Viewing cable 06SANSALVADOR983
Title: POST'S VIEWS ON OPIC CAFTA-DR FUND

IdentifierCreatedReleasedClassificationOrigin
06SANSALVADOR9832006-04-17 14:52:00 2011-08-30 01:44:00 UNCLASSIFIED Embassy San Salvador
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SAN SALVADOR 000983 
 
SIPDIS 
 
STATE PASS OPIC - JDOHERTY AND JHANSLEY 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: EINV OTRA ES OPIC
SUBJECT: POST'S VIEWS ON OPIC CAFTA-DR FUND 
 
REF: STATE 57353 
 
¶1.  Post understands that OPIC is planning to support a 
Central America and Caribbean Fund that may invest in the 
financial services sector, to include banks and nonbank 
financial intermediaries and specialized financial services 
firms in OPIC-eligible countries in Central America and the 
Caribbean.  Post believes that this initiative, if focused 
on nonbank financial intermediaries, would help develop 
capital markets in El Salvador to support investment in 
productive enterprises or other essential needs such as 
housing and infrastructure. 
 
¶2.  Banks in El Salvador have access to a variety of 
financing options.  Local banks borrow easily and relatively 
cheaply on international markets.  The country's split 
investment-grade rating for sovereign risk keeps interest 
rates low for the banks, and dollarization eliminates any 
exchange rate risk. 
 
¶3.  While banks have no problem getting financing of their 
own, they do have a poor record getting financing to small 
businesses that have the potential to spark economic growth 
and job creation.  Interest rates for such lending range 
from 12 to 25 percent, despite bank's published rates of 8 
percent (available to very few).  High collateral 
requirements further limit small businesses' access to 
credit offered by traditional banks.  With the exception of 
one bank that was founded as a microcredit organization, 
banks require guarantees such as mortgages and audited 
financial statements that small businesses seldom have. 
 
¶4.  Post suggests that focusing on nonbank financial 
intermediaries, instead of the traditional banking sector, 
would be more supportive of OPIC's economic development 
mission.  In El Salvador, there are four microfinance 
institutions with loan portfolios of at least $10 million; 
throughout Central America, there are at least nine.  There 
are also a number of cooperatives throughout the region with 
active loan portfolios.  Further lending by these 
institutions is in many cases constrained by difficulty in 
accessing capital.  One local investment advisor recently 
suggested that microfinance has large potential for growth, 
but could benefit from the capital infusion and management 
support that venture capital would bring. 
 
¶5.  Investing in other financial services in El Salvador 
would be problematic at this time, given the lack of legal 
and regulatory framework for financial vehicles taken for 
granted elsewhere, such as mutual funds, venture capital, 
securitization, and factoring.  Meanwhile, social and 
economic factors limit the development of the stock market-- 
aside from a handful of stocks traded after privatizing 
telecommunications, electricity, and pensions, only short- 
term securities and government bonds are traded.  Pension- 
fund management, meanwhile, might represent a good business 
opportunity, but there is certainly no lack of capital in 
the sector, as both funds in El Salvador are managed by well- 
capitalized local banks, one with World Bank support. 
 
¶6.  There is a clear need for capital market development in 
El Salvador to spur investment, but Post does not believe 
providing the traditional banking sector additional funding 
will support that goal.  Instead, investment in nonbank 
financial intermediaries--but perhaps on a scale smaller 
than the $5 - $15 million proposed--would be more supportive 
of El Salvador's development.  Should the legal framework be 
established, Post also believes support for local venture 
capital would be helpful. 
 
¶7.  Post is not aware of any derogatory information 
regarding Derby Overseas Investment.