VZCZCXRO9526
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1228 2611957
ZNR UUUUU ZZH
P 181957Z SEP 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3718
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 001228 
 
SENSITIVE 
SIPDIS 
 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR MKACZMAREK 
NSC FOR DRESTREPO AND LROSSELLO 
USDOC FOR 4332 MAC/ITA/WH/JLAO 
 
E.O. 12958: N/A 
TAGS: ECON EFIN VE
SUBJECT: PARALLEL RATE DROPS ON APPARENT GBRV SALE OF 
DOLLAR ASSETS AND SPECULATION OVER NEW BOND ISSUANCES 
 
REF: A. CARACAS 351 AND PREVIOUS 
     ¶B. CARACAS 548 
 
¶1.  (U) The parallel rate has dropped approximately 17 
percent over the last seven weeks, from 7 bolivars (Bs)/USD 
in early August to its current rate of 5.8 Bs/ USD (as 
measured by the cost of buying one dollar), with the sharpest 
drop occurring over the past 10 days.  Most analysts 
attribute the initial, more gradual descent to the 
expectation the Government of the Bolivarian Republic of 
Venezuela (GBRV) would announce a significant issuance of 
dollar-denominated bonds, payable in bolivars, as part of a 
strategy to contain the parallel rate.  (Note:  This 
announcement has not happened but is still expected.  End 
note.)  Most analysts attribute the recent, sharper drop to 
significant sales by the GBRV and its affiliated companies of 
previously issued, dollar-denominated GBRV debt held by these 
companies into the parallel market.  (Note:  The parallel 
market is highly volatile and lacks transparency.  The GBRV 
is a major supplier of dollars to the market, and one of the 
sources of volatility is the lack of a consistent 
intervention strategy by the GBRV.  At this point, the exact 
source and nature of the debt the GBRV is selling are not 
clear.  End note.) 
 
¶2.  (SBU) Comment:  As noted in ref A, we and most analysts 
believe the parallel rate will rise over the course of 2009, 
though not in a linear fashion given changes in the GBRV's 
intervention strategy.  In 2008, for example, regular GBRV 
sales of dollars into the parallel market caused the rate to 
fall from a prior high of 6.8 Bs/USD in November 2007 to 3.5 
Bs/USD in May, 2008.  The rate remained at this level into 
August 2008 and then rose again, as the GBRV stopped these 
sales.  Central Bank President Nelson Merentes is a known 
believer in closely managing the parallel rate (ref B), and 
we would not be surprised if he convinced President Chavez to 
order that the rate fall.  It appears Chavez did make such a 
decision:  according to press reports, on September 17, while 
announcing the GBRV had taken 40 economic measures that would 
be announced in the coming days, Chavez claimed the GBRV had 
"brought about a reduction in the gap between the official 
and parallel rates in order to improve national production." 
 
¶3.  (SBU) Comment, continued:  If indeed lowering the 
parallel rate is an important element of GBRV strategy to 
stimulate the economy, there are two problems with this 
approach.  First, it will be difficult for the GBRV to keep 
the parallel rate at a given level over the medium term, 
particularly given annual inflation of 25 to 30 percent.  The 
GBRV certainly has the wherewithal to do it in the short 
term, but at the cost of depleting the GBRV's dollar accounts 
(or increasing its dollar indebtedness).  Second, the 
economic benefits of lowering the parallel rate are tenuous. 
The GBRV seems convinced at times that managing the parallel 
rate is the key to controlling inflation and stimulating the 
economy.  Although it may help, there has been no noticeable 
correlation between a lower parallel rate and inflation or 
economic growth in the past several years.  More importantly, 
as one banker recently remarked to us, if the government 
seriously cared about the economy it would start with 
measures to enhance legal and personal security, protect 
private property, attract investment, protect intellectual 
property, etc.  End comment. 
DUDDY