VZCZCXRO4378
RR RUEHAO
DE RUEHCV #3617/01 3471944
ZNR UUUUU ZZH
R 131944Z DEC 06
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7296
INFO RUEHAC/AMEMBASSY ASUNCION 0740
RUEHBO/AMEMBASSY BOGOTA 7160
RUEHBR/AMEMBASSY BRASILIA 5839
RUEHBU/AMEMBASSY BUENOS AIRES 1532
RUEHLP/AMEMBASSY LA PAZ 2426
RUEHPE/AMEMBASSY LIMA 0681
RUEHMN/AMEMBASSY MONTEVIDEO 0888
RUEHQT/AMEMBASSY QUITO 2516
RUEHSG/AMEMBASSY SANTIAGO 3843
RUEHAO/AMCONSUL CURACAO 1085
RUEHGL/AMCONSUL GUAYAQUIL 0728
RHEHNSC/NSC WASHDC
RUEHRC/DEPT OF AGRICULTURE USD FAS
RUCPDOC/DEPT OF COMMERCE

UNCLAS SECTION 01 OF 03 CARACAS 003617 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH AND NGRANT 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON SOCI VE
SUBJECT: NO PLANES, SOME TRAINS AND MANY, MANY AUTOMOBILES 
 
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SUMMARY 
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¶1. (U) Caracas roads and highways are congested like never 
before, leading to massive gridlock and huge productivity 
losses.  A result of insufficient infrastructure and over a 
100 percent increase in car sales during the past two years, 
the plight of Caracas residents seems unlikely to be resolved 
in the near future.  Government attempts to alleviate 
pressure by promoting mass transit have been unsuccessful due 
to insufficient passenger capacity.  The average speed of a 
car traveling through Caracas is now reportedly 15 kilometers 
per hour.  END SUMMARY. 
 
------------------- 
Investment Vehicles 
------------------- 
 
¶2. (U) Car sales have skyrocketed during the past two years, 
mirroring the economic and consumption boom occurring 
throughout the country.  Sales increased 70 percent from 2004 
to 2005 and are up 51 percent this year, as of the end of 
October 2006.  The demand for cars is driven by the 
increasing amount of money in the street from economic growth 
and easy credit. 
 
¶3. (U) Venezuela has seen an explosion in credit in the past 
few years as banks have tried to compensate for diminished 
margins in other business areas by expanding consumer credit. 
 Rates for car loans range from 19 to 28 percent (the maximum 
rate allowed by government regulations), and inflation runs 
at 15 percent a year -- a very decent real return. 
Venezuelans see cars as investments and hedges against 
inflation: high demand means that cars do not lose value as 
quickly as in the United States.  Moreover, putting cash into 
a car is safer than keeping it in the bank where it earns 
negative real interest rates and is subject to potential 
devaluation. 
 
¶4. (U) In 2004, the BRV introduced the Venezuela Movil 
(Venemovil) program to assist Venezuelans in buying cars and 
to stimulate domestic production.  The program sets fixed 
prices and interest rates for a handful of basic cars 
produced in Venezuela, including those produced by GM (Aveo 
and Spark) and Ford (Fiesta and KA).  The purchase agreement 
requires a 30 percent down payment and then offers 3-4 year 
loan notes at 1.28 percent interest.  Venemovil purchases now 
represent almost 24 percent of the car market in Venezuela. 
 
¶5. (SBU) About half of the cars purchased in Venezuela are 
produced locally and the rest are imported.  GM, Ford, 
DaimlerChrysler, Toyota and Mitsubishi have assembly plants 
in Venezuela.  Domestic production through October of 2006 
amounted to approximately 130,000 vehicles, a 17 percent 
increase year on year.  (Note: The vehicles produced in 
Venezuela are assembled mostly from imported components.  End 
Note.)  Despite the production increases, demand still 
outstrips supply, and consumers have been known to wait 
anywhere from 2 to 10 months to purchase a new vehicle. 
Sales of luxury vehicles have grown even faster than overall 
sales: Audi sales have increased 278 percent year on year 
(albeit from a small base -- there is only one Audi dealer in 
Caracas).  And since it can take up to a year to register a 
car and get license plates, an increasingly large numbers of 
plate-less cars are plying the roads. 
 
¶6. (SBU) Chavez recently inaugurated the Iranian-Venezuelan 
joint venture Venirauto car factory.  Though not expected to 
open its doors until 2008, its Iranian president recently 
claimed that it will capture 30 percent of the Venezuelan car 
market.  All of the cars produced will be part of the 
 
CARACAS 00003617  002 OF 003 
 
 
Venemovil program and within five years they hope to produce 
cars with 92 percent domestic content.  (Comment: Barring 
massive government intervention to subsidize the cars or 
prevent the sale of alternatives, these projections seem 
incredibly optimistic.  End Comment.)  The Chinese have also 
begun exporting cars to Venezuela and have high hopes for 
increasing their share of this lucrative market. 
 
------------------------- 
Gas Is Cheaper than Water 
------------------------- 
 
¶7. (SBU) Since 1998, the price of gasoline has not changed, 
while the price for the Venezuelan oil basket has increased 
from approximately USD 10 to USD 52.  In 2004, the last date 
for which reliable statistics are available, PDVSA lost 
approximately USD 3.8 billion on gasoline subsidies.  This 
loss does not factor in the opportunity cost lost by selling 
gasoline locally at USD 17 cents/gallon instead of through 
its CITGO subsidiary in the U.S. where the average price for 
a gallon of unleaded gasoline is now USD 2.29.  (Comment: 
Essentially, nearly free gas is another powerful incentive to 
drive and torpedoes any effort to encourage more efficient 
practices like carpooling, mass transit, etc.  End Comment.) 
 
