Cablegate: Economic Fall-Out From Increased Political Tensions

Published: Tue 2 Mar 2004 08:41 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
Sensitive But Unclassified. Please handle accordingly.
1. (SBU) The rise in political tensions over the
revocatory referendum on Chavez's tenure in office and
attendant violence is beginning to spill over into the
economy. The parallel market bolivar/dollar rate has spiked
as has the spread on Venezuelan bonds. It appears, however,
that a planned bond issue will go forward. In the face of
rumors of a possible US embargo on Venezuelan oil, state oil
company PDVSA President made soothing noises, only to be
undercut by inflammatory comments by President Chavez. Food
sector businesses are reviewing their emergency supply plans,
although they see no imminent crisis. There are no problems
with the electrical supply. Some gasoline stations are
closed, causing concerns about supply. Flights at Caracas's
international airport are proceeding as scheduled, although
with many cancellations, presumably because of uncertainties
regarding ground transportation.
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Financial Indicators -- Currency and Country Risk
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2. (U) Even prior to the street protests, political
tensions had taken a toll on international markets'
confidence in Venezuela. In the period following the
February 5 devaluation of the official rate from 1600/dollar
to 1920/dollar, the parallel rate (implicit rate between
CANTV American Depositary Receipts trading on the New York
Stock Exchange and CANTV ordinary shares trading on the
Caracas Stock Exchange) was stable around 3050/dollar.
However, as the prospects for the referendum have grown more
dubious it has moved sharply upward, trading upwards of 3250.
As of March 1, the CANTV rate was at 3303/dollar. By
another measure, that of quasi-legal trading in dollars by
stock market operators, the dollar is trading even higher, at
3. (U) Similarly, Venezuelan country risk, measured as the
spread between its benchmark Global 27 bond and the 30 U.S.
treasury bond, has increased. This spread, which had been
562 basis points (1 basis point = .01 percent) on February 6,
had risen to 619 basis points on February 20 and 635 basis
points on February 27. We understand that as of mid-day
March 2, the spread had climbed to over 700 basis points.
Bond Sale to Go Forward
4. (SBU) In the light of the turbulence in currency and
bond markets there have been questions raised about whether
the GOV will hold off on a long-planned large bond issue
which would roll over existing locally denominated debt into
a mixture of foreign and domestic obligations with longer
maturities. As was the case with previous issues, this one
would have as its principal attraction for buyers the
immediate exchangeability of purchased bonds for dollars at
the official rate. Econcouns asked Ali Lenin Aguilera,
senior advisor to Finmin Nobrega, if the transaction, rumored
to be going forward in the next few days would be delayed
given that the higher interest rate which would have to be
paid. Aguilera responded that the Ministry had consulted
with its investment banker, and would be going forward. Once
the numbers were run, it was clear that the losses from the
higher interest rate would be made up by the fact that
devaluation meant that the GOV would be paying fewer dollars
for the same amount of bolivars on the rollover of locally
denominated debt.
Oil Production Comments
5. (SBU) With Chavez's increasing effort to paint the
current political crisis in terms of USG interference in
domestic politics, rumors of a U.S. embargo on Venezuelan oil
exports (the U.S. counts for 57 pct of Venezuela's crude
exports) have circulated. On February 28, PDVSA President
Ali Rodriguez publicly discounted any rupture in
U.S.-Venezuela energy relations, asserting that "nothing is
heading in that direction," and that "the concern of U.S.
authorities is to maintain normality in these relations."
However, Rodriguez's calm words were overtaken by President
Chavez's fiery remarks in his February 29 speech at which he
suggested that in a crisis the USG might seize CITGO,
Venezuela's downstream chain in the U.S. or otherwise
"blockade Venezuela, but in that case "not a drop of oil
would arrive from Venezuela" and that the U.S. should
remember that it has "plenty of installations here" (that
could be seized in retaliation. (See septel for reporting on
U.S. oil firms' reactions to Chavez's comments.)
Key Services: Food Supply
6. (SBU) Agricultural specialists queried representatives
of the National Supermarket's Association (ANSA) and the
Venezuela Food Producers' Chamber (CAVIDEA) regarding
possible disruptions to food supply as a result of the street
protests. (Note: Some supermarkets were shut down on March
1. Econoff saw long lines in front of some supermarkets on
March 2. End note.) According to the representatives of the
trade associations, a contingency plan for assuring food
supplies is under review, and could be activated within the
next 24-48 hours. Supermarkets may operate under limited
hours, as they did during the December 2002-February 2003
general strike. Although supportive of the political aims of
the opposition strikers, the food sector is concerned about
"effervescence in the street," which can easily turn into
sackings of supermarkets. At the wholesale level, there are
adequate food stocks for three months, they advised.
Key Services: Gasoline
7. (SBU) As of March 2, there were reports (including from
embassy staff) of some difficulties obtaining gasoline, as a
result of filling stations being closed in areas near to
roadblocks, either because managers felt it was unsafe to
open or because they had run out of fuel to sell and had not
received replacement supplies. (Note: Running gas trucks
near areas where burning barricades are up would be obviously
unsafe. End note.) There are, however, other reports of
open gasoline stations, without long lines. A ChevronTexaco
downstream manager told energy officer that the distribution
plant in Guatire, which services Caracas, and the plant
serving northern Valencia are indeed having problems in
delivering fuel. The Texaco station in Las Mercedes (used by
the Embassy) has already run out of unleaded fuel. State oil
corporation PDVSA has assured ChevronTexaco that all
refineries are operating normally and that the only gasoline
problems lie in distribution.
Key Services: Electricity
8. (SBU) A check with a manager at "Electricidad de
Caracas," the utility serving the capital, revealed the
situation to be normal, with electrical power fully
available. Some of the firm's offices, however, had been
closed or had reduced staffing because of transportation
problems. A report that the company's sub-station in
Altamira, the site of some of the most severe street
protests, was false, although there had been some damage to
street lamps. "Electricidad de Caracas" is majority owned by
U.S. power holding company AES, and Chavez's comments about
the possible seizure of U.S. industry in Venezuela in a
crisis had not been well-received.
Key Services: Aviation
9. (SBU) Executives of U.S. air carriers flying out of
Caracas's international airport advised that flights are
proceeding normally, and that air crews who normally
overnight at hotels near the airport, are having no trouble
getting to their planes. However, there have many
cancellations, apparently the result of passenger concerns
about their ability to get to the airport because of problems
on the streets. Taxi drivers are reportedly charging double
or triple their normal airport fares. An official of the
National Institute of Civil Aviation (FAA-equivalent) told
econ specialist that on March 1 there had been some
rock-throwing incidents and temporary blockages of at least
one of the tunnels on the airport highway, but these had been
promptly stopped by police.
10. (SBU) A few days of snarled traffic in Caracas is not
in and of itself likely to provoke any serious economic
crisis. But the fact remains that at its best Venezuela's
economy, severely damaged by last year's strike and the only
minimal recovery since then, is vulnerable to even modest
shocks. If street violence is prolonged, many people, from
Wall Street bond traders to Caracas food shoppers, could
start to panic, affecting the price and supply of both money
and products.
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