BANK OF THE SOUTH: FREE LUNCH FOR BOLIVIA?

C O N F I D E N T I A L LA PAZ 000793 SIPDIS SIPDIS STATE FOR WHA/AND TREASURY FOR SGOOCH ENERGY FOR CDAY AND SLADISLAW E.O. 12958: DECL: 03/21/2017 TAGS: EAID ECON EFIN EINV PREL BL SUBJECT: BANK OF THE SOUTH: FREE LUNCH FOR BOLIVIA? REF: LA PAZ 679 Classified By: Ecopol Counselor Andrew Erickson for reasons 1.4 (b) and (e). -------------- Summary -------------- ¶1. (C) President Morales announced on March 11 that Bolivia would join the Bank of the South. Central Bank President Raul Garron told the Ambassador that the Central Bank has not committed to providing any contributions to the Bank of the South. Inter-American Development Bank Resrep Joel Branski told Emboffs that the Bank of the South would offer market rates similar to those of the Andean Development Corporation, rather than concessional lending. End summary. ¶2. (C) In El Alto on March 11, Venezuelan President Hugo Chavez and President Evo Morales signed an agreement providing that Bolivia would join the Bank of the South, an initiative started by Venezuela and Argentina (reftel). The press reported on March 20 that the Bank would have an initial capital of USD 7 billion, half of which would be provided by Argentina. According to the press, Ecuador would provide another USD 50 to 100 million. ¶3. (C) Bolivian Central Bank President Raul Garron told the Ambassador on March 21 that he thought the Bank of the South would provide healthy competition to the Andean Development Corporation and the Inter-American Development Bank. He indicated that Bolivia would be delighted to participate in the Bank if it meant no cost to Bolivia and greater access to cheap capital. He noted that the Central Bank has not agreed to provide any financial contributions to the Bank of the South. He said that committing Central Bank funds would require the government to pass a law. (Note: The media had reported that each member state would have to kick in 10 percent of its international reserves as an initial capital contribution to the Bank. If true, this would amount to USD 350 million for Bolivia. End note.) ¶4. (C) Inter-American Development Bank (IDB) Resident Representative Joel Branski told Emboffs on March 21 that Venezuela and the southern cone countries were flush with reserves and could feasibly create a serious bank that would compete with the IDB. According to Branski, the Brazilian Ambassador said that Brazil was not in favor of the Bank, but would enter if the Bank was created so as not to be left out of the "club." Branski asserted that the Bank would offer market rates similar to the Andean Development Corporation, and not the concessional lending for which Bolivia was hoping. GOLDBERG