CENTRAL BANK STATISTICS COME UNDER ATTACK FROM

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000207

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E.O. 12958: DECL: 02/12/2019
TAGS: ECON EFIN VE
SUBJECT: CENTRAL BANK STATISTICS COME UNDER ATTACK FROM
BOTH SIDES

REF: 2008 CARACAS 493

Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b)
and (d).


1. (C) Summary: In a recent speech, President Chavez
claimed the Central Bank of Venezuela's (BCV) inflation
statistics did not properly take into account products and
services subsidized by the government. He called on his
Minister of Finance and a member of the BCV's board to
develop a measurement system "adequate to a socialist
economy." Prior to Chavez's speech, an opposition economist
with strong ties to BCV staff alleged the BCV was under
extreme pressure to manipulate various statistics. Shortly
after Chavez's speech, the BCV published a notice that
included a defense of its statistical methodologies. We
would not be surprised if pressure on BCV technical staff to
manipulate data increases this year as the economy worsens
and will be on the lookout for any such indications. End
summary.

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Chavez Sees Upward Bias in Inflation Figures
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2. (SBU) In a February 6 speech devoted largely to touting
investment projects and government-provided credit, President
Chavez questioned the methodology employed by the BCV to
measure inflation. He claimed the BCV's methodology did not
account for free health services provided by Barrio Adentro,
one of the social "missions" created by the government of the
Bolivarian Republic of Venezuela (GBRV). Chavez also argued
the BCV's figures for food inflation were too high as they
did not account for subsidized and at-cost groceries provided
by Mercal, another mission, and PDVAL, a food production and
distribution subsidiary of state oil company PDVSA. Chavez
claimed 90 percent of the population had access to Barrio
Adentro services and 80 percent to Mercal and PDVAL. Chavez
specifically called out Minister of Finance Ali Rodriguez and
BCV board member Jose Khan, urging them to "work actively" to
develop "a measurement system adequate to the socialist
system that is being born." (Note: While Chavez has
complained before about the way inflation is measured, he has
not before, to post's recollection, ordered his appointees so
pointedly to change the system. End note.)

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Opposition Economist Alleges Pressure to Manipulate Data
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3. (C) In a January 27 press conference, Jose Guerra, an
opposition economist and former head of the BCV's economic
research department, alleged the BCV was under extreme
pressure to alter inflation, balance of payments, and GDP
statistics, such that these BCV numbers might soon no longer
be reliable. He told Econoff his sources were former
colleagues still at the BCV. Another former BCV economist
told Econoff that as long as Luis Rodriguez, the long-time
head of the BCV's statistics department, remained in place,
she believed the statistics department would resist political
pressure. Both she and Guerra noted Mercal stores were
already included in the BCV's monthly survey; Guerra stated
Mercal goods comprised 12 percent of the food category in the
survey, a number he claimed was higher than it should be.

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The BCV Responds
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4. (U) On February 9, the BCV published in local newspapers
a notice about the world economic crisis and the BCV's
response. The notice contained standard GBRV language,
including a jab at "neoliberal" economics and the claim that
the crisis had impacted Venezuela less than other countries
thanks to Venezuela's economic and social policies and
savings in funds such as the National Development Fund. It
also contained a spirited, three paragraph defense of the
BCV's statistical methodology, specifically citing the
national consumer price index (CPI). Some opposition
economists such as Guerra claimed the notice was in part a
response to President Chavez's criticism of BCV methodology.

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CARACAS 00000207 002 OF 002


Comment
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5. (C) Local economists do not think the BCV's numbers are
perfect, especially as regards to the balance of payments,
where the BCV relies on PDVSA's figures for the dollar value
of petroleum exports and does not take into account certain
defense imports. But in general, to date, the BCV has
retained its institutional reputation of competence at the
technical level (especially relative to other public
entities) and seems to have resisted politically driven
changes in its statistical methodologies. The 2008 roll-out
of the national consumer price index (reftel),for example,
does not appear to have led to biased results, as some had
feared. Chavez's focus on inflation numbers, and
particularly the food and health categories, indicates their
political sensitivity. We can only believe the BCV's
political leadership will come under increasing pressure to
produce more positive numbers as the economic situation
worsens. We will be on the lookout for indications that such
pressure is leading to the manipulation of inflation
statistics, even though we doubt a more "socialist"
measurement system would fool the Venezuelan consumer. End
comment.
CAULFIELD