BOLIVARIAN DOLLAR DIPLOMACY

UNCLAS CARACAS 000854 SIPDIS SENSITIVE SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR KLINGENSMITH AND NGRANT E.O. 12958: N/A TAGS: ECON EAID PREL VE SUBJECT: BOLIVARIAN DOLLAR DIPLOMACY REF: CARACAS 03227 This Message is Sensitive but Unclassified, please treat accordingly. ¶1. (U) SUMMARY: During the past year President Chavez has undertaken an extensive dollar-diplomacy campaign to win friends and influence countries in the region and beyond. Two recent studies, drawn from Chavez' announcements, place BRV public commitments of support (donations, discounts, government procurements, barter, financing, and investment projects) over this period at USD 16.4 billion and USD 25.8 billion, respectively. While BRV non-transparency makes it very difficult to assess the accuracy of these numbers, we estimate the BRV provided to other countries roughly USD 4-5 billion in sweetheart deals, financial support, and investments -- mostly to Cuba and Argentina. END SUMMARY. -------------- LATIN-AMERICAN COMMITMENTS -------------- ¶2. (U) Julio Borges, former National Assembly Deputy for the State of Miranda (2001-2005) and current Primero Justicia presidential candidate, criticized the BRV for "giving away" a reported USD 16.4 billion to 35 countries during 2005 and the beginning of 2006. The Center for Economic Investigation (CIECA),a private consulting firm, puts the giveaway at USD 25.8 billion over the past seven months. CIECA's inclusion of USD 10 billion for the Fund Against Poverty, which Chavez announced in November 2005 but never established, largely explains the difference in totals. While the two studies suffer from extreme imprecision, they provide a good profile of Chavez' international financial promises (many of which have not been executed) and have drawn public criticism given deteriorating infrastructure and unmet social needs at home. ¶3. (U) While the accounting is very imprecise, the studies do include examples of tangible Venezuelan assistance to Cuba and Argentina. The largest support to Cuba was oil; 98,000 barrels daily (USD 1.764 billion annually) per Borges or 95,000 barrels daily (USD 2 billion annually) per CIECA (note: this is in exchange for roughly 20 thousand Cuban medical personnel supporting the BRV missions. end note). Both studies list Industrial Bank of Venezuela (BIV) financing for Cuba, which we understand to be mainly loan guarantees. Both studies also reported that Venezuela purchased USD 1 billion in Argentine debt and the BRV committed to buy an additional USD 2.4 billion. (Note: according to press reports the BRV purchased USD 2.8 billion in Argentine debt from May 2005 to March 2006, although it has resold a substantial portion of the debt.) Both studies include the barter of Venezuela oil for Argentine meat and industrial products, the purchase of a refinery, as well as agreement (not yet executed) to purchase Argentinian-built petroleum tankers. We estimate that assistance to Cuba was roughly USD 1.8 billion (mostly oil) and financial support to Argentina (mostly debt purchase) was USD 990 million from May-December 2005, increasing to USD 2.8 billion by March ¶2006. ¶4. (U) Venezuela's yet unrealized commitment to purchase petroleum tankers from Brazil and the proposed construction of the PDVSA-Petrobras refinery in Pernambuco, Brazil are highlighted in both studies. CIECA counts Venezuela's commitment to buy 28 tankers from Brazil (USD 3 billion),as compared to Borges' count of 40 tankers (USD 2 billion). Borges places the construction cost of the refinery in Pernambuco at USD 2.5 billion, as compared to CIECA's and our estimate of USD 1.25 billion. It is premature to determine the likelihood of implementation of agreements for Paraguay, Uraguay, and Bolivia, announced