VZCZCXRO6693
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #0387/01 0542224
ZNR UUUUU ZZH
R 232224Z FEB 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7926
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY
RUCPDOC/DEPT OF COMMERCE

UNCLAS SECTION 01 OF 04 CARACAS 000387 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH AND NGRANT 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
ENERGY FOR CDAY, DPUMPHERY, AND ALOCKWOOD 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV
SUBJECT: CHAVEZ WELCOMES KIRCHNER TO VENEZUELA'S OIL BELT: 
HOW TO BUY FRIENDS AND INFLUENCE 
 
REF: A. 05 CARACAS 3375 
 
     ¶B. BUENOS AIRES 311 
 
¶1.  (SBU) Summary: During a 24 hour trip to Venezuela's Faja 
oil belt, February 21-22, Presidents Kirchner and Chavez 
announced a new USD 1.5 billion joint "Bond of the South" 
offering, and the creation of the "Bank of the South" within 
120 days.  The two presidents also inaugurated Argentina's 
(largely symbolic) participation in a heavy oil project, and 
announced both a debt-relief plan to "save" an emblematic 
Argentine milk company and Venezuela's purchase of 15 tons of 
beef and chicken from Argentina.  The two presidents signed a 
reported 17 agreements/MOUs in a variety of sectors -- 
ranging from agriculture to technology -- partnering 
Venezuelan cash and Argentine know-how, and further 
solidifying a strategic economic relationship which has seen 
bilateral trade grow from USD 100 million to USD 1 billion 
since 2003.  While rejecting calls to contain Chavez, 
Kirchner took jabs at the IMF and World Bank, proclaimed that 
Latin American integration should not upset anyone, and 
declared "paternalism" dead.  End Summary. 
 
--------- 
Petroleum 
--------- 
 
¶2.  (SBU)  Kirchner arrived in Puerto Ordaz, the gateway to 
the oil producing Faja district in western Venezuela, the 
afternoon of February 21 for a 24 hour official visit. 
Kirchner was received by Vice President Jorge Rodriguez and 
Minister for Energy and Petroleum Rafael Ramirez.  Bilateral 
trade between the two countries has grown dramatically since 
2003, reportedly growing from USD 100 million in 2003 to USD 
1 billion in 2007. 
 
¶3.  (SBU) On February 22, Chavez and Kirchner traveled deep 
into the Faja, Venezuela's heavy oil belt, to sign a MOU 
inaugurating the largely symbolic participation of 
Argentina's state-owned petroleum company Enarsa in the 
quantification of petroleum reserves in the Magna Reserve 
project.  Enarsa brings little to the table as its only 
assets consist of survey/concession rights in unawarded 
offshore oil fields (Reftel B).  PDVSA has divided the Magna 
Reserve project into 27 units, or "blocks," which it has 
parceled out to Spanish, Vietnamese, Iranian, Malaysian, 
Indian, Byelorussian, and now Argentine, national petroleum 
companies.  Enarsa will operate in Block Number 6 with 
Uruguay's national petroleum company, ANCAP. 
 
------------- 
Bonos del Sur 
------------- 
 
¶4.  (SBU) Chavez and Kirchner announced a second issuance of 
dollar-denominated Argentine-Venezuelan "Bonos del Sur" bonds 
in Venezuela, a re-packaged mix of Argentine and Venezuelan 
debt, in the principal amount of USD 1.5 billion.  Chavez 
announced the bonds would be offered in Venezuela on February 
¶26.  As well as offering a quick source of cash for its 
Argentine ally, the BRV expects that the bonds will absorb 
excess bolivars to drive down the price of the parallel 
exchange rate dollar and curb inflation.  Venezuelan 
investors will welcome the chance to buy the 
dollar-denominated assets with bolivars as a hedge against 
inflation and to diversify out of the increasingly volatile 
local currency.  The two governments initially issued USD 1 
billion of Bonos del Sur in November 2006 which were 
massively oversubscribed by eager Venezuelan investors 
(Reftel A).  Argentina's economy minister, Felisa Miceli, 
said the Argentine mix would consist of USD 750 million worth 
of 2015 Boden bonds recently purchased by Venezuela while her 
Venezuelan counterpart, Rodrigo Cabezas, did not specify the 
composition of Venezuela's debt that would be packaged. 
 
