MEETING WITH OUSTED FX COMMISSION PRESIDENT AND

C O N F I D E N T I A L CARACAS 001898 SIPDIS NOFORN SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR KLINGENSMITH AND NGRANT COMMERCE FOR 4331/MAC/WH/MCAMERON E.O. 12958: DECL: 06/19/2026 TAGS: EFIN ECON PGOV VE SUBJECT: MEETING WITH OUSTED FX COMMISSION PRESIDENT AND VIEWS ON NEW POLICY DIRECTION Classified By: Andrew N. Bowen, Economic Counselor, for Reason 1.4(b). -------------- SUMMARY -------------- ¶1. (C) Econoffs met with ousted Foreign Exchange Commission (CADIVI) President Mary Espinoza de Robles (protect) June 19. Espinoza said she "resigned" her position June 7 because the CADIVI Board continued to impose random requirements (not supported by law or regulation) on foreign currency requests to pay dividends, royalties, and foreign debt, in order to slow dollar outflows. She described her successor, Manuel Barroso, as a low-ranking military officer (major) and Chavez loyalist, with no background in finance. In the months ahead, she predicted the BRV would tighten the availability of foreign currency to the private sector through CADIVI. She also expected BRV ministries to reduce the list of authorized imports automatically eligible to receive foreign exchange (read: import substitution) and to favor selected companies with special import permissions (read: political favoritism). End Summary. -------------- HER RESIGNATION -------------- ¶2. (C) Mary Espinoza de Robles told econoffs during a meeting at the Embassy on June 19 that she resigned her position as the Foreign Exchange Commission (CADIVI) President on June 7 because the CADIVI Board of Directors continued to add new requirements for foreign currency requests to pay dividends, royalties, and foreign debt that were not supported by law or regulations. According to Espinoza, this was an effort to slow capital outlfows/repatriation and had resulted in the delay of more than 1,200 pending applications. She argued that the BRV should change the regulations and apply any new requirement to applications received after new regulations were adopted. Espinoza also noted that all foreign exchange request applications were now being reviewed to ensure that companies complied with the new labor solvency requirement (a certification issued by the Labor Ministry that a company has complied with national labor laws that is valid for one year),which came into effect in May 2006. This certification is required if a company wants to access public funds, government contracts, or CADIVI dollars. (Note: CADIVI had announced that it would approve pending foreign exchange requests submitted prior to May 1, 2006, without the labor solvency certification. However, after May 1, 2006, CADIVI would withhold authorization to liquidate foreign exchange, pending receipt of the certification. End Note.) -------------- NEW CADIVI LEADERSHIP -------------- ¶3. (C) Espinoza described the new CADIVI President, Manuel Barroso, as a low ranking military officer (major) and Chavez loyalist, with no specialty in finance. That said, Barroso is currently President of the BRV-owned Bank of the People (which extends micro-credits) and a Principal Director of the BRV's Treasury Bank (positions which he apparently will retain). In the months ahead, she predicted that Barroso would implement measures to further restrict foreign currency authorizations. Citing her prior Central Bank (BCV) experience and describing herself as &always more technical than political,8 Espinoza speculated that the BRV appointed Barroso to replace her because he would be easier to manage. Espinoza said that she "managed with her door open," but that Barroso would "manage with his door closed." She added that some senior technical staff had left CADIVI following her resignation and that Barroso would bring in technical staff from the Bank of the People. -------------- NEW POLICY DIRECTION -------------- ¶4. (C) Espinoza noted that in 2006, CADIVI approvals had reached USD 90-100 million daily, of which 80 percent were for imports (mostly consumables but increasingly intermediate and capital goods). The day after Espinoza resigned, President Chavez declared publicly that CADIVI should not continue to approve dollars for the Venezuelan oligarchy to import luxury goods, such as whisky, cigarettes, and luxury cars. Espinoza expected BRV ministries to further limit imports into Venezuela using their powers to authorize imports for foreign exchange. She said that BRV ministries, depending on their area of responsibility, designated 5,991 tariff (lines) codes as "priority (import) items" that automatically received foreign exchange through CADIVI. The ministries could also grant import permission for items not on the authorized list that are in insufficient supply or not produced in Venezuela. In the months ahead, Espinoza de Robles believed that the ministries would move to limit the list of authorized items based on domestic production levels and possibly grant selected import permissions to specific companies rather than general permissions. (Note: According to Espinoza, whisky imports have increased from USD 22 million in 2005 to USD 44 million in the first quarter of ¶2006. She added that Chavez's statements following her resignation contradicted a recent agreement between the BRV and Europe to import more whisky. End Note.) ¶5. (C) Moving to the topic of import data collection, Espinoza noted that CADIVI only handled foreign exchange requests for the private sector. BRV ministries, the Treasury Bank, other decentralized agencies and the Social Economic Development Bank (BANDES),among others, obtain foreign exchange directly from the Central Bank (BCV). She said that BRV has no good statistics for public sector imports, which she described as significant. For example, imports for the BRV-supported supermarket chain Mercal and its purchasing arm CASA (Agricultural Supply and Security Corporation) are not registered. (Note: Mercal is a food distribution network, with 47 percent of the domestic food market (by volume, 15-20 percent by sales),which reaches 15.2 million people (over 60 percent of the population). CASA, Mercal's food purchasing enterprise, is responsible for coordinating both imports and domestic procurements. End Note.) According to Espinoza, BRV imports bypass CADIVI and the Venezuelan tax authority (SENIAT) staffs at the ports of entry that verify merchandise. She had suggested to the Economic Cabinet that they allow CADIVI to collect statistics on public imports in the future, but this suggestion was not well-received. -------------- COMMENT -------------- ¶6. (C) Comment: Espinoza de Robles repeatedly stressed her technical background and prior BCV experience to differentiate herself from her successor Barroso. During her tenure, CADIVI significantly improved the efficiency of its operations to where it now works in a generally predictable and transparent manner. (Note: While there are a number of exceptions, this is true for most priority products and the number of business complaints brought to Post's attention has declined substantially over the past several years. End Note.) She also maintained relatively open relations with the Embassy, the business chambers, and occasionally worked to resolve problems in specific cases. There have been rumors of possible corruption related to Espinoza's husband that may have also contributed to her departure but we have no way to substantiate this. Nevertheless, with her departure, we anticipate less access to her successor, a CADIVI that is more political and less transparent in its orientation, and increased challenges for U.S. companies and those local companies wanting to buy goods and services from the United States. End Comment. -------------- Additional Bio Data -------------- ¶7. (U) Barroso's previous positions include: Assistant to the President's Chief of Staff, Assistant to the Vice President of the Republic, Director General for the Infrastructure Minister's Office, and Management Director and Director of the President of the Republic's Office. Barroso completed a Bachelors degree in Science and Military Arts, with a specialization in Business Management and completed three semesters of graduate level work in Labor Management and Labor Relations. BROWNFIELD