VZCZCXRO9613
RR RUEHRG
DE RUEHSO #0538/01 1701506
ZNR UUUUU ZZH
R 191506Z JUN 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7137
INFO RUEHBR/AMEMBASSY BRASILIA 8238
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2813
RUEHMN/AMEMBASSY MONTEVIDEO 2369
RUEHBU/AMEMBASSY BUENOS AIRES 2778
RUEHSG/AMEMBASSY SANTIAGO 2075
RUEHLP/AMEMBASSY LA PAZ 3380
RUEHPE/AMEMBASSY LIMA 1153
RUEHCV/AMEMBASSY CARACAS 0507
RUEHBO/AMEMBASSY BOGOTA 1560
RUEHRG/AMCONSUL RECIFE 3636
RUEHRI/AMCONSUL RIO DE JANEIRO 8158
RUEHAC/AMEMBASSY ASUNCION 3034
RUEATRS/DEPT OF TREASURY WASHDC
RUEHFR/AMEMBASSY PARIS 0288

UNCLAS SECTION 01 OF 03 SAO PAULO 000538 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/BSC, WHA/EPSC, AND EB/OFD/OMA 
STATE PASS TO USTR FOR SCRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
 
TREASURY FOR JHOEK 
 
AID/W FOR LAC/AA 
PARIS FOR ECON - TOM WHITE 
 
E.O. 12958:  N/A 
TAGS: EFIN ETRD BEXP ECON BR
SUBJECT:  VENEZUELAN PAYMENTS LATE FOR BRAZILIAN EXPORTERS 
 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 
 
Summary 
------- 
 
¶1.  (SBU) The Venezuelan Office that regulates the payment of 
foreign currencies (Commission for the Administration of Official 
Exchange - CADIVI) is taking an average of six months or more to pay 
Brazilian companies for their products, adding up to a total 
estimated at USD 100 million, according to representatives of the 
Sao Paulo Federation of Industry (FIESP).  Although this represents 
only 3 percent of Brazilian exports to Venezuela, the impact on 
individual businesses is significant, especially for smaller 
companies, and the situation is giving pause to all enterprises 
selling to Venezuela who wish to be paid in a timely manner. 
According to the Sao Paulo Federation of Industries (FIESP), 
representatives of 75 companies met in their offices in late May to 
express concern over CADIVI's cumbersome processing guidelines, 
multitude of forms, and priority system in approving payments.  In 
some cases, companies have been waiting up to three years to receive 
payments.  With the drop in the exchange rate of the U.S. dollar in 
Brazil, waiting an extra 3-6 months for payment can signify an 
additional loss of income.  FIESP has responded by sending two 
working groups to Venezuela to express concern and address the 
problem, and plans to send a more formal mission in the near future. 
 Industrial sectors most affected by this payment delay are 
aluminum, electrical materials, vehicles and tractors, and machinery 
and mechanical instruments.  End Summary. 
 
¶2.  (SBU) During a meeting on a related matter, representatives of 
the Sao Paulo State Federation of Industries' (FIESP) Department of 
International Relations and Foreign Commerce raised with Econoff 
ongoing problems in dealing with CADIVI.  An article on the subject 
appeared that same day on the front page of Valor Economico, one of 
Brazil's major economic journals.  Pedro Pedrossian Neto, the 
Foreign Trade Economic Analysis Supervisor handling the matter for 
FIESP, cited the intensive bureaucratic process required for 
Brazilian companies to receive payment for exports to Venezuela (18 
distinct procedures), and the two controls required for foreign 
exchange payments that CADIVI must authorize (acquisition and 
liquidation of exchange funds).  In order to trade with Venezuela, 
Brazilian companies must register with CADIVI, a process requiring 
the originals and copies of nine separate documents.  (Comment: 
Brazilian companies are all too familiar with the document-heavy 
regulations and bureaucracy of doing business in Brazil, so to bring 
complaints against another country's governmental agency implies 
that the difficulties they are facing with Venezuela must be 
serious.  End Comment.) 
 
¶3.  (SBU) Adding to the payment delay is the priority system of 
payments determined by the Venezuelan government:  1) goods and 
services designated as most urgently needed; 2) foods, raw materials 
and products for health; and 3) raw materials for industry.  This 
places industry last in line for payment processing.  Carlos 
Cavalcanti, FIESP's Deputy Director General for International 
Affairs and Foreign Trade, is of the opinion that "the motive for 
the delay is not a lack of funds, because Venezuela has the money," 
but rather is a tactic of BRV President Chavez to discredit 
Venezuelan private sector entities in preparation for a future 
attempt to nationalize more industries.  Cavalcanti stated that this 
is also the opinion of the Venezuelan importers. 
 
