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O 032137Z NOV 08
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TAGS: OVIP EAID ECON EFIN EINV ECIN PGOV PREL CI
 
SUBJECT:  TREASURY DAS MCDONALD AND CHILEAN MINISTER OF PUBLIC WORKS 
BITAR AGREE ON NEXT STEPS FOR IFEC 
 
REF:  Santiago 816 
 
¶1. (SBU) SUMMARY:  Treasury DAS McDonald and Minister of Public 
Works Sergio Bitar agreed, September 30, on next steps to build an 
Infrastructure Finance Expert Corps with U.S. and Chilean experts. 
END SUMMARY. 
 
¶2. (U) Ambassador Simons, U.S. Treasury DAS Larry McDonald, Treasury 
Associate Director for Technical Assistance Debra von Koch, Director 
for Western Hemisphere Luyen Tran, Advisor for Technical Assistance 
Harry Tether, Western Hemisphere Economist Rachel Jarpe, Econoff, 
and Econ Specialist attended a meeting, September 30, with Chilean 
Minister of Public Works Sergio Bitar, Coordinator for Public 
Infrastructure Projects Gonzalo Cordua, International Coordinator 
Rigoberto Garcia, Chile's Agency for International Cooperation, 
Bilateral Cooperation Chief, Enrique O'Farrill-Julien, and Program 
Coordinator Ivan Mertens Galle. 
 
USG And Chile Ready To Move Forward With IFEC 
--------------------------------------------- 
 
¶3. (SBU) DAS McDonald explained his visit demonstrated the USG's 
readiness to move forward in building the Infrastructure Finance 
Expert Corps (IFEC), agreed to by Treasury A/S Lowery and Minister 
Bitar September 1.  The IFEC would bring U.S. and Chilean experts 
together to provide technical assistance on building infrastructure 
to countries in the region.  He underlined Chile's impressive 
history of using public private partnerships (PPP's) and concession 
models to help finance infrastructure.  This experience would be 
critical in forming the IFEC.  The Treasury delegation had spent the 
last day and a half in Santiago finding out more about Chile's 
concession process.  They had met with Banco de Chile, Banco Estado, 
the Association of Private Concession Holders, the Chamber of 
Construction, the UN Economic Commission for Latin American and the 
Caribbean (CEPAL/ECLAC), and the Association of Private Pension 
Funds. 
 
¶4. (SBU) DAS McDonald related that the Treasury's Office of 
Technical Assistance had a wealth of experience in:  budget policy 
and management, financial institutions policy and management, 
government debt issuance and management, financial enforcement 
(including combating terrorism finance), and tax policy and 
administration.  OTA has representatives in 70 countries around the 
world (with almost one half of those in the Western Hemisphere). 
DAS McDonald recognized the U.S. lacked the historical experience of 
PPP's and concessions. 
 
¶5. (SBU) Minister Bitar agreed it was time to progress to the next 
stage of setting up the IFEC.  He acknowledged that the Ministry of 
Public Works (MOP) together with the Ministry of Finance had 
established a successful concession model for Chile.  Chile's 
private sector had significant experience in building public 
infrastructure and some of the world's largest infrastructure 
companies were currently at work in the country.  The GOC wanted to 
provide this expertise to other countries in the region, through the 
Chilean Agency for International Cooperation (AgCI).  Many countries 
had already come to Chile to learn about the model.  MOP was 
organizing a November 9-10 conference for regional, infrastructure 
ministers in cooperation with ECLAC.  Bitar invited Treasury 
representatives to participate. 
 
Priority Countries And A Working Group 
-------------------------------------- 
 
¶6. (SBU) Minister Bitar made three key proposals:  1) IFEC should 
concentrate on Latin America, 2) Treasury and MOP should choose one 
or two countries for an IFEC test project, 3) they should also 
determine if technical cooperation would be best achieved through 
exchanges or on-site projects.  Bitar suggested candidate countries 
for IFEC test projects should meet four minimum conditions.  A 
country should have:  1) institutions that can evolve in a way 
necessary to support the concessions process, 2) a minimum financial 
strength or set of financial institutions, 3) a small size to 
facilitate coordination, and 4) Spanish or English language.  Chile 
had been engaged in Central America for some time and one of the 
nations in that region might prove an attractive candidate. 
 
