VZCZCXRO8161
PP RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHQU RUEHTM RUEHVC
DE RUEHBU #2317/01 3441841
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P 101841Z DEC 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 9874
INFO RUCNMRC/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS PRIORITY
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3602
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 BUENOS AIRES 002317 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR DAN PRICE, DAN FISK 
PASS FED BOARD OF GOVERNORS FOR KROSZNER, ROBITAILLE 
PASS TREASURY FOR LOWERY, O'NEIL 
PASS EXIM BANK FOR MICHELE WILKINS 
PASS OPIC FOR JOHN SIMON, GEORGE SCHULTZ 
 
E.O. 12958: DECL: 12/09/2017 
TAGS: EFIN ECON PREL AR BL BR CO EC PA UY VE
SUBJECT: BANCO DEL SUR LAUNCHED IN BUENOS AIRES DECEMBER 9 
 
REF: BUENOS AIRES 2216 
 
Classified By: EconOff Chris Landberg for Reasons 1.4 (b,d) 
 
Summary 
------- 
¶1. (C) As his last official act in office, President Nestor 
Kirchner hosted five other South American Presidents for the 
December 9 signing of the "Founding Act of the Bank of the 
South" (Banco del Sur).  In their public remarks, the 
Presidents and President-elect Cristina Fernandez de Kirchner 
emphasized South America's growing independence and 
highlighted the Banco del Sur's expected contribution to 
regional integration, poverty alleviation, and investment. 
The ceremony was a purely political act, as the agreement 
signed does not specify any key details.  The countries' 
Finance Ministers have 60 days to create the bank's charter. 
GoA Economy Ministry officials confirm to Post that target 
capitalization of the bank is $7 billion, with paid-in 
capital only 10% ($700 million) of the total.  Argentina, 
Brazil, and Venezuela are expected to contribute about 60% of 
the total committed capital (or about $400 million).  These 
officials deny rumors that China and Iran will provide 
financial support.  End Summary. 
 
Six Presidents Sign, Emphasizing Region's Independence 
--------------------------------------------- --------- 
¶2. (C) Late on December 9, in a three-hour ceremony, the 
Presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay, 
and Venezuela signed the "Founding Act" of the Banco del Sur. 
 Uruguay's Ambassador represented Uruguayan President Tabare 
Vazquez, who reportedly will sign the document later. 
Colombia's President Uribe was included as a signatory in the 
advance copy of the document that Post acquired last week, 
but Uribe did not participate in the ceremony. 
 
¶3. (C) The Finance Ministers of these seven countries 
approved the founding act document on October 9 in Rio de 
Janeiro.  The Presidents initially planned to sign the 
document in early November, but announced in late October 
that they would postpone it to December.  Kirchner's offer to 
host the signing the day before his wife assumes the 
Presidency was convenient for the other Presidents, who are 
all attending the December 10 inauguration, but also assured 
a higher profile for the event. 
 
¶4. (U) In their public remarks, the six Presidents and 
President-elect Cristina Fernandez de Kirchner emphasized 
Banco del Sur's role in supporting South America's growing 
independence from international lenders such as the IMF and 
World Bank.  Presidents Morales (Bolivia), Correa (Ecuador), 
Duarte Frutos (Paraguay), and Chavez (Venezuela) made the 
most forceful comments in this regard, criticizing the 
international financial institutions' lending conditionality, 
alleged mistreatment of clients, and "bad advice."  President 
Correa argued that the bank would put an end to the 
"despicable and useless political and financial dependence of 
South American states on the international organizations." 
Chavez, in a remarkably short (15-20 minute) speech, stated 
that the "creation of the Banco del Sur is the continuation 
of the battle for independence." 
 
¶5. (U) Several speakers, most notably Brazil's President Lula 
da Silva and President-elect Cristina Fernandez de Kirchner, 
highlighted the Banco del Sur's expected contribution to 
regional integration, social development and poverty 
alleviation, and investment in infrastructure, science, and 
technology.  Lula commented that the "Banco del Sur will be a 
truly South American organization...will be fundamental to 
the integration of our region...and will be the first 
international bank truly controlled by the countries of our 
continent."  Lula also called on all other South American 
countries to join the project. 
 
