CADIVI CUTS MAXIMUM DOLLAR ALLOCATIONS TO

C O N F I D E N T I A L CARACAS 000003 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR RJARPE NSC FOR JSHRIER COMMERCE FOR 4431/MAC/WH/JLAO E.O. 12958: DECL: 12/31/2018 TAGS: ECON EFIN PGOV VE SUBJECT: CADIVI CUTS MAXIMUM DOLLAR ALLOCATIONS TO TRAVELERS BY HALF REF: A. CARACAS 1758 ¶B. CARACAS 647 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (U) CADIVI, the government of the Bolivarian Republic of Venezuela (GBRV) entity that administers foreign exchange, cut the maximum dollar allocations to Venezuelans traveling abroad by half for 2009. Each individual will be allowed to spend up to USD 2,500 abroad on his or her Venezuelan credit card, down from USD 5,000 in 2008. The maximum one-time pre-travel cash allocation will drop from USD 600 to USD 500, and the maximum allocated for credit card purchases over the Internet from Venezuela remains the same, at USD 400 per year. ¶2. (U) The cut comes as no surprise, as Minister of Finance Ali Rodriguez indicated December 19 that one was forthcoming (though he did not mention the magnitude; ref A). The purpose, as Rodriguez indicated, is to save dollars in a period of low oil prices. Per CADIVI's website, in 2008 CADIVI has authorized reimbursement to banks of USD 4.5 billion for credit card purchases and USD 333 million for cash for travelers through December 19. In the regulatory note defining the cut, CADIVI also included several provisions to try to reduce fraud, including a moratorium of six months for newly issued credit cards and a measure designed to make it harder to receive reimbursement for purchases made just across the Venezuelan border. -------------- Comment -------------- ¶3. (C) This cut will cause many of the Venezuelans who are used to traveling abroad more angst about their situation in Venezuela. Given Venezuela's overvalued official exchange rate, CADIVI allocations make travel cheap for those who can afford it. Every CADIVI dollar costs 2.15 bolivars (Bs), whereas on the parallel foreign exchange market the rate is currently 5.3 Bs per USD. Traveling on a CADIVI dollar, in other words, costs less than half what it otherwise would, and indeed can even be profitable for the traveler if he or she brings back goods to sell. From a psychological standpoint, some Venezuelans consider the CADIVI "cupo", as it is called, as almost a birthright of the Bolivarian Republic, a lifeline to the outside world they deserve for enduring the current government. For these Venezuelans, the cut is painful emotionally as well as economically. ¶4. (C) However painful to some, the cut in the CADIVI cupo is unlikely to cause significant political damage to President Chavez. Assuming in 2008 the average user of the two credit card cupos used half of the maximum allocations, about six percent of Venezuelans (1.7 million people) would be beneficiaries. With the exception of some fraudulent users (ref B),these six percent would be drawn almost exclusively from Venezuela's upper and upper middle classes (i.e., those with credit cards who travel abroad),the people least likely to support Chavez. At the same time, the cut, which analysts cited in a press reported estimated might save the GBRV USD one billion in 2009, will not make a significant dent in the shortage of foreign currency the GBRV will have to contend with if oil prices stay where they are (septel). End comment. CAULFIELD