VENEZUELA: SEEKING IMPROVED TIES WITH COLUMBIA

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000126 SIPDIS E.O. 12958: DECL: 01/29/2019 TAGS: ECON EFIN PREL EINV PGOV VE SUBJECT: VENEZUELA: SEEKING IMPROVED TIES WITH COLUMBIA Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) Summary. In response to the worldwide economic crisis, on January 24, Presidents Uribe and Chavez agreed to create an economic commission focused on binational issues, including a binational fund for microfinance projects. Documented trade between the Bolivarian Republic of Venezuela (BRV) and Colombia reached a high of 6 billion USD in 2008. Similar in scope to other binational agreements announced with great fanfare by the BRV, these proposals will not result in any improvement in Venezuela's trade balance with Colombia, but will keep critical food and other imports flowing across the frontier. -------------- -- Together, Confronting the World Economic Crisis -------------- -- ¶2. (SBU) Venezuelan President Hugo Chavez used his January 24 meeting in Cartagena with Colombian President Alvaro Uribe to bury the rhetoric of a year ago when Chavez brought their bilateral relations to the brink. No longer a "liar" or "lap dog of the Empire," Chavez warmly embraced Uribe and spoke of "fraternity" and "integration." During this meeting, Uribe and Chavez agreed to lay the foundation for stronger economic ties. According to a press release from Chavez's office, the leaders agreed to create an economic commission focused on binational economic issues, including a binational fund for microfinance projects to counteract the "effects of the debacle of capitalism." The binational fund, totaling 200 million USD, will be funded in equal parts by the Government of Colombia (GOC) and Fonden (the Venezuelan Bank of National Development). The fund will finance small and medium firms in both countries, focusing on increased production, employment and trade. The leaders also agreed to form an infrastructure fund, focused on public works in the border region, including the construction of highways and bridges and energy and water facilities. In addition, Uribe and Chavez agreed to create a long-term strategic development fund. The funding amounts and sources for both funds were not disclosed in GBRV press releases. -------------- Trade by the Numbers -------------- ¶3. (SBU) According to preliminary statistics, recorded trade between Colombia and the BRV reached a record high of 6 billion USD in 2008. Cross-border smuggling, particularly related to transportation of subsidized fuel from Venezuela to Colombia, is prevalent as well. The increase in trade, despite political tensions, was driven, in large part, by the BRV's importation of foodstuffs and consumer goods. According to official statistics, trade between the BRV and Colombia is extremely lopsided. For the period of January - October 2008, the BRV exported goods and services worth 739 million USD to Colombia and imported 5.4 billion dollars in goods and services from Colombia. In 2007, these figures were 1.0 billion USD and 3.6 billion USD, respectively. According to the Venezuelan-Colombian Chamber of Commerce (CAVECOL),in 1998, the trade was more balanced, with 1.3 billion USD exported by the BRV and 1.1 billion USD imported by the BRV from Colombia. Never an agriculturally self-sufficient country, Venezuela's increasing trade deficit with Colombia reflected the country's growing demand, fueled by the oil boom. The demand for foodstuffs, particularly, is not expected to fall in 2009, despite growing concerns about the health of the Venezuelan economy. Colombia is the BRV's second most important trading partner, behind the United States and Chavez indicated his expectation for continued trade growth, predicting an increase in bilateral trade to 10 billion USD by 2010. Chavez knows that he needs a steady supply of Colombian foodstuffs and finished goods, in the run-up to the February 15 constitutional amendment vote and beyond. -------------- -------------- A Common Currency for Venezuelan-Colombian Trade? -------------- -------------- ¶4. (SBU) One of the many GBRV press reports covering the Uribe-Chavez meeting stated the countries would begin studying the feasibility of a pilot program for the formation of a unique binational currency. The unnamed currency would be limited in use to specific, as yet undefined, geographic areas within the two countries and used solely for commerce related to energy, fuels and foods. (Note: This currency proposal is not related to the proposed ALBA common currency, CARACAS 00000126 002 OF 002 the SUCRE.) Absent substantive details regarding the functioning of a cross-border unique currency, it is difficult to assess the feasibility or economic benefit of such a program. -------------- A Time for Renewed Foreign Relations -------------- ¶5. (C) Chavez also used the meeting publicly to distance himself from the FARC. When asked by journalists if he still supported the FARC, Chavez snapped back, "if I were supporting any subversive, terrorist or violent movement in Colombia, I wouldn't be here," adding "I want peace, unity and progress." According to one Venezuelan polling firm, in 2008, 70 percent of the voters it polled disapproved of Chavez's support of the FARC. The majority of the 1.5 million Colombians eligible to vote in Venezuela, according to Colombian diplomats in Caracas, were put off by Chavez's public spat with Uribe as well as his affinity to the FARC. These diplomats told PolOff that Chavez was working behind the scenes with Colombian Senator Piedad Cordoba to release FARC hostages to Venezuelan authorities before the February 15 vote. ¶6. (SBU) Following the meeting with Uribe, Chavez announced the appointment of Gustavo Marquez Marin as his new ambassador to Colombia. Currently president of the Venezuelan Commercial bank, Marquez previously served as Ambassador to Austria from 2001 - 2004 and Minister of Integration and Foreign Commerce from 2005 - 2007. Marquez was also a member of the Colombian - Venezuelan Bilateral Border Commission for Maritime Boundaries, a perennial sticking point between the two nations. -------------- Comment -------------- ¶7. (C) Confronted by a mounting worldwide economic crisis and looming monetary shortfall, Chavez is reaching out to a former foe and his country's second largest trading partner in an effort to ensure supply of critical basic goods such as foodstuffs and to improve the balance of trade. Past performance shows Venezuela lacks the capacity to implement ambitious long-term programs that could help diversify its economy and address long-standing supply issues. By courting Uribe in January, Chavez hopes to ensure support for his reelection referendum from the many Colombian expats who vote in Venezuela. CAULFIELD