Identifier
Created
Classification
Origin
04CARACAS1548
2004-05-11 21:02:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

FOREIGN EXCHANGE AGENCY: DESPITE CORRUPTION AND A

Tags:  ECON EFIN PGOV VE 
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C O N F I D E N T I A L CARACAS 001548 

SIPDIS


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

E.O. 12958: DECL: 05/06/2014
TAGS: ECON EFIN PGOV VE
SUBJECT: FOREIGN EXCHANGE AGENCY: DESPITE CORRUPTION AND A
BOMB, IS IT BETTER THAN EVER?

REF: A. A) 03 CARACAS 2744


B. B) CARACAS 1515

Classified By: AMBASSADOR CHARLES S. SHAPIRO FOR REASON 1.5 (D)

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

C O N F I D E N T I A L CARACAS 001548

SIPDIS


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

E.O. 12958: DECL: 05/06/2014
TAGS: ECON EFIN PGOV VE
SUBJECT: FOREIGN EXCHANGE AGENCY: DESPITE CORRUPTION AND A
BOMB, IS IT BETTER THAN EVER?

REF: A. A) 03 CARACAS 2744


B. B) CARACAS 1515

Classified By: AMBASSADOR CHARLES S. SHAPIRO FOR REASON 1.5 (D)

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


1. (SBU) Amid considerable press attention on reports of
corruption at CADIVI (the Commission for Administration of
Foreign Exchange) which has led to the dismissal of 50
employees, a pamphlet bomb exploded at their main office in
the early morning hours of April 29. CADIVI's President is
more concerned with corruption in the private sector, and has
revived calls for a law to punish both those who try to cheat
CADIVI and those who conduct parallel market transactions.
FinMin Nobrega has made statements which indicate that CADIVI
is working better than ever, but the facts indicate that
liquidation of dollars is just as slow as it has been. END
SUMMARY.

--------------
AN EXPLOSIVE ACCUSATION
--------------


2. (C) While there have been prior reports of corruption in
CADIVI, it was not until rumors reported in the local press
named one of the directors, Adina Bastidas, as a leader of
the internal "Mafia" that such claims were addressed publicly
by the institution. Bastidas denied such claims, instead
stating that 50 employees (11% of the workforce) have been
dismissed since the inception of the agency for "not working
ethically." The firings appear to have taken place two to
three weeks earlier. CADIVI workers have been accused of
charging a "commission" from 200-400 Bolivares per dollar
exchanged, up to 40% of the difference between the official
exchange rate and that attainable on the black market.

--------------
THERE OUGHTTA BE A LAW
--------------


3. (C) CADIVI President Edgar Hernandez Behrens has sought to
move the issue of corruption at CADIVI in a different
direction. He has made a series of public statements, not
about corruption by employees, but instead about the absence
of a law punishing those who go into the parallel market,
stating "that there is not a law to punish those who violate

the norms that regulate the application for and acquisition
of foreign exchange." He also denounced under-declarations
of exports, over-declaration of and outright falsification of
imports, as well as the presentation of other false documents
in order to obtain approval. Together, in his perspective,
these acts "constitute an imperative and undeferrable
requirement for the health of the foreign exchange policy of
the country." He stated that the purpose of this law is to
"punish those who harm the general interests of the
Venezuelan society." Ricardo Sanguino, a pro-Chavez Diputado
and member of the National Assembly Finance Committee, has
promised that such a law will be completed by the end of May.
COMMENT: The parallel market is deeply entrenched and is
implicit in the structure of the GOV's financial management.
If a law imposing penalties for parallel transactions were
passed, enforcement would likely be sporadic, discretionary
and work as a means to intimidate political enemies. It is
not clear whether the GOV will make this a legislative
priority. END COMMENT.

