Cablegate: Meeting with Finance Committee President Rodrigo

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UNCLAS E F T O CARACAS 002252

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E.O. 12958: N/A
TAGS: EFIN PGOV VE
SUBJECT: MEETING WITH FINANCE COMMITTEE PRESIDENT RODRIGO
CABEZAS

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1. (SBU) Summary: EconCouns, accompanied by Econ
Specialist, met July 12 with Rodrigo Cabezas and Ricardo
Sanguino, President and Vice President, respectively, of the
National Assembly's Finance Committee. During a 90-minute
tour d' horizon, Cabezas said reform of the banking law was
still under discussion and he expected the bill to pass in
2007, but foresaw no structural changes to the current law.
On other topics, he said: there would be no devaluation of
the bolivar in 2007 (let's see); saw no reason, despite one
press report, for the BRV to assume control of the banking
sector post December 2006; confirmed the decision had been
made to reduce the bolivar by three zeroes, with new currency
in circulation by 2008; and, expected a constitutional
referendum between 2007-2008 that would, inter alia,
recognize other forms of property, beyond private property.
He also stated that the adequate level of Central Bank
international reserves for 2006 was USD 25 billion and USD 28
billion for 2007. End Summary.

2. (SBU/NF) Cabezas, deputy from the state of Zulia, and an
economist by training, said that reform of the Banking Law
was still under discussion (first discussion had been
completed in 2004) and passage was expected in 2007. He
expected no fundamental/structural changes to the current
law. The new law would reinforce current BRV policy
regarding directed lending to selected sectors, have
provisions for client/depositor rights, and provisions to
regulate credit and debit cards. EconCouns asked Cabezas if
he had seen a recent small article in the daily economic
journal "Reporte" suggesting the BRV would assume greater
control of the banking sector after December 2006 national
elections. Cabezas replied that he saw no political or
economic reason for the government to nationalize the
commercial banking sector. He noted that relations between
the banking sector and the BRV were good, unlike the BRV's
relationship with Fedecameras (the umbrella business chamber)
or Conindustria (the industrial chamber). (Note: We
contacted a number of banking reps; none saw any reason for
the BRV to take such a move in the current environment. End
Note.) Cabezas also mentioned that a new Insurance Law
would replace the existing law, which dates to 1940, and
contain new articles to account for technological changes and
modernization in the industry.

3. (SBU) Monetary reform, he said, was a political and
economic decision that "had already been taken." The BRV
means to remove three zeroes from the national currency while
implementing some measures on the fiscal side (NFI). The
goal was to try and ensure sustainable economic growth along
with price stability. According to Cabezas the Central Bank
(BCV) had recommended the Assembly approve legislation in
order to remove three zeroes off the currency. He expected
that everything would be ready for new currency to be in
circulation by January 2008. He also said there would be no
changes to the BCV Law. (Note: With regard to Cabezas'
comments about fiscal side reforms, we assume that he is
talking about measures to ensure coordination between the
Ministry of Finance and the Central Bank -- most likely with
the already weak BCV losing whatever thin strand of autonomy
it remains. End Note.)

4. (SBU) Cabezas said that while constitutional provisions
for protecting private property would be maintained, he
expected constitutional changes in 2007 to recognize other
forms of property such as cooperatives, mixed enterprises,
co-management and other arrangements (read: make the concept
of private property a relative one). The idea he said was to
apply new economic concepts to 21st century socialism.
Cabezas mentioned a possible national referendum between 2007
and 2008 to decide this and some other constitutional

changes. (Note: On the economic front, such changes could
also remove de jure BCV autonomy (or if there is anything
left of it) as such autonomy is spelled out by the
constitution. End Note.)

5. (SBU) On BRV spending, Cabezas said that the Central
Government was expected to spend Bs 90 trillion (USD 42
billion) during 2006, which represented between 75 and 80
percent of the total approved budget and additional credits
for 2006. However, FONDEN (the National Development Fund)
and FONDESPA (the PDVSA managed development fund) could
"invest" around USD 9 billion in additional spending during
this electoral year. The goal was to compensate for the lack
of public and private investments during the last 25 years.
Cabezas also stated that there would be no devaluation during
2007 (let's see), confirming the obvious: the BRV's use of
the exchange rate as an anchor against inflation, and to try
to compensate for the reduction in real income during the
last several years.

6. (SBU/NF) On the topic of adequate international
reserves, Cabezas said that the adequate level of BCV
international reserves for 2006 was USD 25 billion and for
2007 USD 28 billion. What was above those amounts would be
transferred to FONDEN, without changing the current Central
Bank Law.

7. (SBU) Comment: Both Cabezas and Sanguino (a deputy from
the state of Tachira, and also an economist) were relatively
straightforward in their presentations and responses, despite
some initial stiffness by Cabezas. Both admitted that, while
they were both economists, their job as legislators was
fundamentally a political endeavor. Cabezas mentioned that
the Assembly would be in recess from August 15 - September
15, and he would be coming back to Caracas just once a week
to sign off on mandatory business; beyond that he would be
out campaigning for Chavez.
BROWNFIELD

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