VZCZCXYZ0022
PP RUEHWEB

DE RUEHLP #2457/01 2542050
ZNR UUUUU ZZH
P 112050Z SEP 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 0500
INFO RUEHAC/AMEMBASSY ASUNCION 6086
RUEHBO/AMEMBASSY BOGOTA 3405
RUEHBR/AMEMBASSY BRASILIA 7257
RUEHBU/AMEMBASSY BUENOS AIRES 4521
RUEHCV/AMEMBASSY CARACAS 1786
RUEHPE/AMEMBASSY LIMA 1821
RUEHMN/AMEMBASSY MONTEVIDEO 4000
RUEHQT/AMEMBASSY QUITO 4421
RUEHSG/AMEMBASSY SANTIAGO 8990
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 002457 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EFIN BL
SUBJECT: GOB REVISES NATIONAL DEVELOPMENT PLAN 
 
REF: A. LA PAZ 2197 
     ¶B. LA PAZ 279 
     ¶C. LA PAZ 1614 
 
¶1. (SBU) Summary: The GOB is revising its National 
Development Plan (NDP) based on suggestions from businesses 
and social organizations and conducting a debt sustainability 
analysis with German aid.  It appears that the National 
Development Bank will likely be a second-tier institution, 
but with "parallel" GOB direct-lending efforts.  The 
government announced the formation of a second-tier system in 
June with an initial USD 100 million grant from Venezuela. 
However, Venezuela purchased a large share of Bolivia's 
state-owned Union Bank, which may become part of the 
second-tier system or may supplant it as a direct lender.  In 
addition, according to the Vice Minister of Industry, 
Venezuela granted a second USD 100 million which the Ministry 
plans to lend directly to small businesses based on political 
criteria.  The GOB's desire to incorporate business feedback 
into the NDP, define its vague terms, and consider the 
realistic financial constraints on the plan are positive 
steps.  However, the government's political-based, first-tier 
lending plan represents a worrisome trend.  End summary. 
 
GOB Revises National Development Plan 
------------------------------------- 
¶2. (U) The GOB announced on August 31 that it is making 
changes to its National Development Plan (NDP) based on 
suggestions from businesses and social organizations and that 
a new, more detailed version of the plan would be released 
the third week of September.  Planning Minister Carlos 
Villegas told the press that three aspects of the plan would 
be refined, including the Development Bank and production 
programs.  The Planning Ministry is conducting an external 
debt sustainability analysis with support from the German 
government to ascertain the amount of financing required to 
meet the Millennium Development Goals "within the framework 
of the NDP."  The study is scheduled to be completed in 
November, in advance of the donor consultative group meeting 
scheduled for February 2007. 
 
Second Tier National Development Bank 
------------------------------------- 
¶3. (SBU) The original National Development Plan stated that 
the GOB would create a second tier development bank that 
would channel loans to small businesses via existing 
financial institutions, but that if that plan did not produce 
satisfactory results, a first tier development bank would be 
instituted to lend directly to clients.  The GOB announced in 
June that it had established a second tier system, which 
would channel funds through an existing state financial 
entity (NAFIBO) with initial financing of USD 100 million 
granted by Venezuela (ref C).  The press reported on 
September 11 that the National Development Bank would be 
formed by fusing three state financial entities already in 
existence (NAFIBO, FONDESIF, and FNDR), which would channel 
capital from the state to small businesses. 
 
Venezuela Purchases Shares of Union Bank 
---------------------------------------- 
¶4. (SBU) Meanwhile, embassy contacts informed us that 
Venezuela purchased a large percentage of the Bolivian 
state-owned Union Bank.  Union Bank published its strategy in 
late August stating that it would divide the bank into two 
units -- one for traditional business and one devoted to 
development.  It indicated that the development unit, with 
state capital and bank profits, would work through 
microfinance NGOs to on-lend.  However, the bank's strategy 
is dependent on GOB approval, and it remains unclear what the 
government's intentions are with respect to the structure of 
the development unit of Union Bank, i.e. whether it will be 
first-tier or second. 
 
Parallel Direct-Lending Effort 
------------------------------ 
¶5. (SBU) According to the Vice Minister of Industry, the GOB 
has received another USD 100 million grant from Venezuela to 
fund small business production, which is a "parallel effort" 
to the national development bank.  (Note: This USD 100 
million is in addition to the previous Venezuelan pledge of 
USD 100 million that the GOB is using to fund a second tier 
development bank (ref C).  End note.)  The Vice Minister 
explained that 45 businesses have already been selected by 
the GOB for political reasons to receive loans which will be 
handed out directly by the Minister of Production, rather 
than channeled through a formal financial institution.  The 
loans will have two-year grace periods, ten-year repayment 
periods, low interest rates of around five percent, and 
either lax or no collateral requirements.  The 45 chosen 
businesses are in the quinoa, soy, honey, textiles, tourism, 
wood, leather, and jewelry sectors.  Given the lack of credit 
checks and the soft conditions of the loans, repayment rates 
are likely to be poor. 
 
¶6. (SBU) Comment: The GOB's desire to incorporate business 
feedback into the NDP, define its vague terms, and consider 
the realistic financial constraints on the plan are positive 
steps.  The GOB's indications that the National Development 
Bank will be a second-tier institution is also positive, 
because, as noted previously (ref B), a second tier 
development bank that provided capital to lenders would do 
less harm to the financial system, particularly microfinance 
institutions, than a first tier institution that lent 
directly to clients.  However, the government's "parallel 
effort" of political-based, first-tier lending sets a 
worrisome precedent.  End comment. 
GREENLEE