BOLIVAR: POLITICS AND ECONOMICS IN THE LAND OF

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002172

SIPDIS


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

E.O. 12958: DECL: 07/07/2014
TAGS: ECON PGOV VE
SUBJECT: BOLIVAR: POLITICS AND ECONOMICS IN THE LAND OF
HEAVY INDUSTRY

REF: CARACAS 1549

CLASSIFIED BY: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASONS 1.5 B
AND D


1. SUMMARY: (SBU) THE STATE OF BOLIVAR, BY FAR THE LARGEST IN
VENEZUELA IN AREA, IS A REGION WITH ECONOMIC IMPORTANCE MUCH
HIGHER THAN ITS RELATIVELY LOW POPULATION WOULD INDICATE.
(BOLIVAR PRODUCES 100% OF VENEZUELAN ALUMINUM AND GOLD, 90%
OF ITS STEEL, AND ABOUT TWO-THIRDS OF ITS ELECTRICITY.)
DURING ECONOFF'S VISIT TO THE STATE, CONVERSATIONS WITH THE
PRO-OPPOSITION GOVERNOR, HIS PRO-CHAVEZ CHALLENGER, THE HEAD
OF GOV-OWNED INDUSTRIAL COMBINE CORPORACION VENEZOLANA DE
GUAYANA (CVG),THE CHIEF FINANCIAL OFFICER OF PRIVATIZED FIRM
SIDOR (VENEZUELA'S MAJOR STEEL PRODUCER),AND REPRESENTATIVES
OF THE PRIVATE SECTOR PAINTED A PICTURE IN WHICH BIG INDUSTRY
DOES RELATIVELY WELL WHILE THE REST OF THE ECONOMY STRUGGLES,
AND IN WHICH PRO- AND ANTI-CHAVEZ POLITICAL FORCES BOTH CLAIM
THE EDGE. CVG'S DOMINANCE MAY TIP THE BALANCE IN FAVOR OF
CHAVEZ. END SUMMARY.

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POLITICS IN THE PROVINCE
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2. (C) ECONOFF MET JUNE 29 WITH GOVERNOR ANTONIO ROJAS
SUAREZ, ELECTED IN 2000 AS A PRO-GOV CANDIDATE, AND WHO
OFFICIALLY SPLIT FROM CHAVEZ'S FIFTH REPUBLIC MOVEMENT (MVR)
LAST YEAR. ROJAS HIGHLIGHTED SOME OF THE ACHIEVEMENTS OF HIS
ADMINISTRATION, BUT LAMENTED THE LACK OF FUNDS FROM THE
CENTRAL GOVERNMENT. HE NOTED THIS IS A PROBLEM WHICH AFFECTS
ALL STATES, NOT ONLY THOSE WITH GOVERNORS WHO OPPOSE CHAVEZ.
THE GOV IS CONSTITUTIONALLY OBLIGATED TO PROVIDE A CERTAIN
AMOUNT OF ITS GROSS INCOME TO STATE GOVERNMENTS, BUT ROJAS
SAID THE LAST PAYMENT WAS OVER THREE MONTHS AGO, AND
DISBURSEMENTS THEN WERE LESS THAN THEY SHOULD HAVE BEEN. IN
ADDITION, HIS STATE HAS NOT RECEIVED A SINGLE BOLIVAR IN 3
FULL YEARS FROM THE DECENTRALIZATION INVESTMENT FUND (FIDES,
AN ENTITY CREATED IN 1993 TO ASSIST IN THE TRANSFER OF FUNDS
TO THE STATES, AND LAUDED BY THE MINISTRY OF FINANCE AS
RECENTLY AS IN ITS JUNE NEWSLETTER).


