US embassy cable - 04CARACAS2172

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002172 
 
SIPDIS 
 
 
STATE FOR WHA/AND 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM FOR POLAD 

E.O. 12958: DECL: 07/07/2014 
TAGS: ECON, PGOV, VE 
SUBJECT: BOLIVAR: POLITICS AND ECONOMICS IN THE LAND OF 
HEAVY INDUSTRY 
 
REF: CARACAS 1549 
 
CLASSIFIED BY: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASONS 1.5 B 
AND D 
 
1. SUMMARY: (SBU) THE STATE OF BOLIVAR, BY FAR THE LARGEST IN 
VENEZUELA IN AREA, IS A REGION WITH ECONOMIC IMPORTANCE MUCH 
HIGHER THAN ITS RELATIVELY LOW POPULATION WOULD INDICATE. 
(BOLIVAR PRODUCES 100% OF VENEZUELAN ALUMINUM AND GOLD, 90% 
OF ITS STEEL, AND ABOUT TWO-THIRDS OF ITS ELECTRICITY.) 
DURING ECONOFF'S VISIT TO THE STATE, CONVERSATIONS WITH THE 
PRO-OPPOSITION GOVERNOR, HIS PRO-CHAVEZ CHALLENGER, THE HEAD 
OF GOV-OWNED INDUSTRIAL COMBINE CORPORACION VENEZOLANA DE 
GUAYANA (CVG), THE CHIEF FINANCIAL OFFICER OF PRIVATIZED FIRM 
SIDOR (VENEZUELA'S MAJOR STEEL PRODUCER), AND REPRESENTATIVES 
OF THE PRIVATE SECTOR PAINTED A PICTURE IN WHICH BIG INDUSTRY 
DOES RELATIVELY WELL WHILE THE REST OF THE ECONOMY STRUGGLES, 
AND IN WHICH PRO- AND ANTI-CHAVEZ POLITICAL FORCES BOTH CLAIM 
THE EDGE.  CVG'S DOMINANCE MAY TIP THE BALANCE IN FAVOR OF 
CHAVEZ.  END SUMMARY. 
 
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POLITICS IN THE PROVINCE 
------------------------ 
 
    2. (C) ECONOFF MET JUNE 29 WITH GOVERNOR ANTONIO ROJAS 
SUAREZ, ELECTED IN 2000 AS A PRO-GOV CANDIDATE, AND WHO 
OFFICIALLY SPLIT FROM CHAVEZ'S FIFTH REPUBLIC MOVEMENT (MVR) 
LAST YEAR.  ROJAS HIGHLIGHTED SOME OF THE ACHIEVEMENTS OF HIS 
ADMINISTRATION, BUT LAMENTED THE LACK OF FUNDS FROM THE 
CENTRAL GOVERNMENT.  HE NOTED THIS IS A PROBLEM WHICH AFFECTS 
ALL STATES, NOT ONLY THOSE WITH GOVERNORS WHO OPPOSE CHAVEZ. 
THE GOV IS CONSTITUTIONALLY OBLIGATED TO PROVIDE A CERTAIN 
AMOUNT OF ITS GROSS INCOME TO STATE GOVERNMENTS, BUT ROJAS 
SAID THE LAST PAYMENT WAS OVER THREE MONTHS AGO, AND 
DISBURSEMENTS THEN WERE LESS THAN THEY SHOULD HAVE BEEN.  IN 
ADDITION, HIS STATE HAS NOT RECEIVED A SINGLE BOLIVAR IN 3 
FULL YEARS FROM THE DECENTRALIZATION INVESTMENT FUND (FIDES, 
AN ENTITY CREATED IN 1993 TO ASSIST IN THE TRANSFER OF FUNDS 
TO THE STATES, AND LAUDED BY THE MINISTRY OF FINANCE AS 
RECENTLY AS IN ITS JUNE NEWSLETTER). 
 
