VZCZCXYZ0007
PP RUEHWEB

DE RUEHLP #3346/01 3452116
ZNR UUUUU ZZH
P 112116Z DEC 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 1617
INFO RUEHAC/AMEMBASSY ASUNCION 6375
RUEHBO/AMEMBASSY BOGOTA 3699
RUEHBR/AMEMBASSY BRASILIA 7569
RUEHBU/AMEMBASSY BUENOS AIRES 4819
RUEHCV/AMEMBASSY CARACAS 2071
RUEHPE/AMEMBASSY LIMA 2144
RUEHME/AMEMBASSY MEXICO 1965
RUEHMN/AMEMBASSY MONTEVIDEO 4269
RUEHQT/AMEMBASSY QUITO 4708
RUEHSG/AMEMBASSY SANTIAGO 9293
RUEHSO/AMCONSUL SAO PAULO 2092
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 003346 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN EINV BL
SUBJECT: IDB AND IMF DISCUSS ENGAGEMENT STRATEGIES WITH 
BOLIVIA 
 
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Summary 
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¶1. (SBU) The Inter-American Development Bank (IDB) is 
realigning its USD 400 million of loans in the pipeline for 
Bolivia with the country's national development plan.  The 
IDB is preparing an interim strategy for Bolivia and hopes to 
implement a more permanent strategy after the constituent 
assembly.  The International Monetary Fund (IMF) will likely 
send a mission to Bolivia during the first half of 2007 to 
help the government prepare macroeconomic projections prior 
to a donor meeting the GOB would like to convene in Brussels 
in May 2007.  The IMF predicts that the government will face 
a USD 2.3 billion financing gap by 2011 and is skeptical that 
donors will commit the needed amount.  The IDB has agreed to 
provide debt relief for Bolivia.  The amount of relief will 
be discussed at the IDB meeting in January.  Bolivia's fiscal 
situation is positive, but inflationary pressures and pension 
reform costs could cause problems in the future.  The 
government is considering establishing a budget stabilization 
fund for hydrocarbons revenues to prevent deficits when gas 
prices fall that would likely shift resources away from the 
regions to the central government.  End summary. 
 
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IDB Lending Plans and IMF Engagement 
------------------------------------ 
 
¶2. (SBU) Inter-American Development Bank Senior Economist 
Guillermo Zoccali told Econoff on December 1 that the IDB was 
seeking to realign its USD 400 million of loans in the 
pipeline for Bolivia with the country's national development 
plan.  He said that the bank would likely reprogram USD 60 
million of the USD 400 million and give an additional USD 80 
million in concessional loans in 2007.  He said that donors 
were worried that Bolivia was not being monitored by the 
International Monetary Fund (IMF) and suggested that Bolivia 
should engage with the Fund through its "policy support 
instrument," which would not impose conditions, but would 
entail monitoring to provide a positive signal.  He said that 
the IDB was preparing an interim strategy for Bolivia and 
hoped to delineate a more permanent strategy focused on 
employment, poverty reduction, and government capacity 
building after the conclusion of the constituent assembly. 
 
¶3. (SBU) IMF Assistant Director Antonio Furtado told Emboffs 
on December 8 that the fund would likely send some sort of 
mission to Bolivia in the first semester of 2007 to help the 
government prepare macroeconomic projections, in preparation 
for the consultative group meeting of donors that the GOB 
hoped the European Community would host in May 2007 in 
Brussels.  The Fund proposed to send an Article Four mission 
in March for this purpose; the government is considering the 
proposal.  The Fund already prepared an estimated financing 
gap based on the GOB's five-year national development plan. 
Based on the high levels of public investment envisioned in 
the plan, the Fund estimated that by 2011, the government 
would have a USD 2.3 billion financing gap.  Furtado noted, 
however, that the GOB has been investing roughly 9 percent of 
GDP annually, but that the plan calls for public investment 
of 14 percent of GDP.  Furtado was skeptical that the 
government was capable of such a significant spending 
increase.  Furtado also doubted that donors would commit the 
large amounts needed to cover the financing gap, as that GOB 
had not yet proposed specific projects based on its 
theoretical national development plan. 
 
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IDB Debt Relief to Go Forward 
----------------------------- 
 
 
¶4. (SBU) Zoccali said that the IDB had agreed to go forward 
with debt relief for Bolivia, but had not agreed upon the 
amount.  Because the special operations fund would not be 
replenished, the debt cut-off dates for Bolivia would likely 
be pushed back to the end of 2001 or 2003, earlier than 
originally anticipated.  Zoccali said that the bank would 
meet in January 2007 to discuss debt relief details. 
 
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Positive Macroeconomic Situation 
-------------------------------- 
 
¶5. (SBU) Zoccali said that Bolivia's fiscal situation is 
positive, due to windfall hydrocarbons revenues.  Government 
sources indicate that the government as a whole will have a 
5.9 percent of GDP surplus at the end of the year, with the 
national treasury having a 0.3 percent surplus and the rest 
attributed to regional governments.  According to Zoccali, 
the government predicts a 3 percent deficit in 2007. 
Zoccali, like Furtado, was skeptical that the government 
would be able to effectively execute the high spending levels 
that it has projected for next year.  Furtado predicted that 
higher government spending would increase inflationary 
pressures in the coming years.  He added that the GOB's 
ministry of the presidency, which has taken control from the 
finance ministry, was considering reverting to a government 
pension system, which could increase GOB expenditures 
significantly in the future. 
 
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Budget Stabilization Fund 
------------------------- 
 
¶6. (SBU) Zoccali said that the government was considering 
establishing a stabilization fund for hydrocarbons revenues. 
In periods of high natural gas prices, the government would 
deposit a portion of revenues into the fund to stabilize 
future budgets.  Zoccali said the IDB would encourage the 
government to set aside some savings for future generations, 
because gas is a non-renewable resource.  Zoccali explained 
that one of the central government's main reasons for setting 
up the fund would be to shift more resources toward the 
central government and away from regional governments in 
order to correct funding imbalances that threaten to leave 
the national treasury with a financing gap next year.  The 
managers of the stabilization fund would have access to 
hydrocarbons revenues before they were shared with regional 
governments, as required by law, and would be able to 
purchase national treasury bonds to finance central 
government operations.  A law would be required to establish 
the fund, but GOB officials are wagering that a stabilization 
fund law would be easier to pass than a law changing revenue 
distribution that would take funds away from regional 
governments. 
 
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Comment 
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¶7. (SBU) Although the current macroeconomic situation is 
positive, long-term growth will depend on the country's 
ability to generate productive jobs, diversify revenue and 
decrease dependence on hydrocarbons and minerals, manage 
inflation, and control pension costs.  A budget stabilization 
fund for hydrocarbons revenues seems to be a good idea, but 
could inflame regional governments if they deduce that their 
revenue shares are being cut.  End comment. 
GOLDBERG