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DE RUEHCV #2252/01 2121456
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R 311456Z JUL 06
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UNCLAS E F T O CARACAS 002252 
 
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E.O. 12958: N/A 
TAGS: EFIN PGOV VE
SUBJECT: MEETING WITH FINANCE COMMITTEE PRESIDENT RODRIGO 
CABEZAS 
 
 
This Message is Sensitive but Unclassified, Please treat 
accordingly. 
 
¶1.  (SBU) Summary:  EconCouns, accompanied by Econ 
Specialist, met July 12 with Rodrigo Cabezas and Ricardo 
Sanguino, President and Vice President, respectively, of the 
National Assembly's Finance Committee.  During a 90-minute 
tour d' horizon, Cabezas said reform of the banking law was 
still under discussion and he expected the bill to pass in 
2007, but foresaw no structural changes to the current law. 
On other topics, he said:  there would be no devaluation of 
the bolivar in 2007 (let's see); saw no reason, despite one 
press report, for the BRV to assume control of the banking 
sector post December 2006; confirmed the decision had been 
made to reduce the bolivar by three zeroes, with new currency 
in circulation by 2008; and, expected a constitutional 
referendum between 2007-2008 that would, inter alia, 
recognize other forms of property, beyond private property. 
He also stated that the adequate level of Central Bank 
international reserves for 2006 was USD 25 billion and USD 28 
billion for 2007.  End Summary. 
 
¶2.  (SBU/NF) Cabezas, deputy from the state of Zulia, and an 
economist by training, said that reform of the Banking Law 
was still under discussion  (first discussion had been 
completed in 2004)  and passage was expected in 2007.   He 
expected no fundamental/structural changes to the current 
law.  The new law would reinforce current BRV policy 
regarding directed lending to selected sectors, have 
provisions for client/depositor rights, and provisions to 
regulate credit and debit cards.   EconCouns asked Cabezas if 
he had seen a recent small article in the daily economic 
journal "Reporte" suggesting the BRV would assume greater 
control of the banking sector after December 2006 national 
elections.  Cabezas replied that he saw no political or 
economic reason for the government to nationalize the 
commercial banking sector.   He noted that relations between 
the banking sector and the BRV were good, unlike the BRV's 
relationship with Fedecameras (the umbrella business chamber) 
or Conindustria (the industrial chamber).   (Note: We 
contacted a number of banking reps; none saw any reason for 
the BRV to take such a move in the current environment.  End 
Note.)   Cabezas also mentioned that a new Insurance Law 
would replace the existing law, which dates to 1940, and 
contain new articles to account for technological changes and 
modernization in the industry. 
 
¶3.  (SBU) Monetary reform, he said, was a political and 
economic decision that "had already been taken."   The BRV 
means to remove three zeroes from the national currency while 
implementing some measures on the fiscal side (NFI).   The 
goal was to try and ensure sustainable economic growth along 
with price stability.   According to Cabezas the Central Bank 
(BCV) had recommended the Assembly approve legislation in 
order to remove three zeroes off the currency.  He expected 
that everything would be ready for new currency to be in 
circulation by January 2008.  He also said there would be no 
changes to the BCV Law.  (Note: With regard to Cabezas' 
comments about fiscal side reforms, we assume that he is 
talking about measures to ensure coordination between the 
Ministry of Finance and the Central Bank -- most likely with 
the already weak BCV losing whatever thin strand of autonomy 
it remains.  End Note.) 
 
¶4.  (SBU) Cabezas said that while constitutional provisions 
for protecting private property would be maintained, he 
expected constitutional changes in 2007 to recognize other 
forms of property such as cooperatives, mixed enterprises, 
co-management and other arrangements (read: make the concept 
of private property a relative one).  The idea he said was to 
apply new economic concepts to 21st century socialism. 
Cabezas mentioned a possible national referendum between 2007 
and 2008 to decide this and some other constitutional 
 
changes.   (Note: On the economic front, such changes could 
also remove de jure BCV autonomy (or if there is anything 
left of it)  as such autonomy is spelled out by the 
constitution.  End Note.) 
 
¶5.  (SBU)  On BRV spending, Cabezas said that the Central 
Government was expected to spend Bs 90 trillion (USD 42 
billion) during 2006, which represented between 75 and 80 
percent of the total approved budget and additional credits 
for 2006.   However, FONDEN (the National Development Fund) 
and FONDESPA (the PDVSA managed development fund) could 
"invest" around USD 9 billion in additional spending during 
this electoral year.  The goal was to compensate for the lack 
of public and private investments during the last 25 years. 
Cabezas also stated that there would be no devaluation during 
2007 (let's see), confirming the obvious: the BRV's use of 
the exchange rate as an anchor against inflation, and to try 
to compensate for the reduction in real income during the 
last several years. 
 
¶6.  (SBU/NF)  On the topic of adequate international 
reserves, Cabezas said that the adequate level of BCV 
international reserves for 2006 was USD 25 billion and for 
2007 USD 28 billion.  What was above those amounts would be 
transferred to FONDEN, without changing the current Central 
Bank Law. 
 
¶7.  (SBU) Comment:  Both Cabezas and Sanguino (a deputy from 
the state of Tachira, and also an economist) were relatively 
straightforward in their presentations and responses, despite 
some initial stiffness by Cabezas.  Both admitted that, while 
they were both economists, their job as legislators was 
fundamentally a political endeavor.   Cabezas mentioned that 
the Assembly would be in recess from August 15 - September 
15, and he would  be coming back to Caracas just once a week 
to sign off on mandatory business; beyond that he would be 
out campaigning for Chavez. 
BROWNFIELD