MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -

UNCLAS SECTION 01 OF 02 MADRID 001110 SIPDIS SIPDIS EUR/WE E.O. 12958: N/A TAGS: BEXP EAGR EAIR ECON EFIN EIND ETRD TBIO SP EINV, UK SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - JUNE 4 MADRID 00001110 001.2 OF 002 EINV: Lending fund manager advises clients to reduce exposure to Spanish equities EINV/ETRD: Housing slow down could affect GDP and employment EFIN: Venture Philanthropists among the Spanish elite EFIN/EMIG: Success and hard work for Spanish immigrants ECON/EMIG: Latin-Americans remit 3,730 million euros home LENDING FUND MANAGER ADVISES CLIENTS TO REDUCE EXPOSURE TO SPANISH EQUITIES ¶1. (U) Spain's best-performing fund manager thinks a harder, rather than softer, landing more likely for the Spanish economy. Francisco Parames, head of Madrid-based Bestinver Asset Management, says he was asked by Warren Buffet a few months ago for advice about investing in Spain. Parames said he was thrilled to be asked but less sanguine about prospects for the Spanish economy. He thinks there is a credit bubble - he says credit has increased by 25% a year every year for six years, even more than in China. He is advising clients to invest in global stocks instead of Spanish equities. In line with this view, University of Barcelona Economics Professor Gonzalo Bernardos forecasts housing prices will decline by 20% from now through 2009: Why? A classic case of oversupply according to the professor. European interest rate hikes will also start to affect economic behavior. (Comment: We are beginning to see more articles like this in the national and international press, although official national and international growth forecasts for Spain remain strong for 2007 and even 2008 to some extent.) (IHT, 6/5/07 and IHT, 6/7/07) HOUSING SLOWDOWN COULD NEGATIVELY AFFECT GDP AND EMPLOYMENT ¶2. (U) Analysts estimate that a housing slowdown could cut GDP growth by 1% a year and cost 50,000 jobs: However, most analysts and the government still seem to think there will be a "soft landing" for the real estate market and therefore the economy. The government still thinks the economy will grow by 3.7% to 3.8% (first quarter growth was 4.1%) in 2007, and that in 2008 growth will be something between 3.3% to 3.4%. This would still be well above average Eurozone growth. Politically, the government does not want growth to slow down to 2.5% because at that point analysts estimate that unemployment would start to increase. (El Pais, June 4, 2007) VENTURE PHILANTHROPY THE FASHION IN SPAIN ¶3. (U) Spanish philanthropists follow Gates model in "venture philanthropy;" roughly, this means trying to ensure that every donated Euro has the desired impact. Rich business people and foundations such as Carmela Arias y Diaz de Rabago, Emilio Botin, Rafael del Pino, the Thyssen Foundation, German Sanchez Ruperez, Esther Koplowitz, Amancio Ortega, Isidoro Alvarez, the March family, and Manuel y Jose Maria Roviralta are listed as "venture philanthropists." (Expansion, June 4, 2007). IMMIGRANTS LIVING THE SPANISH DREAM ¶4. (U) Immigration and Work in Spain; 1 out of 6 Immigrants own Businesses. A recent study by La Fundacion La Caixa showed that of the 1.75 million immigrants registered with social security, 13.7 percent have established their own business. The study, which breaks down the type of businesses established into five categories, shows that the majority cater to immigrant populations, though some such as restaurants or Artesan stores, cater to all. The predominant types of businesses owned by immigrants are those that provide food items for local consumption, followed by "circuit businesses" that provide services such as messenger and money services back to the country of origin. According to another survey, it is estimated that 80 percent of all immigrants work compared with 58 percent of Spaniards. LATINAMERICANS SEND 3,730 MILLION EUROS HOME ¶5. (U) Latin-Americans maintain strong ties with their home countries. Their ties are not only emotional but also monetary. In 2006 1.82 million adult Latin immigrants residing in Spain, remitted 3,730 million euros (based on total income of 30,000 million euros) according to a study by Bexiden Consultants and the Interamerican Development Bank. They already represent 7% of the Spanish labor force and 70% are registered in the Social Security system. Their numbers have tripled in the last 5 years and by 2010 they could be sending as much as 5,000 million euros annually. The importance of remittances to that continent is such that they MADRID 00001110 002.2 OF 002 already surpass direct foreign investment in Latin America. In Guatemala, El Salvador or Honduras, the remittances surpass 10% of the GDP. The average monthly amount remitted is 270 euros (15% of their income) by which a 2% commission is paid. Colombians, Ecuadorians, Bolivians and Dominicans send the most. The Argentines and Peruvians send the least amounts home. (20 minutos, June 6, 2007) AGUIRRE