SCENESETTER FOR WHA/AND CHACON VISIT - SEPT 12-14

C O N F I D E N T I A L CARACAS 001773

SIPDIS

SIPDIS

DEPARTMENT FOR WHA/AND (ACHACON)

E.O. 12958: DECL: 09/04/2017
TAGS: PREL PGOV PHUM ECON VE
SUBJECT: SCENESETTER FOR WHA/AND CHACON VISIT - SEPT 12-14

REF: CARACAS 001771

Classified By: POLITICAL COUNSELOR ROBERT DOWNES,
REASONS 1.4 (B) AND (D)


1. (C) Embassy welcomes the September 12-14 visit of WHA/AND
Director Arnold Chacon. Your visit comes on the heels of
Ambassador Duddy's arrival at post on August 29 and after the
June 11-15 visit of Special Coordinator for Venezuela
McCarthy. Since winning re-election in December 2006,
President Chavez is eight months into launching the
"socialist" phase of his Bolivarian revolution. Chavez is
currently focusing on changing 33 articles of the 1999
Constitution, including eliminating presidential term limits
and weakening local governments. The National Assembly is
expected to pass Chavez' proposals by November, setting the
stage of a public referendum in early December. The
opposition is divided on whether to mobilize against the
changes or abstain.


2. (C) Chavez' radicalization of his government is less an
ideological project than it is a systematic effort to
concentrate even more power in his hands. Chavez enjoys
sufficient popular support and political control to impose
his ideas, but he is also exacerbating fissures within
Chavismo and spurring greater civil society opposition. The
Venezuelan president has bolstered his popularity with
massive, but probably unsustainable, levels of government
spending. USAID/OTI is supporting NGO efforts to generate
genuine democratic discussion of Chavez' proposed
constitutional changes.


3. (C) Chavez publicly accuses the USG of planning to invade
Venezuela, to assassinate him, and overthrow his government,
complicating prospects for real engagement with the
Bolivarian Republic of Venezuela (BRV). Nevertheless, Vice
Foreign Minister Jorge Valero tells us that he intends to
begin a diplomatic dialogue with Ambassador Duddy on
bilateral issues of common interest. We are seeking meetings
for you with Vice Minister Valero and a prominent member of
the National Assembly, Calixto Ortega, as well as with
opposition and civil society leaders.


4. (C) Chavez efforts to forge a single pro-government party,
the United Socialist Party of Venezuela (PSUV),have been
hampered by organizational problems and internal divisions.
PSUV organizers are concentrating on supporting
constitutional change. Zulia Governor and former opposition
presidential candidate Manuel Rosales has not been able to
keep the opposition united post-election. Rosales' Un Nuevo
Tiempo party and other opposition parties are engaged in
long-term rebuilding efforts. University student protests in
the wake of the government's closure of private broadcaster
RCTV took the BRV by surprise, and students are planning to
renew their activism this fall. The Catholic Church is also
becoming more critical of the "Marxist-Leninist" drift of the
BRV (Reftel).


5. (SBU) Chavez is asserting considerably more state control
of the economy. In addition to completing the
nationalization of key "strategic sectors" which began early
this year -- petroleum, electricity, and CANTV, the nation's
backbone telecommunications company -- proposed draft
constitutional amendments would further consolidate his
vision for "21st Century Socialism." These proposals include
new forms of collective property alongside private property,
reinforcing the ban on monopolies and large land holdings,
expanding sectors reserved to the state; establishing a 6
hour workday (not to exceed 36 hours per week),and removing
the de jure autonomy of the Central Bank.


6. (SBU) Despite Chavez' anti-Americanism, the U.S.-Venezuela
commercial relationship remains robust. Total bilateral
trade in 2006 was USD 46 billion, with Venezuelan exports
exceeding USD 37 billion and U.S. exports reaching USD 9
billion. U.S. exports to Venezuela could reach USD 12
billion this year. Approximately 57 percent of Venezuela's
exports (mainly petroleum) go to the United States, and
Venezuela receives 28 percent of its imports from the United
States. Although Chavez would like to diversify away from
the United States, the commercial relationship is a natural
one, given geographic proximity and other factors. The oil
windfall which has fueled massive government populist
spending and very high GDP growth rates (10.3 pct in 2005 and
2006),has also contributed heavily to the current import
boom.


7. (C) U.S. oil companies have invested over USD 10 billion
in the hydrocarbon sector. Total Venezuelan crude production
is estimated to be between 2.4-2.6 million barrels per day.
Over 60 percent of Venezuelan oil exports go to the United
States. Venezuelan oil exports represent around 11 percent
of U.S. imports. The U.S. firms ConocoPhillips and
ExxonMobil are currently negotiating compensation for assets
taken following PDVSA's assumption of operational control on
May 1 of their investments in the Faja. To date, there has
been little or no progress on compensation, and the companies
are prepared to take the issue to international arbitration
if the matter is not resolved in the near future.


8. (C) There are some signs that Chavez' statist policies
will eventually engender significant economic problems.
Inflation will likely exceed 20 percent this year, rolling
shortages of food staples are common, the parallel rate for
dollars is over twice the official rate, oil production is
stagnant, and not surprisingly there is little private sector
investment given the uncertain business climate. At some
point, even high oil prices may not be enough to keep up with
Chavez' spending programs.

DUDDY