3. (C) ECONOFF ALSO MET JUNE 30 WITH FRANCISCO RANGEL GOMEZ,
THE HEAD OF COMANDO MAISANTA (PRO-CHAVEZ RECALL CAMPAIGN
STRUCTURE),WHO ALSO RECENTLY RESIGNED AFTER FOUR YEARS AS
PRESIDENT OF STATE INDUSTRIAL COMBINE CVG TO RUN FOR GOVERNOR
OF BOLIVAR LATER THIS YEAR. HE COMPLAINED THAT ROJAS HAD
DONE NOTHING IN HIS TERM, BUT THEN CONCEDED THAT THE BRAND
NEW AIRPORT TERMINAL WAS IMPRESSIVE. HE PRAISED THE WORKING
OF THE VARIOUS GOV "MISSIONS" IN BOLIVAR, STATING THAT THEY
WERE NOT RUN THROUGH EXISTING GOV INSTITUTIONS BECAUSE THOSE
AGENCIES WERE "DISASTERS." HE ADDED THAT CHAVEZ'S FIVE YEARS
IN OFFICE WOULD NOT HAVE BEEN ENOUGH TIME TO REFORM THOSE
AGENCIES, GIVEN THE "OIL STRIKE" AND THE "COUP." WHEN
ECONOFF POINTED OUT THAT THEY COULD NOT HAVE PLANNED FOR
THOSE EVENTS, HE SAID "FIVE YEARS WOULD NOT HAVE BEEN ENOUGH
ANYWAY."


4. (C) REFERENDUM. BOTH ROJAS AND RANGEL EXPRESSED OPTIMISM
ABOUT THE PRESIDENTIAL REFERENDUM, LOCALLY AND NATIONALLY.
ROJAS THOUGHT ONLY A SLIM MAJORITY WOULD VOTE AGAINST CHAVEZ
LOCALLY, GIVEN THAT IT IS ONE OF THE MOST PRO-CHAVEZ STATES,
WHILE RANGEL PREDICTED A LANDSLIDE FOR CHAVEZ BY A
THREE-TO-ONE MARGIN. RANGEL DISMISSED ALL CHANCES OF AN
OPPOSITION WIN. HE ASSERTED THAT THE FIRMAZO/REPARO PETITION
PROCESS WAS "THE BEST POLL OF ALL" AND IT HAD PROVED THAT THE
OPPOSITION WOULD GET LESS THAN 2.5 MILLION VOTES, ESPECIALLY
GIVEN THAT THE FINAL NUMBER OF APPROVED SIGNATURES INCLUDED
"THE DEAD AND THE FRAUDS." HE SAID THAT CHAVEZ TOLD HIM AT
THE TIME OF THE REPAROS THAT HE WOULD GO TO REFERENDUM AS
LONG AS IT WERE CLOSE, EVEN IF THERE WEREN'T QUITE ENOUGH
SIGNATURES TO TRIGGER IT. ROJAS AVOIDED NUMERICAL
PREDICTIONS, BUT THOUGHT THE OPPOSITION WOULD OVERCOME THE
MANY OBSTACLES THAT THE GOV IS SURE TO PLACE BEFORE THEM,
SUCH AS CVG DIVERTING MONEY FROM INVESTMENT IN ORDER TO FUND
THE CAMPAIGN LOCALLY.


5. (C) ELECTIONS. ROJAS WILL RUN FOR RE-ELECTION, THIS TIME
REPRESENTING THE OPPOSITION. HE STATED THAT HE WAS CLOSE TO
ACHIEVING AGREEMENT FROM ALL PARTIES TO BE THE CONSENSUS

CARACAS 00002172 002 OF 003

UT. INDEED, HE EXPRESSED
CONCERN THAT THE COPEI CANDIDATE MAY HAVE REACHED AN
AGREEMENT WITH THE MVR TO RUN AND TIP THE BALANCE TOWARD
RANGEL BY SIPHONING VOTES FROM ROJAS. ROJAS CALLED RANGEL A
SERIOUS CANDIDATE, GIVEN HIS EXPERIENCE (HE WAS A GENERAL
BEFORE RUNNING CVG) AND POSITIVE RESULTS AT CVG. RANGEL
REFUSED TO CONSIDER DEFEAT A POSSIBILITY, AND DISMISSED ROJAS
AS A "NOBODY." HE SAID THAT THE NEW COMANDO MAISANTA WAS
"TOTALLY DIFFERENT" FROM COMANDO AYACUCHO AND PREVIOUS MVR
CAMPAIGN ORGANIZATIONS, BUT LATER MENTIONED THAT IT WAS
STAFFED BY VIRTUALLY THE SAME PEOPLE WHO RAN THEM.


