ECONOMIC RAMIFICATIONS OF CHAVEZ' ENABLING LAW:

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000134

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E.O. 12958: DECL: 01/18/2016
TAGS: ECON EINV PGOV VE
SUBJECT: ECONOMIC RAMIFICATIONS OF CHAVEZ' ENABLING LAW:
IS ATLAS SHRUGGING?

REF: A. CARACAS 00091

B. CARACAS 00084

Classified By: Economic Counselor Andrew N. Bowen for reasons 1.4(b) an
d (d).


1. (C) Summary. The National Assembly unanimously passed
preliminary approval of the Ley Habilitante ("Enabling Law")
during a special emergency session on January 18. When fully
approved, probably on January 24, the Enabling Law will
permit Chavez to control the economic pulse of the country.
It gives powers to the President to issue executive orders
carrying the force of law in intentionally vague,
broadly-define dimensions of the economic sphere, including
banking, commerce, taxation and with respect to the general
"social economic environment." With a Chavista-packed
Supreme Court as the backstop, there does not appear to be
any person or institution capable, or willing, to rein in
Chavez' march forward to consolidate his personal political
power and impose his collectivist "socialist" vision. End
Summary.

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Void for Vagueness?
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2. (SBU) The Enabling Law transfers legislative power from
the National Assembly to the President in ten broadly-defined
areas, enabling the President to effectively legislate by
decree (Reftel A). Ostensibly a legal document, the law
reads more like a typical Chavez speech than a piece of
legislation. Whereas a preamble generally sets the stage for
operative provisions of the law itself, the Enabling Law
contains a preamble roughly twice as long as the law's three
articles. The preamble also launches into a diatribe against
the capitalist "hegemonic paradigm." Rumors abound that the
law was drafted by Cuban lawyers close to Chavez.


3. (C) Econoffs met with Elisabeth Eljuri and Victorino
Tejera, attorneys at the Canadian oil and gas law firm
Macleod Dixon (strictly protect). According to Eljuri and
Tejera, the concept of an enabling law is not a new one under
Venezuelan constitutional law and has been used previously on
a number of occasions. In prior enabling laws, including the
previous one under Chavez' presidency in 2000, powers
delegated to the president were strictly limited and the
drafting was tight in scope. Eljuri said that in the 2007
law, the National Assembly was handing Chavez a "blank
check." Bernando Weininger, an attorney at the U.S. firm
Squire Sanders (strictly protect),opined that the National
Assembly has agreed to "let Chavez do whatever he wants."



4. (SBU) During a recent interview on a talk show on the
private television network Globovision and in separate
conversations with PolCouns, Venezuelan Constitutional law
scholar Gerardo Blyde contrasted the 2000 Enabling Law to the
2007 version. Whereas the current law contains ten broad
spheres of activity, the 2000 Enabling Law was a
tightly-drafted document limited to five spheres. The
forty-nine decrees that were a product of the 2000 Enabling
Law were predictable (mostly economic in nature),in Blyde's
view, whereas the 2007 law is intentionally vague with no
clear limits of how far Chavez will be able to go.

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The Mother of All Revolutionary Laws
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5. (SBU) Chavez hit hard with rhetoric on the importance of
the Enabling Law in a speech during the swearing-in of the
Presidential Reform Council on January 17. When Chavez asked
the crowd to name the first of his five motors of
revolutionary change, they responded in unison "Poder
Popular" (People Power). Chavez corrected his supporters and
said that the first pillar of change was the Enabling Law,
calling it "the mother of all revolutionary laws." He
continued in this vein, referring to his cabinet as the
"enabling cabinet" and the "enabling motor" that would not
sleep, as they coordinated, planned, and implemented the
decrees arising from the Enabling Law.


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Nationalizations and Commerce
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6. (C) The Enabling Law opens the door to nationalization by
decree, authorizing Chavez to issue executive orders in the
broadly-defined "economic and social environment." The legal
text reads that the President can dictate norms aimed at
bringing existing institutions and legal standards within the
new "socialist" economic model. Chavez would have the
authority to broadly transform the capitalist "hegemonic
paradigm" (as described in the preamble) into "a collective,
natural order with the systems of production controlled by a
socialist vision." Specifically, the President would be
authorized to "regulate" foreign investment (see Comment,
paragraph 8).