in December 2005 and January ¶2006. These include oil at barter and preferential terms, scholarships for students from rural areas, and loans for hospital equipment. ¶5. (U) Neither study includes Chavez' proposed USD 20 billion 9,000 km natural gas pipeline from Venezuela to Argentina. Critics charge that the pipeline is not feasible because Venezuela does not have sufficient gas to pump to meet regional demand. The delivery of the gas over such a long distance would also be prohibitively expensive and cause considerable environmental damage to the Amazon rain forest. -------------- WORLD-WIDE SUPPORT -------------- ¶6. (U) Chavez also reached out to the U.S., the Caribbean, and as far as Indonesia, Mauritania, Mali, Burkina Faso, and Niger. As part of the BRV diplomatic strategy to lobby the U.S. public, Venezuela donated heating oil for poor residents in Boston, New York, Chicago, Rhode Island, Vermont, and Maine (worth USD 200 million per CIECA or USD 10 million per Borges). Venezuela also sold oil at preferential terms to the Caribbean (worth USD 536 million per CIECA or USD 742 million per Borges),in an effort to win support within the Organization of American States. Assistance to Mali, Burkina Faso, and Niger was reportedly humanitarian aide and food, however, the BRV cannot fully account for the funds directed to support aid to Africa. However, in November 2005, the BRV could not confirm how much of the aid to Africa had been obligated for the purchase of medical and food supplies (reftel). In Indonesia, the BRV will reportedly support the construction of an educational center. -------------- JULIO BORGES STUDY -------------- ¶7. (U) The table below shows Julio Borge's analysis: USD thousands UNITED STATES Study to Clear Hudson River 100 Citgo Heating oil 200,000 Public Propaganda 180 TOTAL 200,280 CUBA Construct homes 2,000 Financing for Refinery 43,000 Electricity Project 20,000 Endogenous Development Project 5,682 Distribution of Petroleum 1,764,000 Cuban Debt 3,000,000 BIV financing for Construction Ministry 10,000 BIV financing for Cubana de Petroleo 20,000 BIV financing for lubricant and oil plant 47,000 BIV financing for tourism sector 10,000 Salaries for Cuban Doctors 96,000 TOTAL 5,017,682 DOMINICAN REPUBLIC Infrastructure loan 156,400 TOTAL 156,400 DOMINICA Donation for construction of new airport 10,000 TOTAL 10,000 PUERTO RICO Chicago Festival 2005 donation 100 250,000 barrels of oil 1.5% discount 150 TOTAL 250 CARIBE Fondo Alba-Caribe Finance for Social and Economic Programs 50,000 Petrocaribe- 72,000 barrels of oil 742,000 TOTAL 792,000 ECUADOR Public bonds 25,000 TOTAL 25,000 BRAZIL 40 Petroleum Tankers 2,000,000 Refinery 2,500,000 Samba School 1,000 TOTAL 4,501,000 BOLIVIA Diesel at 10% discount 851 Barter of Diesel for Agriculture Products 150,000 Donation to Bolivia 30,000 Scholarships 5,815 Network of community radios 1,500 TOTAL 188,166 PARAGUAY 13,000 barrels/day of gasoil and 18,600 barrels/day of petroleum at generous conditions 100,000 TOTAL 100,000 URUGUAY 43,600 barrels/day of petroleum 40,000 Donations for Refinery la Teja 600,000 Purchase of Alcohol Carburante 7,000 Barter of Petroleum for Goods and Services 200,000 Loan to Equip an Industrial Plant 7,000 CADAFE Exchange with UTE 10,300 Loan for Social Development Ministry 3,000 Loan for Hospital 17,500 Assistance to Uruguayan Businesses 5,000 TOTAL 889,800 ARGENTINA Repair of four tankers 6,450 Purchase of 2 Petroleum tankers 120,000 Argentine Bonds 1,000,000 Barter of 5 million barrels of oil/day for meat 200,000 Barter of 4 million barrels of oil/day for industrial products 340,000 Refinery Rhasa 100,000 Argentine Bonds 2,400,000 Line of credit for cooperatives 3,000 TOTAL 4,169,450 INDONESIA Technology Institute 2,000 TOTAL 2,000 MAURITANA