VENEZUELA: ACCESS TO CADIVI DOLLARS TIGHTENS

UNCLAS SECTION 01 OF 02 CARACAS 000397

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PREL PGOV VE
SUBJECT: VENEZUELA: ACCESS TO CADIVI DOLLARS TIGHTENS

REF: A. CARACAS 368

B. CARACAS 003

C. 2008 CARACAS 647

D. 2007 CARACAS 2330


1. This message is sensitive but unclassified, please treat
accordingly.


2. (SBU) Summary. On March 16, the National Assembly of
the Bolivarian Republic of Venezuela (BRV) approved revised
lists of products eligible for importation using the official
exchange rate. Imports at the official rate of 2.15 BsF per
US dollar versus the free market rate of approximately 6 BsF
per US dollar are, in effect, heavily subsidized. The
revision increases the number of products for which importers
will be required to submit "certificates of non-production."
Overshadowed by the economic measures announced by Chavez on
March 21 (ref A),the revision of these lists likely has more
to do with restricting access to cheap dollars than the
protection of locally produced goods. The effect of shifting
more imports from the subsidized official rate to the free
market rate will have strong inflationary impact. End
Summary.

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What is CADIVI and its Dollar?
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3. (SBU) CADIVI is the BRV agency that controls the buying
and selling of foreign currency at the official exchange
rate. The fixed official exchange rate, last revised in
March 2005, is highly overvalued at 2.15 bolivars (BsF) to
the dollar. At present, importing products using CADIVI
dollars costs the importer approximately sixty-four percent
less than what it would using the parallel exchange rate.
(Note: The parallel exchange rate is used by individuals and
companies without access to CADIVI dollars to exchange their
BsF to dollars. The current parallel exchange rate is 6 BsF
to 1 USD. End Note.) As CADIVI dollars are cheap, demand for
access to these dollars far exceeds what the BRV is willing
and able to make available in the face of an economic crisis
caused by the drop in world oil prices. Businesses have
repeatedly complained about delays in receiving CADIVI
authorizations and possible corruption by officials within
the Agency (ref D.)

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The Product Lists
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4. (SBU) The newly published CADIVI lists reflect the move
of many products from the preferred List One (not requiring a
certificate of domestic non-production prior to importation)
to List Two (requiring a certificate of non-production prior
to importation.) Broadly, List One is much smaller than
previous lists. From our review of the hundreds of products
listed in the decree, List One continues to cover basic
products such as wheat, flour, certain chemical components
and additives, medicines, vitamins, medical supplies, basic
foodstuffs, wool, cotton, certain types of heavy machinery
and electronic products. List Two now includes a wider
range of items than previous lists, such as farm animals
(horses, hens, turkeys, etc.),foodstuffs (i.e., sweet corn,
certain types of fish, pears, carrots, limes, etc.),exotic
building or furniture materials (rattan, bamboo),etc.
Inclusion on List Two does not signal automatic refusal of
CADIVI dollars, but companies seeking to import items from
List Two face additional, lengthy bureaucratic obstacles,
including a cumbersome process to certify non-production.

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COMMENT
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5. (SBU) The release of revised lists of items eligible for
CADIVI dollars is not surprising in light of the BRV's
ongoing money crunch. The reduction of List One and
expansion of List Two will probably lead to further
reductions in CADIVI authorizations as more importers face
another bureaucratic hurdle in trying to access cheap dollars
for many products. As we have seen with the recent cut in
the maximum allotment of CADIVI dollars for travel (ref B),
the changes in the CADIVI lists will largely impact the
middle and upper-classes and companies that cater to them
rather than Chavez's base. The decree was released quietly
several days before Chavez's dramatic announcement of his
economic "package." We expect more such actions taken by the
government that will inevitably have a further impact on

CARACAS 00000397 002.2 OF 002


inflation.
CAULFIELD