CHAVEZ' FIRST DECREE UNDER THE ENABLING LAW:

UNCLAS SECTION 01 OF 02 CARACAS 000404 SIPDIS SENSITIVE SIPDIS TREASURY FOR KLINGENSMITH AND NGRANT COMMERCE FOR 4431/MAC/WH/MCAMERON NSC FOR DTOMLINSON ENERGY FOR CDAY, DPUMPHERY, AND ALOCKWOOD E.O. 12958: N/A TAGS: ECON PGOV VE SUBJECT: CHAVEZ' FIRST DECREE UNDER THE ENABLING LAW: DECREE LAW AGAINST SPECULATION AND HOARDING REF: A. CARACAS 264 ¶B. CARACAS 358 ¶C. 05 CARACAS 1067 ¶1. (SBU) Summary: The decree-law against speculation and hoarding, the first executive decree introduced by Chavez under the Enabling Law, was published, as amended, in Venezuela's Official Gazette on February 21. This measure criminalizes the hoarding and price speculation of food products subject to government price controls. It defines all stages of the production cycle for regulated foods as within the ambit of "public utility and the social interest." It empowers Chavez to expropriate any business that fits this sweeping definition to protect "food security and sovereignty." Rather than remedy retrograde price controls and distortions, Chavez has made "capitalists" of the food industry the scapegoat for the BRV's economic inefficiency and increasing difficulty in delivering food security. The BRV has already invoked the decree-law to occupy two "abandoned" slaughterhouses. The decree-law also entrusts grass-roots Community Councils with monitoring local compliance and enforcement. End Summary. -------------- Purpose, Scope and Applicability -------------- ¶2. (SBU) The "Decree Law of Popular Defense against hoarding, speculation, boycott, and any other conduct that affects consumption of food or products submitted to price controls" was published as Decree Number 5197 in the BRV's Official Gazette on February 16 and reprinted on February 21 due to a printing error. This decree-law is the first promulgated by President Chavez since the National Assembly unanimously approved the Enabling Law giving him diktat powers on January 31 (Reftel A). Article 1 lays out the legal objective, tracking the language in the title word-for-word, and notes that the National Executive (read: Chavez) and Consejos Comunales (Community Councils) have the authority to regulate its application. ¶3. (SBU) The decree-law casts a wide net with respect to the scope of both activities and entities to which it applies. Article 3 states that the decree-law applies to natural or legal persons, Venezuelan or foreign, who participate in any phase of the chain of production, distribution, and commercialization of food or products subject to price controls. ¶4. (SBU) Article 4 defines the scope of economic activities potentially subject to expropriation and criminal and administrative penalties. It states "It will be declared for the public utility and social interest, all of the assets needed to develop activities of production, construction, importation, transportation, storage, distribution and commercialization of food or products subject to price controls." This clause paves the way for Chavez to initiate expropriation proceedings of any business that meets this sweeping definition if he deems it necessary, in his sole discretion, to protect food security. ¶5. (SBU) Article 5 defines all of the stages of the production cycle as a "public service" that should continue in a "regular, efficient, uninterrupted manner, with attention to the satisfaction of collective needs." If the flow of services does not operate in the manner described, Chavez is authorized to take "all necessary measures" to correct the problem. -------------- -------------- Administrative and Criminal Sanctions, Preventive Measures -------------- -------------- ¶6. (SBU) Administrative sanctions are applicable to the following actions: alteration of quality or price, refusing to sell, or selling products that have expired or are in poor condition. Sanctions may include temporary closure of the establishment and a maximum fine of 5,000 tax units (approximately USD 87,500). ¶7. (SBU) The decree-law defines the following activities as criminal: hoarding, speculation, fraudulent altering of CARACAS 00000404 002 OF 002 prices, boycott, and exporting controlled products produced for the domestic market. These crimes are punishable by prison terms ranging from 2-6 years and fines from 130-20,000 tax units (approximately USD 2,275 to USD 350,000.) In addition, businesspeople who hoard, speculate, or violate price controls may be banned from exercising their profession for a 10-year period. Article 25 provides for double fines and penalties when the conduct intends to threaten the "social peace" and "destabilize democratic institutions." ¶8. (SBU) Chavez is authorized to take preventive measures to guarantee food security. These measures may include temporary occupation of facilities or closure for 90 days, product confiscation, or other measures to guarantee the "collective good." -------------- Role of Community Councils -------------- ¶9. (SBU) This decree-law authorizes Community Councils to ensure compliance with price controls and take the initial steps of an enforcement action. Community Councils were established under the law in April 2006 as grass-roots political organizations (Reftel C). Article 6 confers Community Councils the function of forming "Social Committees Against Hoarding." These committees have the authority to investigate alleged violations of the decree-law and recommend to Community Councils that Chavez take the appropriate enforcement or preventive measures. The committees are responsible for verifying the supply of regulated food products in local stores and monitoring compliance with the price control regime. The councils are also responsible for promoting grass-roots education and awareness in the community with respect to food security. -------------- -------------- Initial Reactions and First Temporary Occupations -------------- -------------- ¶10. (SBU) The early effects of the decree-law are already beginning to show. The BRV has invoked the preventive measures provided for in Article 13 to occupy two slaughterhouses, Fricapeca in Perija and Frigorifo Industrial in Barinas, said to be "abandoned." The Perija facility reportedly has a capacity to slaughter 1,600 animals, but on average, killed only between 800 to 1,000. The slaughterhouse in Barinas has been closed for the past three years. Local newspapers have also reported that wholesalers are refusing to deliver white sugar, black beans and chicken, because abiding by government price controls would force them to sell at a loss. -------------- Comment -------------- ¶11. (SBU) The decree-law against hoarding and speculation is the first of many purposely vague legal measures that Chavez can be expected to dictate under the Enabling Law to further centralize power in his hands. The measure places a large segment of the Venezuelan economy at Chavez' unfettered whim as potential targets of expropriation, temporary closures and criminal sanctions. Rather than remedy retrograde price controls and distortions, Chavez has, not surprisingly, made "capitalists" of the food industry the scapegoat for the BRV's economic inefficiency and increasing difficulty in delivering food security. Empowering Community Councils exemplifies Chavez' strategy of strengthening parallel pro-government grass-roots movements to further weaken traditional Venezuelan political institutions. It also establishes the dangerous precedent by which Venezuelan citizens will be enlisted by the state to perform a quasi law-enforcement function. End Comment. BROWNFIELD