US embassy cable - 05CARACAS288

C O N F I D E N T I A L  CARACAS 000288 
 
SIPDIS 
 
 
STATE FOR WHA/AND 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM FOR POLAD 
BUENOS AIRES FOR TREASURY-MHAARSAGER 
 
E.O. 12958: DECL: 01/30/2015 
TAGS: ECON, EFIN, PGOV, VE 
SUBJECT: GOV CONSOLIDATES CONTROL AT CENTRAL BANK 
 
REF: A. 04 CARACAS 1443 
     B. 04 CARACAS 1943 
     C. 04 CARACAS 3927 
     D. CARACAS 281 
 
Classified By: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASON 1.4 D 
 
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Summary 
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1. (C) Leftist economist and former state oil company head 
Gaston Parra has been confirmed as the new President of the 
Venezuelan Central Bank, just a few days after President Hugo 
Chavez hand-picked him as the replacement for out-going 
President Diego Castellanos.  The Bank also agreed to give up 
some of the foreign exchange earnings - about USD 365 million 
- the administration had been demanding.  The Central Bank is 
gradually losing its autonomy, and may soon be completely 
responsive to Chavez's desires.  End summary. 
 
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Chavez Picks a Loyal Leftist 
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2. (C) The National Assembly on January 27 confirmed Gaston 
Parra, currently the First Vice President of the Venezuelan 
Central Bank (BCV), as replacement for outgoing President 
Diego Castellanos, whose term ends on January 28.  The 
selection was virtually a foregone conclusion after President 
Chavez named Parra as his preference on January 19.  Deputy 
Rodrigo Cabezas, chairman of the National Assembly's Finance 
Committee, called Parra "a worthy, humanistic, upright and 
honest man, a good father to his family," several days before 
his committee actually met to review Parra's qualifications. 
The Assembly also approved Jose Felix Rivas to replace Manuel 
Lago as a BCV Director in February. 
 
3. (C) Originally an academic at the University of Zulia, 
Parra was one of the primary authors of the portions of the 
current Venezuelan Constitution which deal with the 
hydrocarbons industry, and which became the basis for the 
Hydrocarbons Law which limited foreign companies to minority 
interests in any new oil projects.  In February 2000, he was 
picked for the first Vice Presidency of the Bank by Chavez. 
He served as President of state oil company PDVSA for little 
more than a month in March-April of 2002.  He was viewed as 
seeking to end the tradition of autonomous management at the 
corporation, and while he was in charge, PDVSA suffered a 
walk-out by managers and some workers which was part of the 
lead-up to broader protests and Chavez's own brief ouster. 
After Chavez returned to power, Parra was removed from PDVSA, 
and replaced by Ali Rodriguez, who was then viewed as a more 
conciliatory figure.  Parra returned to his bank position. 
It has been repeatedly suggested that he has had a role in 
orchestrating the departure of many Bank employees who were 
unsympathetic to Chavez's policies through a combination of 
pressure and incentives (a juicy retirement package).  Rivas 
is currently the Vice Minister of Planning and Economic 
Development in the Ministry of Planning. 
 
4. (C) Reaction to the likely decision from economists of an 
orthodox orientation was not positive.  Maxim Ross, an 
economic analyst and Chavez opponent, told the press that the 
selection "reflects a subordination of the Bank to the 
directives of the Executive" and "it is another demonstration 
of absolute power."  He added that "Venezuelans should know 
that their pocketbooks are in danger, given that no one will 
guarantee the keeping of precepts to preserve the currency 
and guard the reserves."  Omar Bello, a former senior Central 
Bank official (who briefly served as acting President) 
described Parra as "more a petroleum economist than a 
financial economist."  He suggested that Parra would take a 
"developmental" approach as opposed to a "monetary" one, i.e. 
he would seek to use Bank resources to stimulate determined 
sectors of the economy, rather than concentrate on 
maintaining macro-economic balance and fighting inflation. 
 
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Partial Payment 
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5. (C) Even before Parra's confirmation, it appears that the 
Bank is already moving to a more accommodating position 
vis-a-vis the GOV.  Contrary to prior announcements (ref C), 
it has announced that it will provide more foreign exchange 
earnings (additional bolivars obtained by devaluations) from 
2004 to the GOV, though not as much as the GOV has been 
demanding for over a year.  The GOV had insisted upon at 
least 2.2 trillion bolivars (USD 1.15 billion, roughly the 
"millardito" - a mere billion - that Chavez had demanded from 
the international reserves in 2004 - see ref A), and the Bank 
has now offered 700 billion bolivars (USD 365 million). 
Domingo Maza, another BCV Director, stated publicly that this 
was made possible by a "methodological change", but did not 
clarify how the calculations differed. 
 
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Comment 
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6. (C) Like the military and PDVSA, the Central Bank has been 
a relatively autonomous institution over which Chavez has 
systematically worked to gain control.  With Parra in charge 
(and with Rivas soon to be on the Board), we can expect that 
in a pinch (i.e. a drop in oil prices) the bank will provide 
what he most needs - money, even at the price of inflation 
and the destruction of savings.  Indeed, the GOV's appetite 
for spending is so strong that the Bank is being asked to do 
its part in meeting financing need even while oil prices are 
high. 
BROWNFIELD 
 
 
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      2005CARACA00288 - CONFIDENTIAL