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