3. (C) ECONOFF ALSO MET JUNE 30 WITH FRANCISCO RANGEL GOMEZ, 
THE HEAD OF COMANDO MAISANTA (PRO-CHAVEZ RECALL CAMPAIGN 
STRUCTURE), WHO ALSO RECENTLY RESIGNED AFTER FOUR YEARS AS 
PRESIDENT OF STATE INDUSTRIAL COMBINE CVG TO RUN FOR GOVERNOR 
OF BOLIVAR LATER THIS YEAR.  HE COMPLAINED THAT ROJAS HAD 
DONE NOTHING IN HIS TERM, BUT THEN CONCEDED THAT THE BRAND 
NEW AIRPORT TERMINAL WAS IMPRESSIVE.  HE PRAISED THE WORKING 
OF THE VARIOUS GOV "MISSIONS" IN BOLIVAR, STATING THAT THEY 
WERE NOT RUN THROUGH EXISTING GOV INSTITUTIONS BECAUSE THOSE 
AGENCIES WERE "DISASTERS."  HE ADDED THAT CHAVEZ'S FIVE YEARS 
IN OFFICE WOULD NOT HAVE BEEN ENOUGH TIME TO REFORM THOSE 
AGENCIES, GIVEN THE "OIL STRIKE" AND THE "COUP."  WHEN 
ECONOFF POINTED OUT THAT THEY COULD NOT HAVE PLANNED FOR 
THOSE EVENTS, HE SAID "FIVE YEARS WOULD NOT HAVE BEEN ENOUGH 
    ANYWAY." 
 
4. (C) REFERENDUM.  BOTH ROJAS AND RANGEL EXPRESSED OPTIMISM 
ABOUT THE PRESIDENTIAL REFERENDUM, LOCALLY AND NATIONALLY. 
ROJAS THOUGHT ONLY A SLIM MAJORITY WOULD VOTE AGAINST CHAVEZ 
LOCALLY, GIVEN THAT IT IS ONE OF THE MOST PRO-CHAVEZ STATES, 
WHILE RANGEL PREDICTED A LANDSLIDE FOR CHAVEZ BY A 
THREE-TO-ONE MARGIN.  RANGEL DISMISSED ALL CHANCES OF AN 
OPPOSITION WIN.  HE ASSERTED THAT THE FIRMAZO/REPARO PETITION 
PROCESS WAS "THE BEST POLL OF ALL" AND IT HAD PROVED THAT THE 
OPPOSITION WOULD GET LESS THAN 2.5 MILLION VOTES, ESPECIALLY 
GIVEN THAT THE FINAL NUMBER OF APPROVED SIGNATURES INCLUDED 
"THE DEAD AND THE FRAUDS."  HE SAID THAT CHAVEZ TOLD HIM AT 
THE TIME OF THE REPAROS THAT HE WOULD GO TO REFERENDUM AS 
LONG AS IT WERE CLOSE, EVEN IF THERE WEREN'T QUITE ENOUGH 
SIGNATURES TO TRIGGER IT.  ROJAS AVOIDED NUMERICAL 
PREDICTIONS, BUT THOUGHT THE OPPOSITION WOULD OVERCOME THE 
MANY OBSTACLES THAT THE GOV IS SURE TO PLACE BEFORE THEM, 
SUCH AS CVG DIVERTING MONEY FROM INVESTMENT IN ORDER TO FUND 
THE CAMPAIGN LOCALLY. 
 
5. (C) ELECTIONS.  ROJAS WILL RUN FOR RE-ELECTION, THIS TIME 
REPRESENTING THE OPPOSITION.  HE STATED THAT HE WAS CLOSE TO 
ACHIEVING AGREEMENT FROM ALL PARTIES TO BE THE CONSENSUS 
 
CARACAS 00002172  002 OF 003 
 
UT.  INDEED, HE EXPRESSED 
CONCERN THAT THE COPEI CANDIDATE MAY HAVE REACHED AN 
AGREEMENT WITH THE MVR TO RUN AND TIP THE BALANCE TOWARD 
RANGEL BY SIPHONING VOTES FROM ROJAS.  ROJAS CALLED RANGEL A 
SERIOUS CANDIDATE, GIVEN HIS EXPERIENCE (HE WAS A GENERAL 
BEFORE RUNNING CVG) AND POSITIVE RESULTS AT CVG.  RANGEL 
REFUSED TO CONSIDER DEFEAT A POSSIBILITY, AND DISMISSED ROJAS 
AS A "NOBODY."  HE SAID THAT THE NEW COMANDO MAISANTA WAS 
"TOTALLY DIFFERENT" FROM COMANDO AYACUCHO AND PREVIOUS MVR 
CAMPAIGN ORGANIZATIONS, BUT LATER MENTIONED THAT IT WAS 
STAFFED BY VIRTUALLY THE SAME PEOPLE WHO RAN THEM. 
 