Food Assistance 500 TOTAL 500 MALI Humanitarian Aid 800 TOTAL 800 BURKINA FASO Food Assistance 1,000 TOTAL 1,000 NIGER Food Assistance 1,500 TOTAL 1,500 JAMAICA Highway 2000 300,000 Donation for the Petrojam Refinery 7,000 TOTAL 307,000 TOTAL 16,362,828 ADDITIONAL - TELESUR 51% of the shares are for Venezuela 10,000 TOTAL 10,000 -------------- CIECA STUDY -------------- ¶8. (U) The table below shows CIECA's analysis: USD million AMERICA 04/11/2005 Fund to Fight Poverty 10,000 TOTAL 10,000 ARGENTINA Refinery Campanas 100 Foreign Debt I 500 04/07/2005 Cooperatives 3 12/08/2005 4 million barrels of fuel oil 340 12/08/2005 Construction of 2 tankers 112 16/09/2005 Foreign debt II 500 20/12/2005 Foreign debt III 2,400 TOTAL 3,955 BOLIVA PetroSur: 5,000 barrels/day, USD/barrel 45, 1 year 30% financing 33 04/01/2006 Social Works 30 TOTAL 63 BRASIL 30/09/2005 Refinery at Permanbuco (50%) 1,250 04/11/2005 28 tankers for PDVSA 3,000 17/12/2005 Plant 125 TOTAL 4,375 CARIBE 30/06/2005 Petro-Caribe 50 11/09/2005 Petro-Caribe 98,600 barrels/day, USD/barrel 45, 1 year, 30% financing 486 TOTAL 536 CUBA Electronic Project for Habana 20 BIV ) Instalation, Capitalizacion 80 BIV 400 Petroleo 2006, USD 45/barrel, 95,000 barrels/day 1,560 22/08/2005 PDVSA/BIV- &Endogenous Development8 8 02/09/2005 BIV ) Linea de Cred Exp venezolanas 87 11/09/2005 Petroleo:95,000 barrels/day, USD/barrels 45, 1 year, 100% financing 2,080 17/09/2005 BIV-Housing 50 08/10/2005 Refinery at Cienfuegos 65,000 barrels/day 58 TOTAL 4,343 ECUADOR 08/12/2005 Bonds 25 TOTAL 25 UNITED STATES 04/09/2005 CITGO ) Donation for Katrina 5 22/11/2005 Subsidy for heating oil 10 TOTAL 15 GUYANA Loan Forgiveness 12 TOTAL 12 INDONESIA 20/08/2005 Educational Center 2 TOTAL 2 JAMAICA 08/10/2005 Refinery Kingston, con Petrojam 36,000 barrels/day to 50,000 barrels/day 300 03/01/2006 Highway 2000 300 TOTAL 600 PARAGUAY 11/09/2005 Petroleo 1 - 8 million barrels/day USD/barrels 45, 1 year, 30% financing 624 10/12/2005 Expansion of Elisa Refinery 0 TOTAL 624 REPUBLICA DOMINICANA 17/09/2005 Infrastructure 156 TOTAL 156 URUGUAY PetroSur: 43.6 M barrels/day, USD/barrels 45, 1 year, 30% financing 287 29/07/2005 Refinery La Teja 600 29/07/2005 CASA )food purchases 12 18/11/2005 Trust for barter of petroleum for food 200 08/12/2005 Improvement of hospital infrastructure 1 09/12/2005 Support for firms for workers 5 09/12/2005 Alcohol carburante 7 09/12/2005 Hospital de Clinicas 10 10/12/2005 Children's Center 3 10/12/2005 Cadafe-UTE Exchange 10 11/12/2005 BANDES: financing for entrepreneurs 3 14/01/2006 Firms 5 TOTAL 1,143 TOTAL 25,849 -------------- COMMENT -------------- ¶9. (SBU) To date, Chavez' give-away campaign has been much more rhetoric than dollars; however, in several specific cases we are talking real money, such as Cuba, Argentina, and perhaps Bolivia. In other cases, the public perception is that Chavez is giving away free oil, money, or supplies, when he actually only promises a discount, generous financing, a purchase, or an investment. Whether all this translates into eventual strengthened concrete political support or countries will simply take the money, smile and run is an open question. ¶10. (SBU) However, by the end of 2006, we estimate the BRV's National Development Fund (FONDEN) will have received USD 17 billion in transfers from the BRV (read: Central Bank and PDVSA transfers),some of which Chavez could divert to support his diplomatic initiatives without any effective public scrutiny or oversight. The BRV could strategically deposit or "invest" FONDEN funds (as it reportedly did to purchase Argentine bonds),purchase imports from targeted countries (e.g., products potentially displaced by U.S.-third country FTAs such as Bolivian soybeans),or directly fund various projects abroad. BROWNFIELD