7. (C) Another likely Chavez target with his new powers under
the Enabling Law is the commercial code. In his inauguration
speech, Chavez said that the commercial code was an
impediment to launching twenty-first century socialism.
Eljuri and Tejera told Econoffs that they expected changes to
come to the commercial code, though they were uncertain as to
what form such changes would take. Two rumored amendments
they mentioned were requiring a government member to attend
management meetings of foreign companies, and imposing limits
on profit margins. Eljuri joked about how government
representatives sitting in on partners' meetings at her firm
would be received. Hernando Diaz, managing partner at Squire
Sanders (strictly protect) said that the commercial code was
in need of a major rewrite, but not in the direction he
expected Chavez to take it. (Note: Venezuela's commercial
code dates from 1904 and its last major revision was in 1956.
End Note.) He shared Eljuri's concern regarding oversight of
board and management meetings, adding that a revised
commercial code would likely contain numerous references to a
company's responsibility to the social community and carve
out a privileged place for cooperatives.


8. (C) Comment: By regulating foreign investment and
adapting existing legislation and institutions to a new
social model, Chavez means to bring foreign investment and
publicly-owned companies under the control of the BRV. The
immediate target appears to be CANTV (approximately 90
percent foreign-owned),and the electricity sector, with the
strategic petroleum associations in the Faja of the Orinoco a
mid-range target. With CANTV,s nationalization a fait
accompli in the eyes of its management, the open question is
what form the nationalization would take (Reftel B). End
Comment.

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Finance and Taxation
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9. (C) The Enabling Law also calls for a "re-dimension" to
the Central Bank of Venezuela, another recent Chavez target.
Chavez has stated recently that the independence of the
Central Bank, enshrined in Article 318 of Venezuela's
constitution, is a product of a "negative thesis of
neoliberalism." Banking Superintendent, Trino Alcides Diaz,
described by Eljuri as a leftist ideologue, recently called
it "absurd" to think that the Central Bank had ever been
given complete autonomy constitutionally, and that the bank
would "work together with the executive to propel socialism
in the twenty-first century."


10. (C) Chavez would receive broad, discretionary powers to
stamp his brand of socialism on all aspects of the banking
sector. His potential authority could include the creation
of bi-national funds dedicated to special development
projects (Note: Venezuela and Iran have developed such a USD
2 billion fund and declared that some of its funds will be
made available to third countries),and to "democratize"
credit and access to finance through support of endogenous
development projects and microfinance. Diaz said that Chavez
plans to introduce a banking law within the framework of the
Enabling Law that would create new cooperative banks, and
could require banks to dedicate a part of their earnings to
social development programs.


11. (C) The Enabling Law also gives Chavez broad powers to

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enact measures with respect to taxation. Diaz stated that
decrees would be forthcoming to more strictly control
operations in the Caribbean and other "fiscal paradises."
While stamping out money laundering and tax shelters is a
commendable goal, Chavez' motivation to move against
off-shore tax havens is likely more political than economic.
High net worth individuals and corporations in Venezuela
frequently own assets off-balance sheet for a variety of
reasons- including taxation, favorable accounting treatment
and, in the case of individuals, for personal security
reasons. This would give Chavez increased leverage to move
against potential political opponents.

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Comment
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12. (C) Reference to the Central Bank in the Enabling Law is
a perfect example of Chavez' muddling of legal principles and
disregard for rule of law. One of the fundamental points in
constitutional law is that a legislature can only delegate to
the executive the powers that it itself possesses. The
National Assembly has no power to curtail the independence of
the Central Bank, which would require a constitutional
amendment. This distinction appears to have been lost on
Chavez.


13. (C) The Enabling Law gives Chavez tremendous powers to
stamp his brand of political economy on Venezuela by
executive order, including nationalizing private companies,
foreign and domestic, and dominating the banking and tax
sectors. The law is intentionally vague and provides no
limits on how comprehensively Chavez can interpret the
legislation. There is no reason to think that Chavez will
use any restraint or discretion in exercising these broad
powers.


14. (C) The vagueness of the Enabling Law has prompted an
overall nervousness in the business and legal community as
speculation abounds about how far Chavez will go. We have
noticed a widespread general feeling of hopelessness and
fatalism among educated Venezuelans about being able to turn
around -or even slow down- the "socialist revolution" once
the Enabling Law is firmly in place. As the process moves
forward, more and more mediocrity will predominate the
state-dominated economic sector, making it even harder for
foreign companies to do business and further accelerate the
brain drain.


BROWNFIELD