This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L  CARACAS 000610 
 
SIPDIS 
 
 
TREASURY FOR OASIA - SIGNORELLI 
NSC FOR SHANNON/BARTON 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: DECL: 02/19/2014 
TAGS: ECON EFIN PGOV VE
SUBJECT: IMF REP SEES LITTLE TO CHEER ABOUT IN VENEZUELA'S 
ECONOMY 
 
REF: CARACAS 03/4011 
 
Classified By: Economic Counselor Richard M. Sanders 
 
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Summary 
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¶1.  (C)  In a February 19 meeting with Econcouns, IMF 
Resident Representative Humberto Arbulu expressed deep 
skepticism over Chavez administration economic policies and 
frustration over the lack of transparency in economic 
information made available to him.  He gave the Finance 
Ministry high marks for its borrowing activities, while 
seeing the Central Bank as vulnerable to Chavez's attacks. 
He was appalled at the Planning Ministry's preoccupations 
with food self-sufficiency, and believed that PDVSA was 
keeping large amounts of money off-shore.  His medium-term 
prediction for Venezuela was "steady decline," rather than a 
big crash, a view with which we concur.  End summary. 
 
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The Borrowing Machine Rolls On 
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¶2.  (C)  Arbulu suggested that within ten days, the GOV would 
issue its long expected bond issue which would roll over 
existing internal debt into a mixture of foreign and domestic 
obligations with longer maturities.  (Note:  Finance Minister 
Nobrega told the Ambassador on February 6 that the issue 
could be for as much as USD 3 billion dollars.)  Arbulu 
predicted that savings in loan amortizations could be as much 
as USD 1.5 billion over time.  This would all, he predicted, 
be ploughed back into current spending by the GOV.  He 
confirmed that like previous issues, this one would entail 
the immediate exchangeability of purchased bonds for dollars 
at the official rate (see reftel for further details on this 
mechanism).  This has the effect of making such bonds "a 
killing" for purchasers, noted Arbulu. 
 
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Financial Wizardry, Amidst Continued Economic Doldrums 
--------------------------------------------- ---------- 
 
¶3.  (C)  The successful bond swap means that the GOV will be 
able to maintain fiscal equilibrium avoiding a painful 
adjustment "at least until October or even December," in 
Arbulu's view, assuming that world oil prices do not drop 
significantly.  This would, however, entail renewal of the 
.05 pct tax on financial transactions, which is due to 
expire.  Arbulu also suggested that once it got past the 
current political season, the Finance Ministry would be 
looking at revenue enhancement measures.  (Note:  Finmin 
Nobrega has spoken on occasion of extending value-added tax 
to a wider range of products.  End note.)  While the GOV may 
have covered its financial flanks, and thus can avoid a 
crisis, it would not, he suggested, be able to achieve 
robust, job-creating growth, because Venezuela's private 
sector does not face conditions favorable to investment.  His 
overall medium-term economic prediction was "slow, steady 
decline." 
 
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Tension Among Economic Decision-Makers 
-------------------------------------- 
 
¶4.  (C)  Arbulu, whose office is located at the Central Bank 
headquarters, painted a portrait of a government bureaucracy 
racked by suspicion and confusion.  The Central Bank was 
under great pressure, following Chavez's public attacks on 
it.  His own access at the Bank was diminishing, as once 
easily obtained information becomes less available.  Chavez's 
repeated, public demonization of the IMF was, he concluded, 
making Central Bank officials increasingly less willing to 
talk to him.  The Finance Ministry remained a somewhat more 
normal environment, he suggested, although Nobrega has been 
weakened by Chavez's evident intention to maintain a single 
exchange rate, rather than go to a dual rate system.  He saw 
the departure of Banking Superintendent Irwing Ochoa, a 
U.S.-trained technician and a close Nobrega associate, as a 
precursor to Nobrega's own departure. 
 
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Bizarre Meeting at Planning Ministry 
------------------------------------ 
 
¶5.  (C)  A recent meeting at another key player in economic 
policy-making, the Planning Ministry, had been a "disaster," 
according to Arbulu.  He had sought a meeting with members of 
Minister Luis Giordani's team for several months with the 
purpose of trying to understand the sources of funding for 
the various GOV "missions" in health, education, and job 
creation and the purposes to which they were being put.  The 
Planning Ministry officials danced around his questions, and 
ultimately it became obvious that they did not have any clear 
understanding themselves.  Ministry officials, however, did 
devote considerable energy to defending GOV supposed 
initiatives to revitalize domestic agricultural production. 
This was crucial, they asserted because Venezuela was 
import-dependent now, and "a foreign power" could blockade 
the country's main ports, reducing it to starvation. 
 
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The PDVSA Mystery 
----------------- 
 
¶6.  (C)  Arbulu said that by his calculations in 2003 state 
oil corporation PDVSA earned more than USD 2 billion than it 
reported to the Central Bank.  This very large sum was 
presumably being kept in off-shore accounts.  Arbulu 
suggested that a considerable amount of the funding which the 
various GOV social spending programs were receiving was in 
fact coming off the books from PDVSA.  Amounts earned by 
private individuals in exchanging this money, which would not 
go through the Foreign Exchange Control Commission (CADIVI), 
were, he further speculated, likely to be enormous. 
 
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Comment 
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¶7.  (C)  Arbulu's picture of turbulence and lack of 
transparency at GOV economic institutions tracks what we hear 
from other sources.  The combination of ideology, 
improvisation, corruption and short-term politicking that 
affects economic decision-making is not likely to change 
while Chavez is in office.  Successful borrowing operations, 
both externally and internally, mean that a financial crash 
is unlikely.  But political tension, growth-smothering 
exchange controls, and lack of attention to the fundamentals 
mean that the modest recovery we are seeing right now after 
two dreadful years is unlikely to be sustainable.  Arbulu's 
prediction of further decay over the medium term seems right 
on the money to us. 
SHAPIRO 
 
 
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      2004CARACA00610 - CONFIDENTIAL