--------------
A REAL EXPLOSION
--------------


4. (U) At about 3:30 AM on April 29, a bomb exploded outside
of the CADIVI office. No one was hurt, and press reports
indicate it was a pamphlet bomb. The pamphlet was attributed
to Grupo Carapaica (ref B),a violent Marxist group which
claims no ties to Chavistas, but says it supports Chavez'
programs. According to a CADIVI press release, the pamphlet
demanded the departure of corrupt officials from CADIVI,
naming three of the five directors (including Hernandez but
not Bastidas).


--------------
CADIVI IS IMPROVING...ISN'T IT?
--------------


5. (SBU) FinMin Nobrega has attempted to put a positive spin
on CADIVI's efforts, stating that "never before, in any
quarter, has (CADIVI) liquidated more dollars than in the
first quarter of 2004." While this may be technically true
(see ref A and previous),it appears that the increased
liquidations are merely keeping pace with the demand, as the
economy, benefiting from high oil prices and increased
government spending, recovers. Statistics provided to
econoff by the Venezuelan-American Chamber of Commerce show
that 44% of all forex requested of CADIVI by Feb. 20, 2004,
was actually liquidated by the Central Bank (BCV). Daily "El
Universal" reports that the amount of forex liquidated from
Jan. 1, 2004, to Apr. 20, 2004, was also 44% of the amount
requested. NOTE: Such statistics were available on the
CADIVI website (www.cadivi.gov.ve) until February 20, but
have since been removed. It is not clear how "El Universal"
obtained their data, but the results now appear available
only to those who can crunch the massive amounts of raw data
that CADIVI still provides.

--------------
WHY THE DISCREPANCY?
--------------


6. (SBU) Nobrega has claimed that the reason more money has
not been liquidated is that importers' requests were
approved, but they have not had the merchandise shipped. A
BCV employee confirmed to econoff that this is indeed one of
the reasons for lack of money. Exporters are loath to ship
goods without a reasonable assurance that funds will be
forthcoming. Accordingly, many goods are not shipped until
approval is obtained, delaying the final liquidation.
Another reason is that importers get approvals for a specific
amount of exchange. If the amount of the order changes for
any reason, it cannot be liquidated until a new approval is
obtained for the correct amount. It has also been suggested
by our business contacts that in their thirst for cheap
CADIVI dollars, many applicants applied for more dollars than
they ultimately were able to find enough Bolivars to buy.
Hence, their final order cannot be liquidated "on time" by
CADIVI.

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


7. (C) We see no sign that the GOV will eliminate exchange
controls. Chavez's continued interest in accessing Central
Bank "excess reserves" (which would all but melt away in an
open exchange market) implies their indefinite continuation.
We expect the corruption issue to be equally long-lived. It
appears that CADIVI was going to keep the dismissals quiet,
until the accusation against Bastidas became public and the
need arose to go on the offensive. Considering the wait, the
fact may have been reserved for just such a time. Since its
inception, CADIVI has been plagued by complaints of
corruption, and a whole industry of dubious "fixers" and law
firms have sprung up to meet the demand of the new
bureaucracy. Some are simply undertaking the onerous
paperwork that small firms not connected with strategic
industries such as food and pharmaceuticals (which get their
foreign exchange more regularly) cannot manage.
Nevertheless, others are clearly making payoffs to get CADIVI
dollars.


8. (C) That said, at least one veteran government relations
expert for a U.S. firm told us that CADIVI's corruption level
remains well below that of previous exchange control systems
which eventually stopped being a meaningful check on the
validity of foreign exchange transactions. He suggested
that, for now at least, the desire for control by Chavez has
kept corruption in check and that the dismissals reflect this
effort. In our own conversations with Bastidas, we have
found her superficially courteous but very rigid on
substance. As Chavez's Executive Vice President and later
Minister of Production and Commerce, she had a reputation as
a hard leftist. While some bribes are being taken, CADIVI is


first and foremost a tool of the Revolution.
SHAPIRO


NNNN

2004CARACA01548 - CONFIDENTIAL