6. (C) RANGEL MADE THREE OTHER COMMENTS OF INTEREST. THE
FIRST, WHEN ECONOFF MENTIONED THE IMPORTANCE OF MAINTAINING
OPEN DIALOGUE WITH THE DIFFERENT LEVELS OF GOVERNMENT, WAS
THAT HE WAS COMPLETELY CERTAIN THAT CHAVEZ WOULD ACCEPT MORE
OPEN COMMUNICATION WITH THE USG AS SOON AS HE RECEIVED "ONE
FRIENDLY SIGNAL" FROM SOMEONE HIGHER UP IN THE USG, RATHER
THAN STATEMENTS SUCH AS THOSE OF A/S NORIEGA. THE SECOND WAS
THAT SENATOR KERRY'S MOST RECENT STATEMENT ON VENEZUELA WAS
"WELL RECEIVED" BY THE GOV. (RANGEL INTERPRETED IT AS
SUPPORT FOR THE CNE AND ACCEPTANCE IN ADVANCE OF THE RECALL
RESULT.) THE THIRD WAS THAT THERE WAS COMPLETE FREEDOM OF
EXPRESSION IN VENEZUELA. WHEN ECONOFF MENTIONED A JOURNALIST
(PATRICIA POLEO) WHO IS FACING CHARGES, RANGEL SAID "BUT
SHE'S FREE."

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BIG INDUSTRIES BOOMING, OPTIMISTIC
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7. (SBU) MIGUEL DELFINO, CFO OF SIDOR (ORINOCO IRON AND
STEEL, A FORMER CVG COMPONENT WHICH WAS 60% PRIVATIZED IN
1997),PRESENTED A VERY POSITIVE PICTURE. EFFICIENCY NEARLY
DOUBLED FROM 1999 TO 2002, LEADING TO CURRENT PRODUCTION
BEING AT NEAR-RECORD HIGHS. DOMESTIC SALES IN THE FIRST
QUARTER OF 2004 WERE UP 67% FROM THE SAME PERIOD IN 2002
(PRE-GENERAL STRIKE),THOUGH DELFINO ALLOWED THAT AN UNKNOWN
PART OF THESE SALES WERE ENDING UP IN COLOMBIA. (SINCE ALL
SIDOR SALES ARE ALL BASED ON DOLLAR PRICES AT THE OFFICIAL,
FIXED RATE OF EXCHANGE, A BLACK MARKET SALE FOR EXPORT WOULD
BE PROFITABLE FOR LOCALS, GIVEN THE HIGHER PARALLEL RATE.)
THE ONLY REASON THAT PRODUCTION IS NOT CURRENTLY AT AN
ALL-TIME RECORD, ACCORDING TO DELFINO, WAS THE 2004 STEEL
STRIKE (SEE REF),WHICH WAS ONLY RESOLVED WITH GOVERNMENT
INTERVENTION. (NOTE: TO END THE STRIKE, THE GOV, 40% OWNER
OF SIDOR, AGREED TO TRANSFER 20% OF OWNERSHIP TO SIDOR
EMPLOYEES. THIS WAS A STIPULATION OF THE 1997 PRIVATIZATION
AGREEMENT, BUT THE GOV HAD NEVER MOVED ON IT UNTIL THE STRIKE
STOPPED CRITICAL STEEL DELIVERIES TO PDVSA. END NOTE)


