US embassy cable - 04CARACAS2060

C O N F I D E N T I A L  CARACAS 002060 
 
SIPDIS 
 
 
STATE FOR WHA/AND 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM FOR POLAD 
 
E.O. 12958: DECL: 06/21/2014 
TAGS: ECON, EFIN, PGOV, VE 
SUBJECT: REVOLUTION FIRST AT GOV DEPOSIT GUARANTEE FUND 
 
REF: CARACAS 2034 
 
Classified By: ECON COUNSELOR RICHARD M. SANDERS FOR REASON 1.5 (D) 
 
------- 
SUMMARY 
------- 
 
1. (U) FOGADE (Banking Protection Guarantee Fund, 
FDIC-equivalent) President Jesus Caldera Infante proposed 
raising the assessment (paid by banks) on all bank account 
deposits from 0.5% to 2.0%.  Industry experts say that this 
will force up interest rates, though Caldera disagrees.  With 
the extra income, he proposed that 30% of FOGADE's income be 
designated for spending on social needs, and announced that 
several employees have been fired for not being supportive of 
social development.  A fired employee says the dismissal was 
solely for signing the presidential recall petition.  END 
SUMMARY. 
 
--------------------------------------------- ----------- 
FOGADE OFFERS FUNDS FOR SOCIAL SPENDING, FIRES EMPLOYEES 
--------------------------------------------- ----------- 
 
2. (U) Jesus Caldera Infante, former appeals court judge and 
President of FOGADE since May 7, testified before the Finance 
Committee of the National Assembly on June 14 and proposed 
that his institution take on a more activist role in social 
development within Venezuela.  He suggested spending 30% of 
its income on social needs, and also to quadruple the deposit 
assessment (a quarterly premium on all new banking deposits, 
to help guarantee funds in bank accounts) - from 0.5% to 2% - 
to earn more money for that end.  He intends that the money 
"be designated to the ends and commitments of the State: 
health, education, housing, educational quality of life, 
encouragement of social and productive work, popular 
alternative economy, the creation of culture, and to perform 
teaching and academic exercises so that Venezuelans in the 
informal economy and who not deposit or save in the financial 
system do so."  Caldera, during his testimony, cited his 
interpretation of the Venezuelan Constitution, the 
Inter-American Human Rights Convention and the International 
Pact on Social Rights (apparently the UN International 
Covenant on Economic, Social and Cultural Rights), and stated 
that they should have precedence over the existing Banking 
Law. 
 
3. (U) Caldera also stated that FOGADE had fired a number of 
people, but did not specify how many, saying only that "We 
have removed 80% of the previous structure," apparently 
meaning management.  He blamed the fired managers for 
"dragging along a culture not consistent with the project 
laid out in the Constitution for the social development of 
the nation."  Caldera also requested greater autonomy for 
FOGADE, but also for more authority in the presidency. 
Finally, he discussed the recent donation by FOGADE of over 
300 pieces of real property (acquired following the 1994-5 
banking failures) to "Mision Vuelvan Caras," a GOV 
anti-unemployment project, claiming that writing them off as 
a loss was not harmful to Venezuela. 
 
----------------------- 
PRIVATE SECTOR RESPONDS 
----------------------- 
 
4. (U) Caldera gave assurances, based on an internal study, 
that the measures would not cause interest rates to rise, as 
had happened in the past when premiums have been hiked.  The 
study took less than a month, and he justified such speed by 
the "revolutionary and bolivarian management" by 
characterizing them as "qualified and very expert."  National 
Banking Association (ABV) President Aristides Maza, also in 
Finance Committee testimony, countered that lending interest 
rates would rise 2% as a direct result of the premium 
increase.  "As the policy of everyone, both the public and 
private sectors, is to lower the lending rate, then this 
proposal seems incongruous." 
 
5. (C) Caldera asserted that the banking sector "is 
unqualified for public service, that is, the collective 
interest is tended by a private entity," therefore FOGADE 
should act in its stead to force a public service role upon 
 
it.  Maza disputed this idea, and said the role of FOGADE is 
to protect the public interest by managing their assets. 
Maza warned that "one cannot define the financial sector as a 
public service given that it is a mercantile activity." 
Oscar Carvallo, head economist of the ABV, privately told 
econoff that banking as a public service is "an aberration," 
given that banks must discriminate (by choosing to whom to 
loan money) in order to survive.  He also believes that this 
theme of public service is the beginning of a plan to place 
additional requirements on banks.  That may have begun, as 
the GOV just required all banks to provide restrooms to their 
clients, and has recently discussed publicly the idea of 
setting banks' working hours.  Carvallo suggested that the 
GOV is placing laws and "justice" (its own definition of it, 
that is) on equal footing, and applying the one which is more 
expeditious at the moment. 
 
6. (SBU) One of the fired FOGADE employees, Anna Kosa (a 
former Embassy employee), spoke publicly about the firings, 
calling them politically motivated.  She stated that 50 
people had been released, all of whom had signed the 
presidential referendum petition.  This followed a list 
published by members of Bolivarian Circles, listing all 
FOGADE employees and their perceived political allegiance, as 
well as harassing phone calls and notes.  She stated that her 
dismissal letter, signed by Caldera, gave no reason for the 
termination. 
 
------- 
COMMENT 
------- 
 
7. (C) Caldera, newly named to the job, may have been 
posturing for the Congress (and the cameras).  Nonetheless, 
this proposal represents yet another effort to divert state 
institutions away from their primary mission and turn them 
into piggy banks for the social "revolution."  Though the 
amount of money involved (at 30% of current budget, FOGADE 
would only have $42 million for social projects) pales in 
comparison to the PDVSA social fund (see ref), it amounts to 
a disguised tax increase on the banking sector, which would 
inevitably be passed on to consumers who already pay a 0.5% 
tax on all withdrawals.  It also raises the issue of 
decapitalizing FOGADE at a time in which several small 
domestically-owned banks are considered to be fairly wobbly. 
If they go under and FOGADE's resources have been diverted to 
social (read: electoral) spending, any bailout of depositors 
would be that much more difficult. 
SHAPIRO 
 
 
NNNN 
 
      2004CARACA02060 - CONFIDENTIAL