SCENESETTER FOR CODEL JACKSON LEE

UNCLAS SECTION 01 OF 02 CARACAS 000354 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR H AND WHA/AND E.O. 12958: N/A TAGS: OVIP PREL PGOV VE SUBJECT: SCENESETTER FOR CODEL JACKSON LEE CARACAS 00000354 001.2 OF 002 ¶1. (SBU) Embassy welcomes the visit of Congresswoman Jackson Lee, the first congressional visitor to come to Caracas since the April 23-24, 2006 visit of Representatives Delahunt and Meeks. Since winning re-election on December 3, President Hugo Chavez has launched the "socialist" phase of the "Bolivarian revolution." He announced that he intends to implement "five motors of the revolution": 1) an Enabling Law passed January 31 that gives Chavez the power to rule by decree in 12 broad areas for the next 18 months; 2) changes to the 1999 constitution, including the elimination of presidential term limits; 3) a public education campaign to impart socialist ideology; 4) a shift in powers from state and local governments to the central government; and 5) the "empowerment" of local community councils. ¶2. (SBU) President Chavez is already asserting considerably more state control over the economy. Venezuela,s GDP grew by over 10% in 2006, fueled by massive government spending made possible by windfall oil revenues. Venezuelan government expenditures have doubled since 2004. Inflation was 17% last year and is expected to exceed 20% in 2007, easily the highest in the hemisphere, due to government policies that include fixed interest rates (well below the rate of inflation),a fixed exchange rate (which is overvalued by as much as 85% currently),and the government's habit of creating money via off-budget funds. ¶3. (SBU) Much of the increase in government spending has been carried out through the Missions, which provide a variety of social services, mostly to Venezuela,s lower classes. The most popular of these missions are Mercal, which provides subsidized food staples, and Barrio Adentro, which is a medical program staffed by Cuban doctors. While public opinion surveys show wide voter approval of these programs, Mercal has recently been hit with massive shortages and, according to some sources as many as 40% of the Barrio Adentro clinics have been shuttered, putting the lasting power of these programs in serious doubt. ¶4. (SBU) On January 8, President Chavez announced plans to nationalize "strategic sectors" of the Venezuelan economy, including oil production, electrical generation and telecommunications. Since then, the government has signed agreements to purchase Verizon,s 28.5% stake in the local telecom monopoly CANTV, as well as purchase electrical companies in Caracas and Margarita Island from U.S. firms AES and CMS Energy, respectively. The Ministry of Energy and Petroleum is conducting negotiations with the International Oil Companies in the country,s Faja belt to convert the heavy-oil Strategic Associations into joint ventures with the state oil company, PDVSA. It remains to be seen whether or not these negotiations will succeed, but President Chavez has announced that the 4 Strategic Associations (with investments by U.S. firms ExxonMobil, Chevron, and Conoco Philips) will be nationalized by May 1st. ¶5. (SBU) With respect to politics, the Venezuelan president does not face any real checks and balances on his authority. He has stacked the judiciary, the National Electoral Council, the Attorney General's office, and other state institutions with loyal supporters. All 167 members of the National Assembly support the president (the opposition boycotted the December 2005 national elections). Chavez is also governing in an increasingly authoritarian manner. He announced in January that he will not renew the license this Spring of RCTV, a major independent broadcast network. In addition, he announced his plans to form a single pro-government United Socialist Party of Venezuela (PSUV) later this year, giving smaller pro-Chavez parties the choice to either join the party or leave the government. ¶6. (SBU) Despite losing by a wide margin in the presidential race, Zulia Governor Manuel Rosales remains Venezuela's pre-eminent opposition leader. He is leading opposition efforts to propose a separate slate of constitutional changes as well as to participate in local community councils. He is also trying to make his Zulia-based Un Nuevo Tiempo party (UNT) a national party. Nevertheless, the opposition and other sectors of civil society remain divided and weak. The government is supporting parallel trade unions to compete against the independent Confederation of Venezuelan Workers (CTV). President Chavez is putting increasing pressure on the Catholic Church, and the National Assembly is actively considering a law to regulate and restrict international support for non-governmental organizations. ¶7. (SBU) The United States government commended the CARACAS 00000354 002.2 OF 002 Venezuelan people for turning out in large numbers to vote in the last presidential election. In addition, we expressed our interest in working with the Venezuelan government on issues of mutual interest, despite our significant policy differences. A/S Shannon and Ambassador Brownfield have publicly and privately reinforced that interest in recent weeks. Your visit is a timely opportunity to gauge the BRV's willingness to engage on a practical, cooperative agenda. BROWNFIELD