Real Work to Create Bank Still Ongoing 
-------------------------------------- 
¶6. (C) The signing ceremony was essentially a political 
event, since the agreement does not specify key details such 
as voting power or capitalization.  These details are to be 
defined in the Bank's Charter, which founding member 
countries are still negotiating.  Post's Economy Ministry 
contacts comment that Argentine and Brazilian officials are 
working behind the scenes to moderate Venezuela's influence 
 
BUENOS AIR 00002317  002 OF 002 
 
 
in the organization of the bank in order to avoid the overt 
politicization of the Bank's lending policies.  GoA and GoB 
officials would prefer to create a financial institution that 
might eventually have some positive impact in terms of 
financing viable infrastructure projects in the region. 
 
¶7. (C) Post's contacts acknowledge, nevertheless, that the 
paid-in capital invested by member nations will be minimal. 
They confirm that the target capitalization of the Bank is $7 
billion, but emphasize that paid-in capital will be only 10% 
($700 million) of the total.  Argentina, Brazil, and 
Venezuela reportedly will contribute roughly $4 billion of 
the total, or about $130 million each in up-front payments. 
These same officials deny rumors that China and Iran will 
provide financial support (reported reftel).  However, Post's 
contacts are unable to provide details as to how remaining 
committed capital will be financed, given the low budget 
capacity of Bolivia, Ecuador, Paraguay, and Uruguay.  They 
also question the ability of the bank to leverage these 
capital contributions and commitments by borrowing in 
international financial markets. 
 
Summary of Founding Act Agreement 
--------------------------------- 
¶8. (C) According to Post's advance copy, the "Founding Act" 
document has the signatories agreeing (in Spanish and 
Portuguese) to the following: 
 
-- Creation of the "Banco del Sur," with the main objectives 
of financing economic and social development in the member 
countries, reinforcing integration, and promoting equitable 
distribution of investments among the members. 
 
-- The Bank's headquarters will be based in Caracas, with 
branches in Buenos Aires and La Paz. 
 
-- The Bank will finance development projects in key economic 
sectors, oriented towards improving competitiveness, 
scientific and technological development, added-value 
projects, prioritizing the use of primary materials from the 
region, reducing poverty, and reinforcing South American 
integration. 
 
-- The Bank should be self-sustaining and should govern 
itself in conformance with professional standards. 
 
-- Members will have equal representation, within a 
democratic voting structure. 
 
-- Economy/Finance Ministers from the founding member 
countries will conclude negotiations on the Charter 
(Constituting Agreement) within 60 days of the signing of the 
Founding Act. 
 
-- The signatories invite other members of the "Union of 
South American Nations" (UNASUR) to join the Banco del Sur. 
 
Comment 
------- 
¶9. (C) The signatory countries are a long way from developing 
a workable financial institution, and even farther away from 
the point where such an institution could compete with other 
multilateral lending institutions operating in the region -- 
assuming the rumors of large-scale external financing (from 
Iran, China) are indeed false.  In our conversations with 
representatives of international financial institutions, we 
do not detect much concern about Banco del Sur.  Their 
confidence is succinctly explained in this readout 
contributed by our colleagues in the Economic Section in 
AmEmbassy Caracas, following their meeting with the Chief 
Economist of the Andean Development Corporation (Corporacion 
Andina de Fomento -- CAF):  "CAF officially welcomes the idea 
and does not see it as a competing institution because Banco 
del Sur will do social development projects that CAF might 
not fund.  Furthermore, it takes time and a track record to 
build the ability to acquire capital on international 
markets; it takes time for by-laws to be approved by all 
countries involved; and development banks that are 
politicized (especially in terms of staff) may not be as 
effective as those that are shielded from political 
appointments/direction.  I.E., Banco del Sur has a long way 
to go."  End Comment. 
WAYNE