CHAVEZ SEIZES EXITO, ASKS FOR LEGAL REFORM TO FACILITATE

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000097

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E.O. 12958: DECL: 2020/01/27
TAGS: ECON PGOV EINT EAGR EINV CO FR VE
SUBJECT: CHAVEZ SEIZES EXITO, ASKS FOR LEGAL REFORM TO FACILITATE
EXPROPRIATIONS

REF: 09 CARACAS 1599; 08 CARACAS 1765; 09 CARACAS 206
09 CARACAS 1014; CARACAS 27

CLASSIFIED BY: DUDDY, AMBASSADOR, DOS, AMB; REASON: 1.4(B),(D)


1. (C) SUMMARY: On January 17, in what he described as an
effort to halt inflation, President Chavez ordered the
expropriation of the French-Colombian Exito hypermarket chain for
illegally raising prices in violation of Venezuelan law. Chavez
announced that the expropriated stores-together with the Sambil
Mall in Caracas-would join the government-run Corporation of
Socialist Markets (COMERSO). During the same broadcast, Chavez
told his ministers that a draft "expropriation" law to prevent
price speculation was too lenient, and asked them to revise the
legislation so that he could swiftly expropriate businesses that
raise prices illegally. On January 21, the National Assembly
approved a reform of the Law for the Defense of the People's Access
to Goods and Services that would allow the executive to take
"exceptional" measures to prevent price speculation. On the same
day, the Executive Vice President of the National Supermarket
Association (ANSA) told EmbOffs that he did not anticipate
additional supermarket expropriations in the near future, but
expected inventories to decline unless the Venezuelan government
(GBRV) authorized price increases soon. END SUMMARY.



Chavez wants a sword to slash prices




2. (SBU) On January 17, in a weekly "Hello, President" radio
and television broadcast that lasted over seven hours, President
Chavez ordered the expropriation of the Exito hypermarket chain and
the unopened Sambill Mall in the La Candelaria neighborhood of
Caracas, announcing that both would join COMERSO, a recently
inaugurated chain of government-run retail stores that plan to sell
household goods, cars, clothing, and food at discount prices (Ref
A). Chavez claimed that Exito, in particular, had engaged in price
speculation and hoarding in violation of Venezuelan law. (NOTE:
Chavez first announced the expropriation of Sambil in December
2008, while the mall was still under construction; he argued that
the mall would encourage consumerism and increase traffic in
downtown Caracas. See Refs B,C,D for a chronological overview of
the expropriation of Sambil. END NOTE.)




3. (C) During the same broadcast, Chavez said that a draft
"expropriation" law to prevent price speculation was too lenient
and asked his ministers to revise the law so that he could
expropriate businesses without previous warnings, fines, or
temporary closures: "What I want is a sword," Chavez said. On
January 21, the National Assembly approved a reform to the Law for
the Defense of the People's Access to Goods and Services that would
empower the state to intervene immediately in the event of price
manipulation or hoarding. The reform appears to be an attempt to
fight inflation following the currency devaluation announced on
January 8 (Ref E). Specifically, the reform would authorize the
executive to declare goods and services of "public utility or
social interest," take "exceptional" measures to prevent price
increases, and temporarily occupy businesses during expropriation
proceedings-all without prior approval by the National Assembly.




4. (SBU) On January 19, before the draft law was approved by
the legislature or signed by the President, the National Assembly
authorized the occupation of six Exito stores and the initiation of
expropriation proceedings against Sambil Mall in the name of
"public utility and social interest." The local press has reported
extensively on the reaction to the expropriation of Exito stores
across the country: in Maracaibo, Exito employees protested the

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occupation, fearing the loss of benefits; in Valencia, the
occupation caused clashes between workers who support and oppose
the measure; and in Puerto La Cruz, Commerce Minister Eduardo Saman
and Interior Minister Tareck El Aissami personally supervised the
GBRV takeover.



Saman threatens to expropriate CADA supermarket




5. (SBU) The French firm Casino Guichard Perrachon SA owns 67
percent of Cativen-the holding company that operates six Exito
stores and the CADA supermarket chain in Venezuela-together with
the Colombian company Almacenes Exito SA. Although the GBRV has
not yet expropriated CADA, on January 18, during an interview with
the state-run Venezolana de Television (VTV),Commerce Minister
Eduardo Saman said that CADA was "even worse" than Exito and that
there was "no alternative but expropriation." Saman claimed that
CADA imported food at the official exchange rate of 2.6 bolivars to
the dollar and sold the same products at the parallel rate, marking
up prices and "restricting the supply to make people believe there
are shortages." Saman told the press that the GBRV was "enforcing
the law in the people's defense" and would compensate Cativen for
the expropriation of Exito-after subtracting debts owed to the
workers, taxes owed to the government, and "other things."



Supermarket industry experts concerned about the future




6. (C) On January 21, the Executive Vice President of the
National Supermarket Association (ANSA) Luis Rodriguez (strictly
protect throughout) told EmbOffs that he was worried about the
future of the supermarket industry following Exito's expropriation.
Rodriguez said that the GBRV wanted to send a clear message that
unauthorized price increases would be punished severely. (NOTE:
According to Rodriguez, industry experts have speculated that the
GBRV specifically targeted Exito because of its Colombian
ownership. END NOTE.) Following Exito's expropriation, the
supermarkets have decided to freeze prices until they receive
notification from their suppliers that the Institute for the
Defense of the People's Access to Goods and Services (INDEPABIS)
has authorized prices increases. Meanwhile, the supermarkets will
not purchase new products from their suppliers, a situation that
could result in shortages if current inventories run out.




7. (C) Nevertheless, Rodriguez doubted that the GBRV planned
to expropriate additional supermarkets in the immediate future for
three reasons: 1) the GBRV does not have the technical expertise to
manage large supermarket chains; 2) smaller government-run chains
like Mercal and PDVAL-which Chavez recently promised to expand-have
had distribution and logistical problems that have forced many
stores to close; 3) the expropriation, mismanagement, and eventual
failure of private supermarkets could have political costs for
President Chavez.




8. (C) COMMENT: There are several ways to analyze Exito's
expropriation. First, and most immediately, the expropriation
appears to be part of the GBRV's strategy for fighting inflation in
the wake of the recent currency devaluation. President Chavez has
sent a clear message that unauthorized price increases will be met
with expropriation, a message that our contacts in the supermarket
industry appear to have received. Secondly, the expropriation has
short-term political benefits in advance of the National Assembly
elections scheduled for September 2010: the GBRV can claim that it
has defended the Venezuelan consumer from capitalist price gouging

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while using Exito's infrastructure to sell cheap televisions and
refrigerators through COMERSO, its network of socialist markets.
Thirdly, from an ideological perspective, the expropriation-coming
days after President Chavez's first admission that he is a Marxist
to a hushed National Assembly on January 15 -is yet another
indication of Chavez's economic vision. END COMMENT.
CAULFIELD