--------------------- 
The Bank of the South 
--------------------- 
 
5  (SBU) Chavez and Kirchner signed an MOU to establish a 
"Banco del Sur," an autonomous Latin American credit lending 
institution, within 120 days.  Chavez referred to the 
creation of the "Banco del Sur" as "historic," and added that 
out of the 17 accords reached during Kirchner's 24 hour visit 
 
CARACAS 00000387  002 OF 004 
 
 
to Venezuela, the Banco del Sur was the most important. 
Chavez added that the bank would be headquartered in Caracas, 
with another office in Buenos Aires.  He expected that 
Bolivia and Ecuador would be the first nations to join 
Argentina and Venezuela, and possibly Brazil.  Chavez opined 
that the first project the bank might finance could be the 
Bolivia-Argentina leg of the "Gas Pipeline of the South." 
 
¶6. (SBU) Both Chavez and Kirchner encouraged other countries 
of the region to participate in the Banco del Sur project to 
reduce reliance on the World Bank and IMF.  "We have depended 
for a long time on the architecture of international finance. 
 The hegemony that dominates the world created these 
institutions such as the IMF and World Bank.  With this 
(Banco del Sur), we are freeing ourselves," proclaimed 
Chavez.  Kirchner, normally more reserved than his Venezuelan 
counterpart, chimed, "In Argentina, there are still themes we 
are trying to support...we are still trying to get out of 
hell, trying to get out of the World Bank..." An angry 
Kirchner concluded "These banks (World Bank and IMF) have 
totally lost their purpose and we hope at some time they 
recover it." 
 
---------------------------- 
Protecting SanCor from Soros 
---------------------------- 
 
¶7.  (SBU)  Chavez announced a 135 million investment in 
SanCor, an Argentine milk cooperative.  One of Argentina's 
principal milk producers, SanCor's debt reportedly reached 
USD 167 million at the end of 2006 and was reportedly 
approached by an entity controlled by George Soros to sell 62 
percent controlling interest in the company.  The BRV will 
maintain an equity stake in the company and SanCor will 
install factories in Venezuela.  Sancor will supply Venezuela 
with 15 million tons of powdered milk over 12 years. 
 
--------------------------------------------- --- 
Accords from Argentine Beef to Natural Gas Buses 
--------------------------------------------- --- 
 
¶8.  (U) Argentina has agreed sell PDVSA buses powered by 
natural gas engines.  Venezuela's Energy Minister Ramirez has 
announced a plan to migrate motor vehicles to natural gas, 
starting with public transportation.  The petroleum saved by 
using gas-powered buses will be exported.  The first 40 buses 
are expected to arrive in Venezuela in 2007 and, in the 
future, will be produced domestically in Venezuela. 
 
¶9.  (U) Argentina and Venezuela also signed an agreement to 
mitigate Venezuela's food shortages.  Argentina will supply 
Venezuela with 10 thousand tons of beef and 5 thousand tons 
of chicken.  Argentina's National Agricultural Technology 
Institute announced plans to construct two research 
laboratories in Venezuela, and Argentine engineers will help 
construct low-income housing in Venezuela.  Kirchner stressed 
that Argentine technical know-how would partner with PDVSA 
cash in Venezuela, "Argentine investors are going to come and 
invest technology to associate with PDVSA's agricultural 
development." 
 
--------------------------- 
Kirchner: No to Paternalism 
--------------------------- 
 
¶10.  (SBU) During their joint statements in the Faja, Chavez 
hailed Kirchner's visit as an example of South American 
"solidarity."  He continued that the agreements reached 
between Venezuela and Argentina were part of a grand South 
American national project.  "Not Venezuelan, not Argentine, 
not Brazilian, Bolivian, or Uruguayan.  South American, 
national!  We are creating a solid, cohesive area," affirmed 
Chavez. 
 
