BELIZE DEMANDS RETURN OF FOREIGN GRANTS

UNCLAS BELMOPAN 000163

SIPDIS

SIPDIS

DEPT FOR WHA/CEN - ROIS BEAL

E.O. 12958: N/A
TAGS: PGOV EFIN PREL PINR BH
SUBJECT: BELIZE DEMANDS RETURN OF FOREIGN GRANTS

REF: Belmopan 130


1. (U) Summary. The newly elected government of Belize recently
discovered that Venezuela and Taiwan had each granted US$10 million
to the GOB. While ostensibly for housing construction and social
programs, the funds were diverted by the previous Prime Minister to
the privately held Belize Bank to repay a private hospital debt
guaranteed by the GOB in 2006. The current government has expressed
concerns about the legality of the financial transactions and the
Belize Central Bank has demanded the Belize Bank return the US$10
million from the Venezuelan grant and provide an accounting of the
Taiwan grant. End Summary.

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THE UHS GUARANTEE
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2. (U) During the previous administration, former Prime Minister
Said Musa signed a public debt guarantee on behalf of a private
hospital, Universal Health Services (UHS). The guarantee required
taxpayers to assume an undisclosed amount of private debt. Musa's
authority to enter into the debt agreement without National Assembly
approval is currently being challenged in a pending Supreme Court
case.
The disclosure of the deal was a major political embarrassment, and
contributed to the government's defeat in the February 7 election..




3. (U) In order to save the debt ridden hospital, the government
first announced that it would purchase UHS. As part of this
process, the government assumed additional debt on behalf of UHS
with the Belize Bank and also waived money owed by UHS to the
government-run Development Finance Corporation. The total amount of
private debt assumed under the debt guarantee remains unclear but is
estimated to be approximately US$45 million.

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THE FOREIGN GRANTS
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4. (U) Just prior to the elections, the Government of Belize
received a US $10.0 million grant from the Government of Venezuela.
The money was earmarked for home investment and social projects.
The outgoing government went on a spending spree and disbursed US$10
million in the run up to the February election sparking accusations
of vote buying (REFTEL). After the election, the newly elected
government discovered that the Venezuelan grant was in fact US$20
million (US$10 million more than reported) and that Taiwan had also
granted US$10 million to the GOB in late 2007.


4. (U) The extra US$20 million in grants were diverted to the Belize
Bank to repay UHS debt. The financial transactions were complex with
multiple transactions moving through charitable trusts and banks in
several countries. The funds were also used to lend prospective new
owners capital to purchase UHS. The current government has
expressed concern about the legality of the transactions and has
commissioned a special legal team to investigate whether the money
can be returned. The debt payment allowed a private group of
investors to purchase UHS at a fraction of the original debt owed.
UHS is currently under new management.


5. (U) On March 18, the Central Bank of Belize demanded the return
of US$10 million from the Venezuelan grant. The bank also issued a
directive seeking documentation regarding the funds transferred from
Taiwan. Both grants were directly transferred to the Belize Bank
instead of the government's account at the Central Bank of Belize -
a possible violation of the Finance and Audit Act. Local press
reports note a "contentious and stormy" meeting took place between
Prime Minister Barrow and Belize Bank principal Lord Michael
Ashcroft where Barrow demanded a refund of the Venezuela money.

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Comment
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6. (U) The Belize Bank is run by a very savvy businessman and the
GOB is unlikely to see a return of funds without a protracted and
costly legal battle. More likely, the incident will be left to
smolder in the headlines stoking ongoing frustration with the
excesses of the previous government. End Comment.

DIETER