CHANGE IS IN THE AIR IN ECONOMIC MINISTRIES AS

UNCLAS SECTION 01 OF 02 CARACAS 000033

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E.O. 12958: N/A
TAGS: ECON PGOV EFIN VE
SUBJECT: CHANGE IS IN THE AIR IN ECONOMIC MINISTRIES AS
CABEZAS IS NAMED FINANCE MINISTER

REF: CARACAS 3565


1. (SBU) SUMMARY: Rodrigo Cabezas, Chairman of the National
Assembly's Finance Committee, will be Venezuela's next
Finance Minister, replacing current Finance Minister Nelson
Merentes. The change is part of a larger re-shuffling of
positions by Chavez and will likely be followed by more
announcements in advance of his inauguration on January 10.
Cabezas, a member of Chavez's political party (MVR),has been
a staunch supporter of the concept of "Socialism for the XXI
Century," whatever that means. END SUMMARY.


2. (SBU) On January 4, Rodrigo Cabezas held a press
conference to announce that he had been called by President
Chavez the night before and asked to assume the position of
Minister of Finance. Cabezas has been an active member of
the AN and very vocal as the President of the Finance
Committee. He was a leading advocate of transferring
"excess" Central Bank (BCV) reserves to the National
Development Fund (FONDEN) and for plans to remove 3 zeroes
from the Venezuelan currency. (Note: Chavez recently
announced that an additional USD 7 billion will be
transferred from BCV reserves to FONDEN. End Note.)


3. (SBU) Cabezas has also been critical of the BCV's
inability to contain inflation, which was 17 percent in 2006,
though his proposal to lower the value-added tax was widely
derided as ineffective and likely to actually contribute to
inflation. Cabezas has said that he intends to work more
closely with the BCV than his predecessor, which may be read
as future plans to eliminate the BCV's (already tenuous)
constitutional autonomy and to further subordinate monetary
policy to fiscal policy. Cabezas has announced that deputy
Rafael Isea, currently a member of the Finance Committee and
a former military officer who participated in the 1992 coup,
will become a Vice Minister of Finance. Additional changes
at the ministry and the institutions (such as state-owned
banks) it controls are likely.


4. (SBU) During EconCouns's last meeting with Cabezas in July
2006 (reftel),he was straightforward in his defense of BRV
economic policies, which even he couched as more political
than economic. He has been receptive to Embassy meeting
requests in the past and rarely speaks out about
U.S.-Venezuelan relations. Cabezas did, however, quickly and
loudly denounce the U.S. Ambassador in 2005 after a visit to
Zulia during which the Ambassador signed a series of
agreements with the state government.


5. (SBU) It has concurrently been reported that Jorge
Giordani will continue in his role as Minister of Planning
and Development and Rafael Ramirez will remain in charge of
the Ministry of Energy and Petroleum and President of PDVSA.
In addition, El Nacional reported that the Minister of Light
Industry and Commerce (MILCO) will be replaced, possibly by
former CADIVI President Mary Robles. Meanwhile, Minister
Merentes has announced that he will fill a position on the
BCV's board of directors, reportedly replacing Giordani as
the executive branch's representative on the board, and has
said that he looks forward to returning to teaching math at
the Venezuelan Central University. If the rumors of his
side-dealings in bond sales are to be believed, it should be
a very comfortable retirement.


6. (SBU) COMMENT: The move of Cabezas and Isea from the AN to
the Finance Ministry is consistent with Chavez's increasing
use of parliamentarians, such as former speaker Nicolas
Maduro, to fill cabinet positions. Despite claims that he
was already planning to retire from the National Assembly,
Cabezas has clearly been gunning for the job for some time.
In recent months he has often preempted Merentes by
announcing growth figures and gotten ahead of the government
on issues such as inflation. Cabezas faces a difficult
juggling act as excess liquidity caused by government
policies and heavy spending push inflation higher, while
tools to fight inflation are limited by political
considerations. END COMMENT.


7. (SBU) BIO NOTE: Cabezas is 50 years old and has been a
member of the National Assembly (AN) since 2000. Before
that, he served as a deputy in the Venezuelan Congress since

1990. He represents his home state of Zulia and before being

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named Finance Minister, rumors had it that he was interested
in the governorship of Zulia, currently held by former
opposition Presidential candidate Manuel Rosales. Cabezas
graduated from the University of Zulia and was a professor
there of Economics. He has been active in obtaining
financing for his university, including creating the
Institute of Economic and Social Investigation and a
postgraduate program in Humanities and Education. Not only a
public servant, Cabezas also owns a company in Zulia that is
rumored to have uncanny success in winning PDVSA contracts,
though no formal accusations of corruption have ever been
made. END NOTE.


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