6. (C) RANGEL MADE THREE OTHER COMMENTS OF INTEREST.  THE 
FIRST, WHEN ECONOFF MENTIONED THE IMPORTANCE OF MAINTAINING 
OPEN DIALOGUE WITH THE DIFFERENT LEVELS OF GOVERNMENT, WAS 
THAT HE WAS COMPLETELY CERTAIN THAT CHAVEZ WOULD ACCEPT MORE 
OPEN COMMUNICATION WITH THE USG AS SOON AS HE RECEIVED "ONE 
FRIENDLY SIGNAL" FROM SOMEONE HIGHER UP IN THE USG, RATHER 
THAN STATEMENTS SUCH AS THOSE OF A/S NORIEGA.  THE SECOND WAS 
THAT SENATOR KERRY'S MOST RECENT STATEMENT ON VENEZUELA WAS 
"WELL RECEIVED" BY THE GOV.  (RANGEL INTERPRETED IT AS 
SUPPORT FOR THE CNE AND ACCEPTANCE IN ADVANCE OF THE RECALL 
RESULT.)  THE THIRD WAS THAT THERE WAS COMPLETE FREEDOM OF 
EXPRESSION IN VENEZUELA.  WHEN ECONOFF MENTIONED A JOURNALIST 
    (PATRICIA POLEO) WHO IS FACING CHARGES, RANGEL SAID "BUT 
SHE'S FREE." 
 
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BIG INDUSTRIES BOOMING, OPTIMISTIC 
---------------------------------- 
 
7. (SBU) MIGUEL DELFINO, CFO OF SIDOR (ORINOCO IRON AND 
STEEL, A FORMER CVG COMPONENT WHICH WAS 60% PRIVATIZED IN 
1997), PRESENTED A VERY POSITIVE PICTURE.  EFFICIENCY NEARLY 
DOUBLED FROM 1999 TO 2002, LEADING TO CURRENT PRODUCTION 
BEING AT NEAR-RECORD HIGHS.  DOMESTIC SALES IN THE FIRST 
QUARTER OF 2004 WERE UP 67% FROM THE SAME PERIOD IN 2002 
(PRE-GENERAL STRIKE), THOUGH DELFINO ALLOWED THAT AN UNKNOWN 
PART OF THESE SALES WERE ENDING UP IN COLOMBIA.  (SINCE ALL 
SIDOR SALES ARE ALL BASED ON DOLLAR PRICES AT THE OFFICIAL, 
FIXED RATE OF EXCHANGE, A BLACK MARKET SALE FOR EXPORT WOULD 
BE PROFITABLE FOR LOCALS, GIVEN THE HIGHER PARALLEL RATE.) 
THE ONLY REASON THAT PRODUCTION IS NOT CURRENTLY AT AN 
ALL-TIME RECORD, ACCORDING TO DELFINO, WAS THE 2004 STEEL 
STRIKE (SEE REF), WHICH WAS ONLY RESOLVED WITH GOVERNMENT 
INTERVENTION.  (NOTE: TO END THE STRIKE, THE GOV, 40% OWNER 
OF SIDOR, AGREED TO TRANSFER 20% OF OWNERSHIP TO SIDOR 
EMPLOYEES.  THIS WAS A STIPULATION OF THE 1997 PRIVATIZATION 
AGREEMENT, BUT THE GOV HAD NEVER MOVED ON IT UNTIL THE STRIKE 
STOPPED CRITICAL STEEL DELIVERIES TO PDVSA.  END NOTE) 
 
