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Cablegate: Minimum Wage Increase

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS CARACAS 001554

SIPDIS


C O R R E C T E D C O P Y (PARA MARKINGS (U) REMOVING CAPTION)


STATE FOR WHA/AND
NSC FOR CBARTON
TREASURY FOR OASIA-GIANLUCA SIGNORELLI
USCINCSO FOR POLAD

E.O. 12958: N/A
TAGS: ECON EFIN PGOV VE
SUBJECT: MINIMUM WAGE INCREASE

REF: 03 CARACAS 1357

-------
SUMMARY
-------

1. (U) THE GOV UNILATERALLY DECREED A 30 INCREASE IN THE
MINIMUM WAGE, ATTEMPTING TO KEEP UP WITH INFLATION FOR THE
LOWEST-EARNING WORKERS. HOWEVER, THOUGH OVERALL INFLATION IS
RELATIVELY DOWN, FOOD PRICES ARE INCREASING FASTER THAN ANY
OTHER CATEGORY, AND THIS NEW ACTION IS ONLY GOING TO
EXACERBATE THAT. PURCHASING POWER IS SLIPPING AWAY, AS THE
GOV CONTINUES TO MAKE ECONOMIC DECISIONS BASED ON POLITICS.
END SUMMARY.

--------------
BY THE NUMBERS
--------------

2. (U) ON MAY 1, THE GOV DECREED A MINIMUM WAGE (AND SOCIAL
SECURITY PENSION) INCREASE OF A TOTAL OF 30 , 20 EFFECTIVE
ON MAY 1 AND THE OTHER 10 ON AUGUST 1. THIS BRINGS THE
TOTAL INCREASE IN THE MINIMUM WAGE TO JUST OVER 100 SINCE
APRIL 2002. ALTHOUGH THE LAW ALLOWS THE GOV TO MAKE THIS
DECISION UNILATERALLY, IT FIRST REQUIRES CONSULTATIONS WITH
BUSINESS AND LABOR REPRESENTATIVES, A STEP WHICH WAS IGNORED
AS IT WAS LAST YEAR (REFTEL). IN ADDITION, THE GOV RAISED
SALARIES FOR MOST PUBLIC EMPLOYEES 38 (30 FOR TEACHERS),
ALONG WITH A ONE-TIME 2 MILLION BOLIVAR (1 MILLION FOR
TEACHERS) BONUS.

---------------------
RE-INFLATION FORESEEN
---------------------

3. (U) INFLATION HAS DROPPED TO 23.1 ANNUALIZED (COMPARED
TO 33.5 A YEAR AGO), WHILE WHOLESALE INFLATION IS AT 33 .
HOWEVER, ECONOMISTS AGREE THAT THE WAGE INCREASE WILL RAISE
INFLATION MORE, POSSIBLY TO AROUND 35 BY THE END OF 2004.
EVEN THE GOV AGREES: WILMAR CASTRO, MINISTER OF PRODUCTION
AND COMMERCE, SAID LAST WEEK THAT "AS A CONSEQUENCE OF THE
SALARY INCREASE, THERE WILL CERTAINLY BE AN EFFECT ON
PRICES." WHILE OVERALL INFLATION HAS DROPPED, THE HARDEST
HIT SECTOR HAS BEEN FOOD AND NON-ALCOHOLIC BEVERAGES.
DESPITE PRICE CONTROLS, PRICES IN THIS CATEGORY HAVE
INCREASED OVER 40 IN THE LAST 12 MONTHS THROUGH MARCH
(FOLLOWING A 35 INCREASE THE YEAR BEFORE). NOTE: THE 40
FIGURE IS BASED ON MULTIPLE PRESS REPORTS CITING THE NATIONAL
STATISTICS INSTITUTE (INE) AS THE SOURCE, BUT A CALL PLACED
BY THE EMBASSY TO THE INE ELICITED THE ANSWER THAT
INFORMATION SINCE JANUARY IS NOT AVAILABLE TO THE PUBLIC.
END NOTE.

-------
COMMENT
-------

4. (U) FINMIN NOBREGA HAS CALLED THE CURRENT ECONOMIC
SITUATION AN "OPTIMAL COMBINATION": CONTAINING INFLATION (THE
2004 BUDGET ASSUMED INFLATION OF 25 ) AND GDP GROWTH. THERE
HAS UNDENIABLY BEEN A PARTIAL RECOVERY IN OVERALL CONSUMER
SPENDING, AND OUR CONTACTS IN THAT SECTOR ARE REPORTING
INCREASED SALES. HOWEVER, THOSE EARNING THE MINIMUM WAGE,
FOR WHOM FOOD IS FAR AND AWAY THEIR MOST IMPORTANT PURCHASE,
HAVE LITTLE TO CHEER ABOUT.
SHAPIRO

NNNN
2004CARACA01554 - UNCLASSIFIED

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