VZCZCXYZ0000
PP RUEHWEB

DE RUEHCV #0609 1232139
ZNR UUUUU ZZH
P 022139Z MAY 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 1058
INFO RUEHBO/AMEMBASSY BOGOTA 7778
RUEHLP/AMEMBASSY LA PAZ MAY LIMA 1023
RUEHQT/AMEMBASSY QUITO 2838
RUEHC/DEPT OF LABOR
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 000609 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR MMALLOY 
NSC FOR JSHRIER 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
 
E.O. 12958: N/A 
TAGS: ECON ELAB PGOV VE
SUBJECT: CHAVEZ ANNOUNCES 30 PERCENT HIKE IN MINIMUM WAGE 
AND PUBLIC SECTOR SALARIES 
 
REF: CARACAS 313 
 
¶1.  (U) Speaking on the evening of April 30 at a 
commemoration of International Worker's Day, President Chavez 
announced a 30 percent increase in the minimum wage and in 
all public sector employees' salaries.  The new monthly 
minimum wage is 799 bolivars (Bs), or USD 372 at the official 
exchange rate of 2.15 Bs/USD.  In his speech, Chavez 
portrayed the increase as further evidence of his solidarity 
with the "proletariat."  He displayed a chart showing the 
evolution of the nominal level of the minimum wage over time, 
claiming that it had taken off "like a rocket" during his 
tenure.  Noting that "monetarists" might criticize the large 
increase for its inflationary pressure, Chavez affirmed that 
his government was committed to fighting inflation but would 
not sacrifice workers' well-being to that fight.  With the 
new increase, Chavez claimed, Venezuela's minimum wage was 
now the highest in Latin America in dollar terms. 
 
¶2.  (SBU) Chavez did not mention that in percentage terms the 
minimum wage increased more than twice as fast from 1990 to 
1998 (the last year before Chavez came to power) than from 
1998 to 2008; that a 30 percent increase is actually not very 
generous in real terms given annualized inflation of 29 
percent (Caracas IPC, March 2007 to March 2008); and that the 
average Venezuelan cannot buy dollars at the official 
exchange rate, rendering pointless a cross-country comparison 
of minimum wage in dollar terms.  Furthermore, these measures 
will not directly benefit poor Venezuelans in the informal 
sector.  According to BRV statistics, over 4.6 million 
people, or 42 percent of working Venezuelans, work in the 
informal sector. 
 
¶3.  (SBU) Estimates vary as to how many people will directly 
benefit from these measures.  President Chavez claimed that 
over five million people would benefit from the minimum wage 
increase; press reports have given figures for the number of 
people receiving the minimum wage ranging from two million to 
five million; and a university professor who specializes in 
labor issues estimated the number at 4.2 million.  Most 
estimates put the number of people directly employed by the 
public sector (including the central government, regional and 
local governments, and state-owned companies) at 1.2 million. 
 Per the university professor, none of these public sector 
employees earn the minimum wage, although many of the 
estimated 800 thousand people who work for government 
contractors do.  Equally importantly, these increases will 
serve as a benchmark for labor negotiations in the private 
sector for workers earning more than the minimum wage. 
 
¶4.  (SBU) Comment:  The amount of the minimum wage increase, 
traditionally announced on May 1, has been the subject of 
speculation in Venezuela for weeks, with press reports 
suggesting the BRV was considering options ranging from 10 to 
40 percent.  The choice appears to be a compromise between 
inflationary concerns and Chavez' desire to be perceived as 
supporting poorer Venezuelans in an election year.  Given 
current inflation, it would have been difficult for Chavez to 
announce an increase of less than 25 percent.  (Note:  On 
April 28 the BRV raised prices on chicken by 85 percent and 
on pre-cooked cornmeal by 48 percent, highlighting the 
continuing impact of inflation, especially on poorer 
Venezuelans (reftel).  End note.)  The minimum wage and 
public sector salary increases will certainly have direct 
inflationary consequences, with press reports stating that 
the Central Bank estimates the minimum wage hike will lead to 
an increase in inflation of four percentage points.  End 
comment. 
DUDDY