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Cablegate: Chavez' First Decree Under the Enabling Law:

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DE RUEHCV #0404/01 0572049
ZNR UUUUU ZZH
R 262049Z FEB 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7941
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
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UNCLAS SECTION 01 OF 02 CARACAS 000404

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR KLINGENSMITH AND NGRANT
COMMERCE FOR 4431/MAC/WH/MCAMERON
NSC FOR DTOMLINSON
ENERGY FOR CDAY, DPUMPHERY, AND ALOCKWOOD

E.O. 12958: N/A
TAGS: ECON PGOV VE
SUBJECT: CHAVEZ' FIRST DECREE UNDER THE ENABLING LAW:
DECREE LAW AGAINST SPECULATION AND HOARDING

REF: A. CARACAS 264
B. CARACAS 358
C. 05 CARACAS 1067

1. (SBU) Summary: The decree-law against speculation and
hoarding, the first executive decree introduced by Chavez
under the Enabling Law, was published, as amended, in
Venezuela's Official Gazette on February 21. This measure
criminalizes the hoarding and price speculation of food
products subject to government price controls. It defines
all stages of the production cycle for regulated foods as
within the ambit of "public utility and the social interest."
It empowers Chavez to expropriate any business that fits
this sweeping definition to protect "food security and
sovereignty." Rather than remedy retrograde price controls
and distortions, Chavez has made "capitalists" of the food
industry the scapegoat for the BRV's economic inefficiency
and increasing difficulty in delivering food security. The
BRV has already invoked the decree-law to occupy two
"abandoned" slaughterhouses. The decree-law also entrusts
grass-roots Community Councils with monitoring local
compliance and enforcement. End Summary.

--------------------------------
Purpose, Scope and Applicability
--------------------------------

2. (SBU) The "Decree Law of Popular Defense against
hoarding, speculation, boycott, and any other conduct that
affects consumption of food or products submitted to price
controls" was published as Decree Number 5197 in the BRV's
Official Gazette on February 16 and reprinted on February 21
due to a printing error. This decree-law is the first
promulgated by President Chavez since the National Assembly
unanimously approved the Enabling Law giving him diktat
powers on January 31 (Reftel A). Article 1 lays out the
legal objective, tracking the language in the title
word-for-word, and notes that the National Executive (read:
Chavez) and Consejos Comunales (Community Councils) have the
authority to regulate its application.

3. (SBU) The decree-law casts a wide net with respect to the
scope of both activities and entities to which it applies.
Article 3 states that the decree-law applies to natural or
legal persons, Venezuelan or foreign, who participate in any
phase of the chain of production, distribution, and
commercialization of food or products subject to price
controls.

4. (SBU) Article 4 defines the scope of economic activities
potentially subject to expropriation and criminal and
administrative penalties. It states "It will be declared for
the public utility and social interest, all of the assets
needed to develop activities of production, construction,
importation, transportation, storage, distribution and
commercialization of food or products subject to price
controls." This clause paves the way for Chavez to initiate
expropriation proceedings of any business that meets this
sweeping definition if he deems it necessary, in his sole
discretion, to protect food security.

5. (SBU) Article 5 defines all of the stages of the
production cycle as a "public service" that should continue
in a "regular, efficient, uninterrupted manner, with
attention to the satisfaction of collective needs." If the
flow of services does not operate in the manner described,
Chavez is authorized to take "all necessary measures" to
correct the problem.

--------------------------------------------- --------------
Administrative and Criminal Sanctions, Preventive Measures
--------------------------------------------- --------------

6. (SBU) Administrative sanctions are applicable to the
following actions: alteration of quality or price, refusing
to sell, or selling products that have expired or are in poor
condition. Sanctions may include temporary closure of the
establishment and a maximum fine of 5,000 tax units
(approximately USD 87,500).

7. (SBU) The decree-law defines the following activities as
criminal: hoarding, speculation, fraudulent altering of

CARACAS 00000404 002 OF 002


prices, boycott, and exporting controlled products produced
for the domestic market. These crimes are punishable by
prison terms ranging from 2-6 years and fines from 130-20,000
tax units (approximately USD 2,275 to USD 350,000.) In
addition, businesspeople who hoard, speculate, or violate
price controls may be banned from exercising their profession
for a 10-year period. Article 25 provides for double fines
and penalties when the conduct intends to threaten the
"social peace" and "destabilize democratic institutions."

8. (SBU) Chavez is authorized to take preventive measures to
guarantee food security. These measures may include
temporary occupation of facilities or closure for 90 days,
product confiscation, or other measures to guarantee the
"collective good."

--------------------------
Role of Community Councils
--------------------------

9. (SBU) This decree-law authorizes Community Councils to
ensure compliance with price controls and take the initial
steps of an enforcement action. Community Councils were
established under the law in April 2006 as grass-roots
political organizations (Reftel C). Article 6 confers
Community Councils the function of forming "Social Committees
Against Hoarding." These committees have the authority to
investigate alleged violations of the decree-law and
recommend to Community Councils that Chavez take the
appropriate enforcement or preventive measures. The
committees are responsible for verifying the supply of
regulated food products in local stores and monitoring
compliance with the price control regime. The councils are
also responsible for promoting grass-roots education and
awareness in the community with respect to food security.

--------------------------------------------- ----
Initial Reactions and First Temporary Occupations
--------------------------------------------- ----

10. (SBU) The early effects of the decree-law are already
beginning to show. The BRV has invoked the preventive
measures provided for in Article 13 to occupy two
slaughterhouses, Fricapeca in Perija and Frigorifo Industrial
in Barinas, said to be "abandoned." The Perija facility
reportedly has a capacity to slaughter 1,600 animals, but on
average, killed only between 800 to 1,000. The
slaughterhouse in Barinas has been closed for the past three
years. Local newspapers have also reported that wholesalers
are refusing to deliver white sugar, black beans and chicken,
because abiding by government price controls would force them
to sell at a loss.

-------
Comment
-------

11. (SBU) The decree-law against hoarding and speculation is
the first of many purposely vague legal measures that Chavez
can be expected to dictate under the Enabling Law to further
centralize power in his hands. The measure places a large
segment of the Venezuelan economy at Chavez' unfettered whim
as potential targets of expropriation, temporary closures and
criminal sanctions. Rather than remedy retrograde price
controls and distortions, Chavez has, not surprisingly, made
"capitalists" of the food industry the scapegoat for the
BRV's economic inefficiency and increasing difficulty in
delivering food security. Empowering Community Councils
exemplifies Chavez' strategy of strengthening parallel
pro-government grass-roots movements to further weaken
traditional Venezuelan political institutions. It also
establishes the dangerous precedent by which Venezuelan
citizens will be enlisted by the state to perform a quasi
law-enforcement function. End Comment.


BROWNFIELD

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