AMBASSADOR DUDDY'S VISITS VALENCIA TO PROMOTE THE

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002144

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/02/2017
TAGS: ECON PGOV VE
SUBJECT: AMBASSADOR DUDDY'S VISITS VALENCIA TO PROMOTE THE
PRIVATE SECTOR

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (SBU) Ambassador Duddy's visit to the industrial city of
Valencia on October 31 to November 1, 2007 included meetings
with the three largest American auto manufacturers in
Venezuela, American owned agricultural feed conglomerate
Protinal, three of the largest industrial and commercial
chambers in Valencia, Valencia's Mayor, and a breakfast with
the largest regional daily in Venezuela. Press coverage was
very good, straightforward, and provided the Ambassador the
opportunity to highlight the importance of American
investment to the national economy and in generating jobs.

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American Firm Invested in Venezuela
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2. (C) Upon his arrival in Valencia, the Ambassador visited
Protinal/Proagro, a pioneer in the agriculture and aviculture
business in Venezuela and producer of poultry, animal feed,
and deli products. The company directly employs 4,600
workers, and is majority owned by Ag Processing Inc. (AGP),
the largest farm-owned cooperative and soybean producer in
the United States. Although Protinal publicly claims to
control 18 percent of the poultry market, country manager
Ernesto Vogler Mendoza told the Ambassador that the number is
closer to 28 percent. He added that Protinal has been able
to work around the crippling price controls on poultry by
combining different poultry products in one package and by
selling its products mainly to specialty butchers rather than
supermarkets. In the last four years, Protinal has invested
USD 115 million in Venezuela.

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Regional Chambers Welcome Ambassador
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3. (C) During the Valencia visit, the Ambassador attended a
large luncheon hosted by the Industrial Chamber of the
Carabobo State (CEIC),a reception hosted by Valencia
regional chapter of the Venezuelan-American Chamber of
Commerce, and a lunch with the presidents of the major
Carabobo state commercial chambers hosted by the Venezuelan
Federation of the Chambers of Commerce (FEDECAMARAS)
Carabobo. During a Q & A session, CEIC members expressed
their desire to maintain preferential GSP trade agreements
with the United States and requested support in reducing the
drug traffic coming out of the port of Puerto Cabello,
Venezuela's largest commercial port. The President of the
CEIC also requested that the USG not punish its friends and
supporters in the private sector if the tense political
situation with the BRV were to escalate. Throughout the
chamber events, the participants expressed their gratitude
for the Ambassador's visit and their appreciation of his
message that the private sector, including U.S. companies,
generates jobs and opportunities for the Venezuelan people.

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Hummers and Hubris
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4. (C) The Ambassador met with General Motors Venezuela (GMV)
country manager, Ronaldo Znidarsis and had the opportunity to
tour the plant. With 2718 workers producing 85,000 units in
2007, GMV is the largest domestic assembler of cars in
Venezuela. Although GMV has had some public run-ins with the
BRV, including the recent declaration by President Chavez
that no foreign exchange would go to the importation of GM's
Hummers, Znidarsis told the Ambassador that he was very
optimistic about the auto market and GM's future in
Venezuela. He said that GM's net sales have increased from
USD 321 million in 2003 (the year of the National Strike),to
USD 1.723 billion in 2006, and projected USD 3.192 billion in
sales for 2007. Despite the government's harsh reaction
against the Hummer, Znidarsis told the Ambassador that within
24 hours of launching the website announcing the sale of
Hummers in Venezuela, they sold 800 units, 3,000 additional
units after two weeks, 700 more units after Chavez' speech
denouncing them, and have had only had three cancellations
since Chavez' tirade. GMV was also surprisingly optimistic
about the shortening of the work day from eight hours to six
hours, explaining to the Ambassador that this would
hypothetically allow them to open up a fourth shift,
increasing productivity. Znidarsis also told the Ambassador
that he thought the BRV's new foreign exchange policy for the
importation of vehicles would help large domestic producers
like GMV (septel). GMV also will import 75,000 assembled
units in 2007 from the United States and other Latin American
countries, and forecasts total sales of 160,000 units.

