CABEI SEEKS U.S. PARTICIPATION TO COUNTER

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001923

SIPDIS

SIPDIS

STATE FOR WHA, EEB
TREASURY FOR WESTERN HEMISPHERE BUREAU
MCC FOR FRANCES REID

E.O. 12958: DECL: 12/17/2017
TAGS: EAID ECON EFIN HO
SUBJECT: CABEI SEEKS U.S. PARTICIPATION TO COUNTER
VENEZUELAN INFLUENCE

REF: 07 GUATEMALA 000585

Classified By: Ambassador Charles A. Ford, for reasons 1.4 b and d


1. (C) Summary: The Head of the Central American Bank for
Economic Integration (CABEI) is concerned that certain member
states may seek to invite Venezuela to join the bank or to
form an association between CABEI and Hugo Chavez's Banco del
Sur. He is urging the USG to join CABEI as a member or
observer status to preempt such actions. End Summary.


2. (C) In a meeting with Ambassador December 11, Harry
Brautigam, Executive Director of CABEI, suggested the U.S.
involve itself more actively in CABEI to counter what he sees
as emerging Venezuelan influence over the institution. CABEI
has previously made such appeals from an economic angle,
citing key partnerships with USAID and CAFTA
capacity-building opportunities and drawing comparisons to
the North American Development Bank (NADB). Treasury
Secretary Paulson told former Guatemalan President Berger at

SIPDIS
the annual Interamerican Development Bank (IADB) meeting in
March 2007 that the U.S. was committed to working regionally
through the IADB (reftel).


3. (C) While Brautigam believes this argument is still
relevant, his current bid for U.S. membership is based on
what he calls "creeping south," the increasing tendency by
CABEI founding countries to politically align with Venezuela.
Three of the five founding members: Nicaragua, Honduras and
now Guatemala, are now inclined to seek partnerships with
Venezuela, and an FMLN victory in 2008 in El Salvador would
put yet another Central American country firmly in
Venezuela's camp. He has heard rumblings those countries may
push to open a concessional window with Banco del Sur,
Chavez's "alternative" to the IMF, and says there would be
very little he could do to stop this action once
it is in motion. Brautigam and his Vice President, Nick
Rischbieth Gloe, told Econoff they are not interested in
cooperating with Venezuela or Banco del Sur, but they must
respond to the political preferences of member states.
Brautigam suggested observer status by the U.S. would be
enough to counteract such a bid, admitting that U.S. capital
is not so much important as the need for a demonstration of
U.S. political interest.


4. (SBU) In addition to the five founding members (all of
which are traditionally borrowing countries),the bank now
has five extra-regional members: Spain , Mexico, Argentina,
Taiwan, and Colombia. Ironically, Venezuela at one time
expressed interest but never joined. Brautigam gave
Econoff a presentation designed to convince the U.S. to join
CABEI, citing vast improvements at the bank, which
historically has been known for lack of corporate governance
and fiscal discipline. CABEI now provides as much as 70
percent of multilateral financing in Central America.
Brautigam commented that because the World Bank and IADB
provide only 30 percent of financing combined, the U.S. is
missing a huge opportunity to influence the region by failing
to join CABEI. Additionally, credit rating houses Moody's,
Standard & Poor's, JCR, and Fitch have all recently upgraded
CABEI to an "A" rating based on reduction of cost of debt,
and a low risk asset coverage ratio.


5. (C) Brautigam said there would be clear advantages to the
U.S. to joining CABEI, including better oversight, allowing
the U.S. to bring better fiscal discipline and standards to
the bank, and avoiding donor arbitrage. He cited deep-rooted
existing partnerships, such as more than USD 430 million in
direct loans, guarantees and grants, and a recent USD 121
million donation to HIPC trust fund for reduction of
Nicaraguan debt. Brautigam also believes the U.S. would
further strengthen the ratings of CABEI, while providing
itself additional financial leverage in Central America. He
underscored the need for the U.S. to counteract the draw of
Venezuela by demonstrating an "outstanding commitment" toward
competitiveness in Central America.


6. (C) Brautigam conceded there were disadvantages to the
U.S. joining CABEI as well. For example, it could trigger a

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"domino effect," with other sub-regional banks pushing the
U.S. to join for political reasons. Also, he said, the
threat posed by Banco del Sur is unclear. And a capital
donation from the U.S. is not essential to fortify CABEI's
access to callable capital. CABEI's current "A" credit
rating from Moody's was based on the presence of Spain, "a
highly-rated investment-grade country," as a shareholder,
with a USD 200 million capital subscription.


7. (C) Comment: It is unclear whether or when Venezuela
might look to CABEI as a vehicle to exert political influence
in Central America. Brautigam said Venezuela had not yet
even approached CABEI. Post would welcome comments and
further information from Washington and from other CABEI
posts on possible Venezuelan influence over the institution
and implications for U.S. interests in the region. End
Comment.
FORD