CHAVEZ ANNOUNCES 30 PERCENT HIKE IN MINIMUM WAGE

UNCLAS CARACAS 000609 SIPDIS SENSITIVE SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MMALLOY NSC FOR JSHRIER COMMERCE FOR 4431/MAC/WH/MCAMERON E.O. 12958: N/A TAGS: ECON ELAB PGOV VE SUBJECT: CHAVEZ ANNOUNCES 30 PERCENT HIKE IN MINIMUM WAGE AND PUBLIC SECTOR SALARIES REF: CARACAS 313 ¶1. (U) Speaking on the evening of April 30 at a commemoration of International Worker's Day, President Chavez announced a 30 percent increase in the minimum wage and in all public sector employees' salaries. The new monthly minimum wage is 799 bolivars (Bs),or USD 372 at the official exchange rate of 2.15 Bs/USD. In his speech, Chavez portrayed the increase as further evidence of his solidarity with the "proletariat." He displayed a chart showing the evolution of the nominal level of the minimum wage over time, claiming that it had taken off "like a rocket" during his tenure. Noting that "monetarists" might criticize the large increase for its inflationary pressure, Chavez affirmed that his government was committed to fighting inflation but would not sacrifice workers' well-being to that fight. With the new increase, Chavez claimed, Venezuela's minimum wage was now the highest in Latin America in dollar terms. ¶2. (SBU) Chavez did not mention that in percentage terms the minimum wage increased more than twice as fast from 1990 to 1998 (the last year before Chavez came to power) than from 1998 to 2008; that a 30 percent increase is actually not very generous in real terms given annualized inflation of 29 percent (Caracas IPC, March 2007 to March 2008); and that the average Venezuelan cannot buy dollars at the official exchange rate, rendering pointless a cross-country comparison of minimum wage in dollar terms. Furthermore, these measures will not directly benefit poor Venezuelans in the informal sector. According to BRV statistics, over 4.6 million people, or 42 percent of working Venezuelans, work in the informal sector. ¶3. (SBU) Estimates vary as to how many people will directly benefit from these measures. President Chavez claimed that over five million people would benefit from the minimum wage increase; press reports have given figures for the number of people receiving the minimum wage ranging from two million to five million; and a university professor who specializes in labor issues estimated the number at 4.2 million. Most estimates put the number of people directly employed by the public sector (including the central government, regional and local governments, and state-owned companies) at 1.2 million. Per the university professor, none of these public sector employees earn the minimum wage, although many of the estimated 800 thousand people who work for government contractors do. Equally importantly, these increases will serve as a benchmark for labor negotiations in the private sector for workers earning more than the minimum wage. ¶4. (SBU) Comment: The amount of the minimum wage increase, traditionally announced on May 1, has been the subject of speculation in Venezuela for weeks, with press reports suggesting the BRV was considering options ranging from 10 to 40 percent. The choice appears to be a compromise between inflationary concerns and Chavez' desire to be perceived as supporting poorer Venezuelans in an election year. Given current inflation, it would have been difficult for Chavez to announce an increase of less than 25 percent. (Note: On April 28 the BRV raised prices on chicken by 85 percent and on pre-cooked cornmeal by 48 percent, highlighting the continuing impact of inflation, especially on poorer Venezuelans (reftel). End note.) The minimum wage and public sector salary increases will certainly have direct inflationary consequences, with press reports stating that the Central Bank estimates the minimum wage hike will lead to an increase in inflation of four percentage points. End comment. DUDDY