----------------- 
Sardines in a Can 
----------------- 
 
¶8. (U) In recent weeks leading up to the December 3 national 
elections, Chavez "inaugurated" subway systems in Valencia 
and Maracaibo as well as a commuter rail line in Caracas. 
Unfortunately, these systems have done little to alleviate 
traffic congestion.  The Valencia metro is not completed and 
the Maracaibo metro is not even operational.  Additions to 
the Caracas mass-transit system have caused as many problems 
as they intended to solve.  By extending the system to the 
bedroom community of El Tuy, the transit system added between 
100-150,000 riders daily.  However, they did not add 
additional trains or cars, despite the fact that ridership 
was already above capacity.  Econoff has heard from more than 
one Venezuelan that they have stopped taking the metro in 
recent weeks and started driving due to the impossibility of 
negotiating the crowds of (unruly) passengers.  (Note: 
Transit prices are fixed (the Caracas Metro now costs 23 
cents) and the government shows no signs of allowing them to 
increase to a point where they would affect ridership. 
Chavez has also decreed that the new additions to the system 
will be free through the month of December.  End Note.) 
 
¶9. (U) Buses in Venezuela are privately owned and operated 
and reflect the whims of their drivers.  Buses frequently 
will stop without warning to add or disembark passengers, 
causing additional congestion.  Many buses in Caracas are 
antiquated and frequent breakdowns add to the bottlenecks. 
 
---------------------------------- 
These Streets Are Made for Walking 
---------------------------------- 
 
¶10. (U) There are approximately 500,000 "buhoneros," or 
street salesmen in Caracas.  The stands they setup along the 
sidewalks throughout the city creep into the street itself. 
The gridlock has created new economic opportunities for the 
hordes of Venezuela's marginally employed, who walk through 
the streets (and even highways) selling everything from snack 
food to Chavez dolls to water pumps.  Of course they also get 
in the way when the traffic starts to move. 
 
¶11. (U) Unsurprisingly, there is also a parking shortage in 
Caracas.  Parking fees are fixed, too, deterring potential 
investment in parking lots or garages and forcing an 
 
CARACAS 00003617  003 OF 003 
 
 
estimated 60 percent of cars in the city to park on the 
street.  Street protests and demonstrations are common and 
unpredictable, adding to the melee, and motorists here treat 
traffic lights as mere suggestions.  (Note: Econoff can count 
on one hand the number of stop and yield signs he has seen 
and recently spent thirty-five minutes in a four-way 
intersection in which everyone tried to move at once.  End 
Note.) 
 
---------------- 
No Roads for You 
---------------- 
 
¶12. (U) While the missing bridge on the highway from the 
airport in La Guaira to Caracas is an often-told story, 
estimates by the Venezuelan Society of Civil Engineers 
(Sovinciv) are that USD 10 billion in repairs are urgently 
needed to shore up the rest of Venezuela's crumbling highway 
network.  In 2006, the Ministry of Infrastructure planned to 
spend USD 117 million in road maintenance.  A recent report 
by the daily newspaper, El Universal, clocked the average 
speed of a vehicle traveling through Caracas at 15 kilometers 
per hour. 
 
¶13. (SBU) The Mayor's office in Chacao (a wealthy Caracas 
municipality run by an opposition Mayor) recently revealed to 
econoffs that they plan to spend 2007 focusing on crime and 
infrastructure.  They noted the difficulty, however, of 
achieving much when they could not coordinate with other 
Caracas municipalities as relieving congestion in one area 
does nothing to free other bottlenecks.  (Comment: It will be 
difficult for Chacao to accomplish much when three of the 
other four municipalities in Caracas are Chavista and the 
state and federal government have little interest in 
cooperating with an opposition mayor.  End Comment.) 
 
¶14. (U) During one of his last events before the election, 
Chavez held a roundtable press conference from Miraflores on 
November 30 where he was pressed on the infrastructure issue. 
 He promoted the additions of subway lines and noted plans to 
build a new highway through the 8,500 foot Avila mountain 
that separates Caracas from the sea.  He also claimed to have 
used helicopters to discover a new parcel of land of 
thousands of hectares for a bedroom community outside of 
Caracas.  (Comment:  How they would build this new city 
remains to be seen, as the private and public sector combined 
have been woefully incapable of building housing in existing 
cities.  End Comment.) 
 
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COMMENT 
------- 
 
¶15. (SBU) Too many cars on too few -- and lousy -- roads 
coupled with the vagaries of Venezuelan drivers and 
distractions of street vendors has made driving in Caracas 
often miserable and a major production.  Not only a headache, 
the traffic has a markedly negative affect on productivity. 
Embassy officers often spend as much time traveling to a 
meeting as in the meeting, if not longer.  Delays in getting 
goods to factories, products to stores and people to work 
place strains on the economy, raises the cost doing business, 
and hurts Venezuelan firms.  The housing shortage and cost of 
housing in Caracas has made it normal for middle-class 
Venezuelans to spend 3-4 hours commuting from the suburbs, 
which also places strains on family life.  Little relief 
seems likely as government policies are putting more cars on 
the road and doing little to alleviate the burden. 
 
BROWNFIELD