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Cablegate: Chavez Announces 30 Percent Hike in Minimum Wage

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P 022139Z MAY 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 1058
INFO RUEHBO/AMEMBASSY BOGOTA 7778
RUEHLP/AMEMBASSY LA PAZ MAY LIMA 1023
RUEHQT/AMEMBASSY QUITO 2838
RUEHC/DEPT OF LABOR
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RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS CARACAS 000609

SIPDIS

SENSITIVE
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HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
NSC FOR JSHRIER
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: N/A
TAGS: ECON ELAB PGOV VE
SUBJECT: CHAVEZ ANNOUNCES 30 PERCENT HIKE IN MINIMUM WAGE
AND PUBLIC SECTOR SALARIES

REF: CARACAS 313

1. (U) Speaking on the evening of April 30 at a
commemoration of International Worker's Day, President Chavez
announced a 30 percent increase in the minimum wage and in
all public sector employees' salaries. The new monthly
minimum wage is 799 bolivars (Bs), or USD 372 at the official
exchange rate of 2.15 Bs/USD. In his speech, Chavez
portrayed the increase as further evidence of his solidarity
with the "proletariat." He displayed a chart showing the
evolution of the nominal level of the minimum wage over time,
claiming that it had taken off "like a rocket" during his
tenure. Noting that "monetarists" might criticize the large
increase for its inflationary pressure, Chavez affirmed that
his government was committed to fighting inflation but would
not sacrifice workers' well-being to that fight. With the
new increase, Chavez claimed, Venezuela's minimum wage was
now the highest in Latin America in dollar terms.

2. (SBU) Chavez did not mention that in percentage terms the
minimum wage increased more than twice as fast from 1990 to
1998 (the last year before Chavez came to power) than from
1998 to 2008; that a 30 percent increase is actually not very
generous in real terms given annualized inflation of 29
percent (Caracas IPC, March 2007 to March 2008); and that the
average Venezuelan cannot buy dollars at the official
exchange rate, rendering pointless a cross-country comparison
of minimum wage in dollar terms. Furthermore, these measures
will not directly benefit poor Venezuelans in the informal
sector. According to BRV statistics, over 4.6 million
people, or 42 percent of working Venezuelans, work in the
informal sector.

3. (SBU) Estimates vary as to how many people will directly
benefit from these measures. President Chavez claimed that
over five million people would benefit from the minimum wage
increase; press reports have given figures for the number of
people receiving the minimum wage ranging from two million to
five million; and a university professor who specializes in
labor issues estimated the number at 4.2 million. Most
estimates put the number of people directly employed by the
public sector (including the central government, regional and
local governments, and state-owned companies) at 1.2 million.
Per the university professor, none of these public sector
employees earn the minimum wage, although many of the
estimated 800 thousand people who work for government
contractors do. Equally importantly, these increases will
serve as a benchmark for labor negotiations in the private
sector for workers earning more than the minimum wage.

4. (SBU) Comment: The amount of the minimum wage increase,
traditionally announced on May 1, has been the subject of
speculation in Venezuela for weeks, with press reports
suggesting the BRV was considering options ranging from 10 to
40 percent. The choice appears to be a compromise between
inflationary concerns and Chavez' desire to be perceived as
supporting poorer Venezuelans in an election year. Given
current inflation, it would have been difficult for Chavez to
announce an increase of less than 25 percent. (Note: On
April 28 the BRV raised prices on chicken by 85 percent and
on pre-cooked cornmeal by 48 percent, highlighting the
continuing impact of inflation, especially on poorer
Venezuelans (reftel). End note.) The minimum wage and
public sector salary increases will certainly have direct
inflationary consequences, with press reports stating that
the Central Bank estimates the minimum wage hike will lead to
an increase in inflation of four percentage points. End
comment.
DUDDY

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