8. (C) RAFAEL SANCHEZ MARQUEZ, THE GOV-APPOINTED PRESIDENT OF
CVG, THE GOV-OWNED CONSORTIUM OF BASIC INDUSTRIES (WHICH
DOMINATE BOLIVAR STATE AND INCLUDE HYDROELECTRICITY, GOLD,
ALUMINUM AND LUMBER),WAS SIMILARLY OPTIMISTIC. HE CITED THE
TURN-AROUND OVER THE LAST FOUR YEARS FROM PREVIOUS
MISMANAGEMENT (PRIOR TO RANGEL'S TENURE, ONLY ONE OF CVG'S
BUSINESSES, THE ELECTRIC PRODUCTION, TURNED A PROFIT; NOW
ONLY ONE IS OPERATING AT A LOSS) AND LISTED NUMEROUS NEW
PROJECTS THAT WERE UNDERWAY OR ABOUT TO BEGIN. HE WAS ALSO
PROUD OF CVG'S INVOLVEMENT WITH THE GOV MISSIONS (ESPECIALLY
THE NUMBER OF CUBAN DOCTORS - ONE THOUSAND - WHO ARE IN
BOLIVAR WITH BARRIO ADENTRO),THOUGH SAID THAT CVG
PARTICIPATION WAS LIMITED TO LOGISTICS, TRANSPORTATION, AND
TECHNICAL ASSISTANCE RATHER THAN FUNDS.

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PRIVATE SECTOR DISCOURAGED AT BEST
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9. (SBU) PRIVATE SECTOR REPRESENTATIVES, IN A ROUND-TABLE
MEETING, EXPRESSED FRUSTRATION, POSSIBLY BORDERING ON
DESPERATION. BOLIVAR SEEMS TO HAVE FELT THE ECONOMIC
DOWNTURN MORE THAN MUCH OF VENEZUELA, AT LEAST IN AREAS NOT
DEPENDENT ON THE BASIC INDUSTRIES. SOME PONDERED THAT THIS
MIGHT BE BECAUSE OF ITS DISTANCE FROM THE CAPITAL. SEVERAL
EXPRESSED INTEREST IN HAVING U.S. REPRESENTATIVES FROM
VARIOUS INDUSTRIES (TOURISM, MANUFACTURING, AGRICULTURE,
SCIENTIFIC RESEARCH) COME TO BOLIVAR FOR PROFESSIONAL

CARACAS 00002172 003 OF 003

THE FACT THAT, DESPITE
PROXIMITY, MORE TOURISTS CAME TO BOLIVAR FROM AT LEAST FOUR
EUROPEAN COUNTRIES THAN FROM THE U.S.

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COMMENT
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10. (C) WHILE BOLIVAR HAS ONLY FIVE PERCENT OF THE VENEZUELAN
POPULATION, IT IS IMPORTANT AS AN ENGINE OF ECONOMIC GROWTH
FOR VENEZUELA. THE STATE ECONOMY OVERALL SEEMS TO BE DOING
FAIRLY WELL, CONSIDERING THE RELATIVE IMPORTANCE OF THE MAJOR
INDUSTRIES (CVG AND PRIVATIZED),BUT THE SMALLER BUSINESSES
ARE CLEARLY FEELING THE EFFECTS OF THE NATIONAL ECONOMIC
DOWNTURN, AND THE CONCOMITANT LACK OF FOREIGN INTEREST IN NEW
INVESTMENT. WHILE CVG AND SIDOR CAN EXPECT TO CONTINUE TO DO
WELL, IT IS UNLIKELY THAT THE REST OF THE ECONOMY WILL
APPROVE WITHOUT SIGNIFICANT POLICY CHANGE BY THE CENTRAL
GOVERNMENT, WHETHER IN ITS MACROECONOMIC POLICIES OR
WILLINGNESS TO DISTRIBUTE FUNDS TO PRIME THE PUMP AT THE
STATE GOVERNMENT LEVEL. POLITICALLY, THE SHEER DOMINANCE OF
THE STATE INDUSTRIAL COMPLEX GIVES PRO-CHAVEZ FORCES AN EDGE
IN BOTH THE REFERENDUM AND GUBERNATORIAL RACE THAT MAY BE
HARD FOR THE OPPOSITION TO OVERCOME.
MCFARLAND

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2004CARACA02172 - CONFIDENTIAL