¶7. (SBU) DAS McDonald agreed with Minister Bitar's points and noted 
the particular importance of legal structures and financial 
strength.  He suggested the formation of an IFEC Working Group, 
comprised of those represented at the meeting.  McDonald noted he 
thought Costa Rica, the Dominican Republic, Guatemala, Honduras, and 
Paraguay all fit Bitar's criteria.  DAS McDonald noted these 
countries also had Treasury advisors (save Guatemala, which had 
requested one).  This factor could help Treasury maximize existing 
resources to assist in starting up the IFEC.  DAS McDonald had come 
to Chile after visits to Guatemala and Honduras where there was 
great interest in working with the IFEC. 
 
¶8. (SBU) Gonzalo Cordua agreed to the formation of the IFEC Working 
Group.  He said the World Bank and Inter-American Development Bank 
had a significant presence in Central America including several 
Chilean experts who could be helpful in an IFEC test project. 
Enrique O'Farrill-Julien noted that AgCI maintained assistance 
projects in all 5 candidate countries.  He highlighted Paraguay as a 
priority for Chile because of its new democratic government and the 
need to strengthen institutions there. 
 
Operational Constraints And Considerations 
------------------------------------------ 
 
¶9. (SBU) DAS McDonald asked about using experts from MOP's 
Department of Concessions in future IFEC projects.  Cordua 
underlined the importance of providing public sector actors with the 
knowledge and capability (which they often lacked) to negotiate 
skillfully with private sector counterparts on infrastructure 
projects.  MOP had some experience in this area, but it might prove 
difficult to include their personnel in an IFEC project.  Department 
of Concessions employees were all on contract from the private 
sector and by law were only paid according to their work on specific 
concessions.  They could not be "loaned-out" to a long-term project, 
especially at their private sector salaries (i.e., pro bono work 
outside of Chile would be extremely hard to do).  Cordua undertook 
to see if there was a workaround that MOP could use to overcome 
these hurdles. 
 
¶10. (SBU) Cordua explained MOP worked mostly with a group of 10-15 
foreign, private companies interested in participating in 
concessions in Chile.  Those companies were not as interested in 
working with other countries in the region, save Mexico or Brazil. 
In addition, Costa Rica was the only investment grade country among 
the five candidates.  That meant private Chilean pension funds would 
only be able to invest in infrastructure projects in Costa Rica and 
only with insurance from an international provider (in accordance 
with Chilean law).  This would likely be a requirement for many 
non-Chilean investors in the region as well.  A guarantee from the 
World Bank might allow for funding projects in non-investment grade 
countries.  This might prove a significant obstacle given the small 
size of financial markets in the countries under discussion. 
 
¶11. (SBU) DAS McDonald suggested a joint roll-out of the IFEC after 
selection of a test project and country, perhaps in both Washington 
and Santiago.  He also warned that the group should be prepared to 
manage "too much demand" from candidate countries.  Both Treasury 
and MOP/AgCI undertook to request more resources for IFEC in the 
budgetary process, though AgCI warned this would be difficult given 
Chile's 2009 Budget Proposal was already published (and reflected a 
tightening in the GOC's fiscal policy).  At a future meeting, the 
group might consider a joint-demarche to the Inter-American 
Development Bank.  Director Tran noted the USG was already planning 
for the Summit of the America's.  The new U.S. president and 
President Bachelet could highlight the IFEC at this venue, showing 
both nations' commitment to regional development. 
 
IFEC:  Next Steps 
----------------- 
 
¶12. (SBU) DAS McDonald and Director Tran ended the meeting by 
summarizing what Treasury, MOP, and AgCI had agreed to do by the 
next meeting of the IFEC working group. 
--Both Treasury and MOP/AgCI would rank order the five candidate 
countries and select top choices before the MOP-ECLAC Infrastructure 
Conference (November 9-10). 
--Treasury officials would meet with multilateral organizations 
 
(e.g., World Bank) in Washington to brief on the concept of the 
IFEC. 
--Treasury would draft an outreach document and a scope model. 
--AgCI would provide a list of its ongoing projects in the region to 
Treasury. 
--USG and GOC officials would raise the IFEC concept at the October 
11 meeting of Finance Ministers in Washington (on the margins of the 
World Bank/IMF Meetings). 
--Treasury and MOP would arrange exploratory trilateral meetings 
with possible candidate countries during the MOP-ECLAC 
Infrastructure Conference in Santiago. 
--The USG and GOC would investigate readying the IFEC as a 
deliverable at the Summit of the Americas in Spring 2009. 
--Treasury and MOP would schedule joint-visits to the agreed 
candidate countries for test project planning. 
 
¶13. (U) Treasury has cleared this message. 
SIMONS