US embassy cable - 05CARACAS1359

C O N F I D E N T I A L  CARACAS 001359 
 
SIPDIS 
 
 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM ALSO FOR POLAD 
BUENOS AIRES FOR TREASURY-MHAARSAGER 
 
E.O. 12958: DECL: 05/06/2015 
TAGS: ECON, EFIN, PGOV, VE 
SUBJECT: CHAVEZ VISIT TO HAVANA LEAVES PLETHORA OF ECONOMIC 
AGREEMENTS 
 
REF: 04 CARACAS 884 
 
Classified By: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASON 1.4 D 
 
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SUMMARY 
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1. (C) In Havana April 28, Presidents Hugo Chavez of 
Venezuela and Fidel Castro of Cuba signed a series of 
economic agreements which will assertively strengthen trade 
between the two countries.  In addition to sending USD 412 
million of various products duty free to Cuba, Venezuela will 
also increase its petroleum shipments from 53,000 barrels per 
day (bpd) to as much as 90,000.  The GOV also plans to open 
an office of state-owned petroleum company PDVSA and 
state-owned commercial Venezuelan Industrial Bank (BIV) in 
Havana, respectively to coordinate oil shipments to the 
Caribbean and to finance imports and exports of products 
between the two countries.  These proposals, which have been 
met with criticism, are the first tangible steps associated 
with the ALBA, Chavez's barely defined counter-proposal to 
the FTAA.  The oil deal, which the most substantive, and the 
BIV plan add up to further Venezuelan subsidization of Cuba, 
its close political partner.  END SUMMARY. 
 
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THE 49 AGREEMENTS 
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2. (U) Presidents Chavez and Castro signed approximately 49 
agreements in Havana on April 28, on various economic themes, 
covering areas such as energy, oil, nickel, agriculture, 
furniture, shoes, textiles, toys, lingerie, tires, 
construction materials, electricity, transportation, health, 
and education.  Cuba agreed to buy USD 412 million of various 
Venezuelan goods and import them duty-free, and a goal has 
been set to increase binational trade from USD 1.5 billion in 
2004 to 1.75 billion in 2005.  The GOV will open a branch of 
state bank BIV, capitalized with USD 400 million to finance 
trade between the two countries - which, rather than using a 
Cuban bank, could provide easier access to cash for many 
Cuban state enterprises - while Cuba will open an official 
Banco Exterior de Cuba in Caracas, though its purpose was not 
stated.  A total of eleven co-state-owned companies are 
slated to be formed.  Castro praised the agreements, opining 
that "Both of our countries are going to show what a just and 
liberating integration, one that benefits both people, is all 
about." 
 
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BUT OIL IS THE FOCUS 
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3. (U) The central focus of the deals, though, appears to be 
oil, with the establishment of PDVSA-Cuba and the 
acknowledgment of an increase in oil shipments to Cuba from 
53 thousand bpd to between 80 and 90 thousand bpd.  Rafael 
Ramirez, Venezuelan Minister of Energy and Petroleum and 
President of state oil company PDVSA, said at the ceremony, 
"Since 2000, Venezuela has officially supplied 53,000 barrels 
per day of crude oil and petroleum products to Cuba under 
very favorable financing terms, but the supplies have 
increased considerably since the consolidation of President 
Chavez in power," noting that shipments had already been 
reaching 90,000 bpd prior to the signing.  Moreover, as 
Ramirez said, PDVSA "plans to use Cuba as a center for its 
operations in the Caribbean," and to help develop oil 
projects in Cuba.  Ramirez said, "It's logical to serve from 
here all of the Caribbean islands, which are small and very 
dispersed, and serving them from Venezuela doesn't make much 
sense."  PDVSA also plans to provide refining and marketing 
assistance, and may refurbish the Soviet-era Cienfuegos 
refinery.  In exchange for the increased oil shipments, Cuba 
agreed to increase the number of doctors in Venezuela by 
17,000 (to 30,000 total), and to help train up to 45,000 
Venezuelan doctors in Venezuela and 1000 more in Cuba.  The 
new PDVSA office was criticized immediately by Chavez 
 
 
opponents.  Humberto Calderon, ex-president of PDVSA, told 
the press it "makes absolutely no sense."  Economist 
Francisco Faraco predicted in an op-ed an even greater lack 
of transparency, and that "one will never know what happens 
there." 
 
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WHAT IS THE ALBA?  IT'S NOT THE FTAA 
------------------------------------ 
 
4. (U) These agreements are the first actual agreements ever 
signed under the umbrella of ALBA, the Bolivarian Alternative 
for the Americas promoted by Chavez.  Intended to be a 
counter-point to the FTAA (ALCA in Spanish), ALBA has yet to 
be more than a rallying theme for radical Latin American 
"socialists" and anti-systemics.  Among the personalities at 
this Havana ALBA conference were Bolivia's Evo Morales and El 
Salvador's Schafik Handal.  Chavez criticized the FTAA, 
saying it "is integration to destroy us."  He expounded his 
idea of the ALBA somewhat, noting that "We're thinking about 
100,000 doctors, but not just for Venezuela, but later on 
there will be doctors from many other countries in our 
America, to declare war as we have declared war, on war, on 
misery, on sickness, on exclusion.  That is the ALBA."  He 
also expressed that "It must go beyond Cuba and Venezuela," 
and invited the US and Canada to join. 
 
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COMMENT 
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5. (C) This was the first public acknowledgment that oil 
shipments to Cuba had increased, something which post 
reported over a year ago (reftel), though Ramirez's comment 
implies that the increase only dates from August 2004, after 
Chavez won the recall referendum.  The increase provides an 
excellent opportunity to subsidize Cuba and for corruption - 
since Cuba uses only a portion of the oil for domestic use, 
the rest is sold to international buyers, allowing 
"intermediaries" such as PDVSA execs to collect commissions 
on the sale.  The GOV argument for opening the center lacks 
substance.  While Cuba is closer than Venezuela to some 
Caribbean - as well as Central American, which were curiously 
not named - countries, stopping in Cuba en route will only 
add time and expense to the process.  We expect that most of 
the other trade agreements cited, on furniture, toys, etc., 
are window dressing and will not lead to much increased trade 
between the two countries.  The oil deal, crucial to the 
political relationship Venezuela and Cuba, marks an increase 
in the ongoing Venezuelan subsidy of Cuba. 
McFarland 
 
 
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      2005CARACA01359 - CONFIDENTIAL