BRV RELEASES NATIONAL DEVELOPMENT FUND FINANCIALS

UNCLAS CARACAS 002623 SIPDIS SENSITIVE SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR KINGSMITH AND NGRANT E.O. 12958: N/A TAGS: EFIN ECON PGOV VE SUBJECT: BRV RELEASES NATIONAL DEVELOPMENT FUND FINANCIALS REF: A. CARACAS 0943 ¶B. CARACAS 01336 ¶C. CARACAS 0659 ¶1. (U) SUMMARY: The BRV,s National Development Fund (FONDEN) published a financial statement for the first time since its inception 11 months ago. Coupled with a recent presentation by Finance Minister Merentes, the documents show that Fonden has received USD 14.9 billion in combined Central Bank and PDVSA transfers during that period, and has disbursed 41 percent of the total for projects in the transportation, energy, basic industries, health care, agriculture, financial, defense and housing sectors as of July 7. END SUMMARY. ¶2. (U) According to a July 7 presentation by Finance Minister Merentes, since its inception in July 2005, Fonden has received a total of USD 14.9 billion. This amount includes USD 10.3 billion from the Central Bank (BCV) and USD 4.6 billion from PDVSA (see reftels A and B). According to the presentation, Fonden had spent USD 6.1 billion, or 41 percent of this amount. ¶3. (SBU) The presentation showed that Fonden to date had disbursed USD 6.1 billion across 42 projects in the following sectors: infrastructure (USD 796 million),energy and petroleum (USD 423 million),basic industry and mining (USD 176 million),health (USD 447 million),agriculture and land (USD 364 million),environment (USD 12 million),finance (USD 3.5 billion, of which the majority presumably went toward the purchase of Argentinedebt),defense (USD 77 million) and housing (USD 91 million). The total number of projects envisoned to receive Fonden support is 85. Current frecasts are for a total of USD 10.7 billion to be isbursed from Fonden across all projects with th initial 42 having already received Fonden disbursements. Details regarding specific projects were not included in the presentation. ¶4. (SBU) Spending by Fonden has increased in fits and starts with the largest increase occurring in the March and April, 2006 time frame with disbursements totaling USD 4.4 billion. At the end of June 2006 spending was running at between USD 200 and 500 milion monthly. (NOTE: The BCV is holding approximtely USD 34 billion in foreign reserves. Given tht BRV officials have previously said that the accptable reserve level is in the USD 25 ) 28 billin range, it seems likely that they will raid theBCV again in the future. END NOTE.) ¶5. (U) Th board of directors of Fonden published a statement in the tabloid daily, Ultimas Noticias8 on August 23 which contained asnapshot of Fonden,s balance sheet as of June 30 This was the first official publication from Fondn and listed approximately USD 8.8 billion in curent assets, allocated between projects in execuion (USD 5.4 billion) and unallocated funds for rojects (USD 3.2 billion). The fund had approxiately USD 200 million in reserves and equity. 6.(SBU) The USD 8.8 billion in total assets does not include money already disbursed, apparently including the approximately USD 3 billion spent on Argentine bonds. These dollar-denominated assets were sold to banks and companies in Venezuela (see reftel C) for local currency. However, it is unclear what happened to the proceeds from their sale. At the time of the transaction, the BRV defended the action as a means to combat inflation (reftel C); however, if the proceeds from their sale had re-entered the Venezuelan economy as Bolivars, Fonden would be creating money. Such an action would increase the money supply and drive inflationary pressures. ¶7. (SBU) COMMENT: The publication of this information demonstrates an interesting (if marginal) increase in transparency on behalf of the BRV regarding Fonden and may have been a response to criticism regarding Fonden's transparency. The balance sheet cannot be found on either Fonden or the Ministry of Finance websites and was not reported by any media outlet. END COMMENT. WHITAKER