¶11.  (SBU) Kirchner echoed Chavez' remarks and criticized 
"paternalism."  Kirchner noted that "no one should be 
bothered by the integration of our peoples, and we need to 
finish with these paternalistic theories from the 
institutional and political point of view.  Much has been 
said in recent times that there have to be countries to 
contain other countries or in the case of President Lula, or 
in my case, we need to contain Chavez, an absolute mistake, 
we are building with our brother, President Chavez, a South 
 
CARACAS 00000387  003 OF 004 
 
 
American area to build dignity for our peoples." 
 
---------------------------- 
Chavez Takes a Shot at Arias 
---------------------------- 
 
¶12.  (SBU) Chavez also took a shot at Costa Rican President 
Oscar Arias, after the Costa Rican president suggested 
Venezuela's plans to close an aluminum plant in Costa Rica 
were politically motivated.  Chavez said that Arias could not 
expect good bilateral relations if he referred to Venezuela 
as a dictatorship and that the Costa Rican President should 
not involve himself in things that don't concern him.  "Some 
talk so that they get applauded in Washington," said Chavez. 
 
------- 
Comment 
------- 
 
¶13.  (SBU) The second issuance of joint Venezuelan-Argentine 
"Bonos del Sur" worth USD 1.5 billion, provides Argentina 
access to capital markets for its debt, and enables the BRV 
to soak up excess liquidity, fight inflation and reduce 
pressure on the bolivar.  It also offers Venezuelan investors 
a hedge against inflation.  Chavez' vision of 
institutionalizing the BRV's underwriting of regional debt by 
creating the "Banco del Sur" within three months seems 
far-fetched.  While Chavez may open a token office and claim 
to holding negotiations with regional leaders, Venezuelan 
financing will likely continue on an ad-hoc basis. 
 
¶14.  (SBU) Most of the accords signed during Kirchner's 
lightning visit to Venezuela are symbolic.  Kirchner's visit 
to Venezuela may have been timed to balance President Bush's 
upcoming travel to Latin America.  Kirchner's parroting of 
Chavez' rhetoric, just two weeks after welcoming Under 
Secretary Burns and Assistant Secretary Shannon to Argentina, 
 
SIPDIS 
shows that Chavez can still buy friends and influence with 
the right price.  End Comment. 
 
 
 
---------------------------- 
Addendum: List of Agreements 
---------------------------- 
 
¶15. (U) The following is a list of the 17 agreements signed 
during Kirchner's visit to Venezuela: 
 
-- Cooperation Agreement on Science and Technology between 
BRV Ministry of Agriculture and Argentina's Ministry of 
Economy and Production 
 
-- Letter of Intent to establish scientific cooperation to 
strengthen meat distribution in Venezuela 
 
-- MOU in field of health and medicine between BRV Ministry 
of Health and Argentine Ministry of Health 
 
-- MOU on communication between BRV Ministry of 
Communications and Argentine Cabinet of Ministers 
 
-- MOU on cooperation in diplomatic training between 
respective Ministries of Foreign Affairs 
 
-- MOU in habitat and housing between BRV Ministry of Housing 
and Argentine Ministry of Planning 
 
-- MOU on electrical equipment between BRV Ministry of Energy 
and Petroleum and Argentine Ministry of Planning 
 
-- MOU on acquisition of gas-powered buses between BRV 
Ministry of Energy and Petroleum and Argentine Ministry of 
Planning 
 
-- MOU on cooperation in natural gas between BRV Ministry of 
Energy and Petroleum and Argentine Ministry of Planning 
 
-- MOU on natural gas between PDVSA and Argentine Association 
of Natural Gas 
 
-- MOU on equipment related to natural gas between PDVSA and 
Argentine TATSA 
 
CARACAS 00000387  004 OF 004 
 
 
 
-- MOU on natural gas-powered buses between PDVSA and 
Tomasetto Achile 
 
-- Fuel Oil Supply Contract between PDVSA and Enara 
 
-- MOU on electrical equipment between CADAFE and FARADY, SA 
 
-- Financing Agreement between BANDES and SANCOR 
 
-- Industrial Cooperation Agreement between BRV and Argentina 
 
-- MOU for construction of Banco del Sur (Bank of the South) 
 
 
 
BROWNFIELD