary and local governments, attempts to
centralize power, and instigation of conflicts. The Word
Bank Resrep echoed those concerns and feared the possibility
of balkanization. She expressed concern that German, Dutch,
and Scandinavian governments were funding irresponsible NGOs
that were contributing to conflict, often without the
governments knowing exactly to what they were contributing.
On the economic side, the IFI representatives agreed that the
GOB should be judged by its actions, not its rhetoric,
because it had not done anything "crazy" in 2006, but had
rather showed concern for macroeconomic stability, exercised
fiscal restraint, and solved the hydrocarbons fiasco
reasonably (ref C).

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Comment
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6. (C) Although the GOB's economic performance to date has
been surprisingly good -- six percent fiscal surplus, record
trade statistics, and approximately 4.6 percent GDP growth in
2006 -- long-term growth will depend on political stability,
judicial security, and the country's ability to attract
investors, who may be deterred by the government's rhetoric.
End comment.
GOLDBERG