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C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001334

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MKACZMAREK
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NSC FOR LROSSELLO
USDOC FOR 4332 MAC/ITA/WH/JLAO

E.O. 12958: DECL: 10/16/2019
TAGS: EINV KPOL VE
SUBJECT: GBRV EXPROPRIATES ONE OF CHAVEZ'S FAVORITE HOTELS

REF: CARACAS 1284

Classified By: Economic Counselor Darnall Steuart for reasons 1.4
(b) and (d).

¶1. (C) SUMMARY: On October 14, the Government of the
Bolivarian Republic of Venezuela (GBRV) assumed formal
control of the Margarita Hilton Hotel and Suites Hotel
complex after President Chavez complained that the owners
were enriching themselves at the expense of the local tourism
industry. The Margarita Hilton Hotel, which is operated by
Hilton Worldwide but locally owned, is a frequent venue for
meetings between GBRV officials and foreign dignitaries. In
a speech on the night of October 14, President Chavez
criticized the hotel management for imposing conditions on
the government during a high profile Africa-South America
Summit (ASA) in September 2009. A representative from Hilton
Worldwide said that the company was surprised by the
announcement but hoped to receive GBRV permission to continue
to manage the hotel. END SUMMARY.

--------------------------
TO INCREASE SOCIAL TOURISM
--------------------------

¶2. (SBU) On October 13, the GBRV published an executive
decree in the Official Gazette authorizing the "forcible
acquisition" of the Margarita Hotel in order to "recuperate"
the resort after the previous management had allowed it to
"deteriorate" for the last seven years. The decree
transferred ownership of the hotel to the GBRV's Ministry of
Tourism and declared that the state-run tourism company
Venezolana de Turismo would assume control of the hotel in
order to "increase social tourism...and to propel the social
and economic development of the area." The order also
absolved the GBRV of any responsibility for the hotel's
existing liabilities. On October 14, Tourism Minister Pedro
Morejon formally took control of the hotel and began an
inspection of the resort complex. According to press
reports, Morejon said that GBRV ownership would not affect
the ongoing operations of the hotel.

¶3. (SBU) In a October 14 speech at the inauguration of a
National Center for Genetics, President Chavez said that the
previous owners of the Margarita Hilton had enriched
themselves at the expense of Margarita's tourism industry.
"When we wanted to hold the Africa-South America Summit we
had to ask permission for security and other things...they
want to impose conditions on the revolutionary state and we
are not going to accept it," President Chavez said. The
Venezuelan President also announced that the GBRV would
change the name of the hotel to reflect its Venezuelan
ownership.

¶4. (C) The Margarita Hilton and Suites Hotel complex
consists of 280 rooms, 154 timeshares, a casino, shops,
restaurants, offices, salons, and a marina. The resort
complex is operated by Hilton Worldwide, but jointly owned by
the Venezuelan company Inversiones Pueblamar and the GBRV's
Deposit Guarantee and Bank Protection Fund (FOGADE). (Note:
Embassy officials have been told, but cannot confirm, that
Inversiones Pueblamar owns approximately 60 percent of the
resort and FOGADE owns approximately 40 percent. End Note.)
According to press reports, Inversiones Pueblamar has
recently been under investigation by one of the GBRV's
financial regulatory agencies.

¶5. (C) On October 14, XXXXXXXXXXXX told
EconCouns that the company was completely surprised by the
expropriation announcement. The GBRV has given Hilton 15
days (until October 28) to prepare an inventory of the
hotel's property and goods. At the end of this period, the
GBRV will supposedly decide whether to invite Hilton to
continue to manage the hotel. XXXXXXXXXXXX said that while
management of the hotel generates significant revenue, and
that Hilton would like to continue in this capacity, the
company has some USD 20 million in profits that it cannot
repatriate through the GBRV's Foreign Exchange Administration
Board (CADIVI).

-----------------
AN UNWANTED GUEST
-----------------

¶6. (C) The Margarita Hilton Hotel has been a popular venue
for high profile GBRV meetings, forums, and congresses. In
September 2009, the GBRV hosted the Second Africa-South
America Summit at the resort. The summit included heads of
state from eight South American and twenty African nations,
but was subsequently criticized for a number of logistical
failures, including a lack of internet access and
insufficient accommodations for the delegations (Caracas
1284). During the summit, President Chavez reportedly joked
that the GBRV could nationalize the hotel in the future.

¶7. (C) XXXXXXXXXXXX said that President Chavez favors the resort
for both official and private events, and that during
previous visits the hotel staff has complained about
receiving orders to clear all other guests out of the hotel
at very short notice to make way for President Chavez and his
entourage. XXXXXXXXXXXX speculated that the expropriation could
be a response to these complaints from the hotel staff.

-------
COMMENT
-------

¶8. (C) The reasons for the sudden expropriation of the
Margarita Hilton Hotel are still unclear. President Chavez's
public claim that the hotel management made demands on the
GBRV during the ASA Summit is one possible explanation.
Another theory is that Inversiones Pueblamar ran afoul of a
GBRV regulatory agency. The local media has speculated that
the GBRV racked up a large hotel bill following the ASA
Summit and it did not want to pay. Whatever the explanation,
the sudden expropriation of the Margarita Hilton is yet
another example of how the public sector presently runs
Venezuela.
DUDDY