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Chrysler's Wait and See Approach
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5. (C) Like GM, Chrysler's country manager Luis Perez de la
Cruz confirmed that these were indeed profitable times for
the auto manufacturers and importers. Chrysler has a smaller
operation than GM, assembling 14,700 units and importing
7,600 from the United States and Mexico. The Chrysler
country manager also told the Ambassador that the major auto
manufacturers in Venezuela, including GM and Ford, had an
October 30 meeting with the Minister of MILCO Maria Cristina
Iglesias, CADIVI President Manuel Antonio Barroso, and SENIAT
President Velma Mora. During the meeting, the BRV told the
country presidents that the BRV would publish a new policy
for receiving foreign exchange for the importation of
vehicles in Venezuela. The new national plan would "promote
national investment and rationalize imports." Approximately
66 percent of the estimated 450,000 to 500,000 cars sold in
Venezuela will be imported in 2007 while the remaining 33
percent will be assembled locally. (Note: According to the
Venezuelan Automobile Chamber (CAVENEZ),the number of total
cars sold in Venezuela has increased from 134,357 in 2004 to
457,678 units from October 2006 to September 2007, a 241
percent increase. End Note.) Perez de la Cruz also told the
Ambassador that it was nearly impossible for the
manufacturing industry to develop investment plans when the
rules for investment, property, and import policy were so
unclear and constantly changing.

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Ford: Worried About the Future
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6. (C) During the Ambassador's tour of Ford's Valencia plant,
Ford's country manager Gabriel Lopez (strictly protect
throughout) was more pessimistic on the future Venezuelan
auto market. He confirmed that the BRV would announce a new
auto importation policy in the coming days and foresaw that
Ford might have to increase the number of shifts to two a day
to comply with the six hour work day. Lopez also believed
that the wait time for a car in Venezuela could increase from
six months to two years if the BRV were to limit the ability
of car companies to import. He added that the main
challenges for Ford in Venezuela were access to foreign
exchange, draconian labor laws, uncertainty stemming from
constitutional reform, and the long delay in the repatriation
of profits. Ford's wait for foreign currency authorization
has been 70 days, forcing Ford Venezuela to reach its limit
on the credit line available to it in the United States.
Lopez told the Ambassador a constant worry was whether the
BRV would honor its foreign exchange obligations if there
were a devaluation. Previous Venezuelan governments have not
recognized certain obligations following a devaluation. He
added that long delays in profit repatriation and the terms
of local financing have left auto assembly operations
exposed.

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Meeting with the Independent Mayor
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7. (C) The Ambassador also met with Valencia's popular
mayor, Francisco "Paco" Cabrera Santos (strictly protect
throughout),who was re-elected for a third term in October

2004. Cabrera Santos is credited with the revitalization of
Valencia. He described himself to the Ambassador as a
political independent, believing in a low profile approach,
social investment, and modest projects. Despite his
independent spirit, the Mayor was very frank with the
Ambassador in his bleak analysis of constitutional reform,
Chavez' PSUV party, and the BRV's complicity with the drug
trade. The Mayor told the Ambassador that he was very
worried that President Chavez would use the new "reformed"
constitution to centralize power and marginalize opposition
leaders and governors. He also was skeptical that Chavez
wanted the PSUV to succeed, citing Chavez' distaste for the
development of potential rivals. Cabrera Santos also told
the Ambassador that he was convinced that elements of the
BRV, from the police to the National Guard, were complicit in
the trafficking of all contraband including drugs.

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Press Coverage
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8. (U) Press coverage of the Ambassador's visit to Valencia
was excellent, both in print and on television. El

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Carabobeno carried articles both November 1 and 2 on the
visit, including a full page interview with the Ambassador on
November 2. Internet news service "Notitarde" also carried a
piece quoting the Ambassador as to the extent of U.S.
business interests in Venezuela, a theme echoed by all media.
National cable network Globovision carried a long segment
the evening of November 1 from the Ambassador's press
availability the same day, and highly-rated national network
Televen carried footage from the visit on its November 1 and
2 newscasts. All the coverage was straightforward and
factual, and highlighted the business-oriented nature of the
Ambassador's visit to Valencia and his emphasis on the
benefits U.S. companies have generated in Valencia as well as
elsewhere around Venezuela.

DUDDY