¶4.  (SBU) In the meeting of the 75 businesses present at FIESP to 
 
SAO PAULO 00000538  002 OF 003 
 
 
complain about the situation, the sectors whose representatives 
cited the biggest problems were aluminum, electrical materials, 
vehicles and tractors, machinery and mechanical instruments, 
representing 36 percent, 26 percent, 11 percent, and 5.5 percent 
respectively of the total volume of export payments owed.  Total 
delayed payments owed to Brazilian companies amount to about USD 23 
million, with some companies having waited up to three years. 
However, according to Cavalcanti, the real figure of payments owed 
for Brazilian exports to Venezuela is probably closer to USD 100 
million, as many of the companies do not wish to reveal their true 
figures.  Pedrossian Neto mentioned this was the case with 
Coca-Cola, whose representative attended the meeting but probably 
did not disclose the full amount of payment the company is owed. 
 
¶5.  (U) The aluminum sector cited 26 outstanding transactions to the 
tune of USD 8.4 million, with 80 percent of them having already 
waited 3-6 months.  In the area of electrical materials - for the 
most part cell phones, the principal item on the export list for 
Brazilian products to Venezuela in 2006 - the delayed payments total 
USD 5.9 million, with 56 percent of the companies waiting six months 
to one year.  Companies exporting vehicles and tractors are owed USD 
2.6 million corresponding to 110 transactions. 
 
¶6.  (SBU) Another crucial factor affecting Brazilian companies is 
the dollar loss associated with the wait time.  With the falling 
dollar exchange rate, a payment made even 3 months later than normal 
can mean a significant loss in income.  Pedrossian Neto provided one 
company's real life experience to highlight the seriousness:  A 
company exported USD 1.96 million worth of goods to Venezuela and 
expected payment on 25 October 2006.  At that time, a dollar was 
worth 2.14 Reals, which meant an expected income of 4.2 million 
Reals.   If the company were to receive the payment as of today, 
after a wait of over seven months with the dollar trading at less 
than 2 Reals, the payment would be approximately 3.8 million Reals, 
representing an income loss of more than 421 million Reals.  FIESP 
also calculates a "lost opportunity cost" for this transaction: If 
the company had received payment at the time of product delivery, 
and invested this amount at a rate of 7.66 percent for this same 
period, the investment would have yielded 320,000 Reals.  This "lost 
opportunity cost," in addition to the actual lost income for the 
payment delay, would amount to a total loss of 741,000 Reals. 
 
¶7.  (SBU)  According to Pedrossian Neto, FIESP has sent two separate 
working groups to Caracas to discuss the problem with CADIVI, one in 
March and the other in early June.  FIESP has also solicited the 
assistance of Banco do Brasil in Venezuela, since the bank has 
offices and contacts there and is more familiar with the process of 
converting funds.  A more formal mission will be sent in the near 
future if the problem is not resolved.  Also, FIESP plans to request 
assistance from the Brazilian government to address this problem 
with Venezuela.  According to Cavalcanti, however, this will not be 
an easy mission and may not yield results.  He cited FIESP's 
attempts last year to request GoB assistance with non-tariff 
barriers that were hindering Brazilian commerce, among them the 
slowness of CADIVI.  All these barriers were duly reported to the 
WTO, with the exception of those related to Venezuela. 
 
¶8.  (SBU) Comment:  Even though the delays in payments for exports 
to Venezuela encountered by Brazilian companies  represent only 
three percent of total trade between the two countries (USD 3.6 
billion in 2006), CADIVI's performances presents an institutional 
risk that could affect continued bilateral trade.  Brazilian 
companies are accustomed to bureaucratic procedures, but delayed 
 
SAO PAULO 00000538  003 OF 003 
 
 
payment of several months to years, compounded by the loss of income 
caused by the falling dollar rate, has created a serious 
disadvantage for Brazilian exporters and constitutes a severe 
disincentive for companies that may be considering entering the 
market.  While some of the problem may be attributed to bureaucracy, 
Venezuelan importers stated to FIESP that this is simply a maneuver 
of Chavez to discredit Venezuelan private industry in order to 
nationalize those industries in the future.   End Comment. 
 
¶11. (U) This cable was coordinated with Embassy Brasilia. 
 
McMullen