8. (C) RAFAEL SANCHEZ MARQUEZ, THE GOV-APPOINTED PRESIDENT OF 
CVG, THE GOV-OWNED CONSORTIUM OF BASIC INDUSTRIES (WHICH 
DOMINATE BOLIVAR STATE AND INCLUDE HYDROELECTRICITY, GOLD, 
ALUMINUM AND LUMBER), WAS SIMILARLY OPTIMISTIC.  HE CITED THE 
    TURN-AROUND OVER THE LAST FOUR YEARS FROM PREVIOUS 
MISMANAGEMENT (PRIOR TO RANGEL'S TENURE, ONLY ONE OF CVG'S 
BUSINESSES, THE ELECTRIC PRODUCTION, TURNED A PROFIT; NOW 
ONLY ONE IS OPERATING AT A LOSS) AND LISTED NUMEROUS NEW 
PROJECTS THAT WERE UNDERWAY OR ABOUT TO BEGIN.  HE WAS ALSO 
PROUD OF CVG'S INVOLVEMENT WITH THE GOV MISSIONS (ESPECIALLY 
THE NUMBER OF CUBAN DOCTORS - ONE THOUSAND - WHO ARE IN 
BOLIVAR WITH BARRIO ADENTRO), THOUGH SAID THAT CVG 
PARTICIPATION WAS LIMITED TO LOGISTICS, TRANSPORTATION, AND 
TECHNICAL ASSISTANCE RATHER THAN FUNDS. 
 
---------------------------------- 
PRIVATE SECTOR DISCOURAGED AT BEST 
---------------------------------- 
 
9. (SBU) PRIVATE SECTOR REPRESENTATIVES, IN A ROUND-TABLE 
MEETING, EXPRESSED FRUSTRATION, POSSIBLY BORDERING ON 
DESPERATION.  BOLIVAR SEEMS TO HAVE FELT THE ECONOMIC 
DOWNTURN MORE THAN MUCH OF VENEZUELA, AT LEAST IN AREAS NOT 
DEPENDENT ON THE BASIC INDUSTRIES.  SOME PONDERED THAT THIS 
MIGHT BE BECAUSE OF ITS DISTANCE FROM THE CAPITAL.  SEVERAL 
EXPRESSED INTEREST IN HAVING U.S. REPRESENTATIVES FROM 
VARIOUS INDUSTRIES (TOURISM, MANUFACTURING, AGRICULTURE, 
SCIENTIFIC RESEARCH) COME TO BOLIVAR FOR PROFESSIONAL 
 
CARACAS 00002172  003 OF 003 
 
 THE FACT THAT, DESPITE 
PROXIMITY, MORE TOURISTS CAME TO BOLIVAR FROM AT LEAST FOUR 
EUROPEAN COUNTRIES THAN FROM THE U.S. 
 
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COMMENT 
------- 
 
10. (C) WHILE BOLIVAR HAS ONLY FIVE PERCENT OF THE VENEZUELAN 
POPULATION, IT IS IMPORTANT AS AN ENGINE OF ECONOMIC GROWTH 
FOR VENEZUELA.  THE STATE ECONOMY OVERALL SEEMS TO BE DOING 
FAIRLY WELL, CONSIDERING THE RELATIVE IMPORTANCE OF THE MAJOR 
INDUSTRIES (CVG AND PRIVATIZED), BUT THE SMALLER BUSINESSES 
ARE CLEARLY FEELING THE EFFECTS OF THE NATIONAL ECONOMIC 
DOWNTURN, AND THE CONCOMITANT LACK OF FOREIGN INTEREST IN NEW 
INVESTMENT.  WHILE CVG AND SIDOR CAN EXPECT TO CONTINUE TO DO 
WELL, IT IS UNLIKELY THAT THE REST OF THE ECONOMY WILL 
APPROVE WITHOUT SIGNIFICANT POLICY CHANGE BY THE CENTRAL 
GOVERNMENT, WHETHER IN ITS MACROECONOMIC POLICIES OR 
WILLINGNESS TO DISTRIBUTE FUNDS TO PRIME THE PUMP AT THE 
STATE GOVERNMENT LEVEL.  POLITICALLY, THE SHEER DOMINANCE OF 
THE STATE INDUSTRIAL COMPLEX GIVES PRO-CHAVEZ FORCES AN EDGE 
IN BOTH THE REFERENDUM AND GUBERNATORIAL RACE THAT MAY BE 
HARD FOR THE OPPOSITION TO OVERCOME. 
    MCFARLAND 
 
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      2004CARACA02172 - CONFIDENTIAL