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### Viewing cable 07SAOPAULO538, VENEZUELAN PAYMENTS LATE FOR BRAZILIAN EXPORTERS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SAOPAULO538 | 2007-06-19 15:06 | 2011-07-11 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Sao Paulo

`

    VZCZCXRO9613
    RR RUEHRG
    DE RUEHSO #0538/01 1701506
    ZNR UUUUU ZZH
    R 191506Z JUN 07
    FM AMCONSUL SAO PAULO
    TO RUEHC/SECSTATE WASHDC 7137
    INFO RUEHBR/AMEMBASSY BRASILIA 8238
    RHEHNSC/NSC WASHDC
    RUCPDOC/USDOC WASHDC 2813
    RUEHMN/AMEMBASSY MONTEVIDEO 2369
    RUEHBU/AMEMBASSY BUENOS AIRES 2778
    RUEHSG/AMEMBASSY SANTIAGO 2075
    RUEHLP/AMEMBASSY LA PAZ 3380
    RUEHPE/AMEMBASSY LIMA 1153
    RUEHCV/AMEMBASSY CARACAS 0507
    RUEHBO/AMEMBASSY BOGOTA 1560
    RUEHRG/AMCONSUL RECIFE 3636
    RUEHRI/AMCONSUL RIO DE JANEIRO 8158
    RUEHAC/AMEMBASSY ASUNCION 3034
    RUEATRS/DEPT OF TREASURY WASHDC
    RUEHFR/AMEMBASSY PARIS 0288

` `

    UNCLAS SECTION 01 OF 03 SAO PAULO 000538

    SIPDIS

    SENSITIVE
    SIPDIS

    DEPT FOR WHA/BSC, WHA/EPSC, AND EB/OFD/OMA
    STATE PASS TO USTR FOR SCRONIN
    STATE PASS EXIMBANK
    STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
    NSC FOR FEARS
    USDOC FOR 4332/ITA/MAC/OLAC
    USDOC FOR 3134/USFCS/OIO

    TREASURY FOR JHOEK

    AID/W FOR LAC/AA
    PARIS FOR ECON - TOM WHITE

    E.O. 12958:  N/A
    TAGS: EFIN ETRD BEXP ECON BR
    SUBJECT:  VENEZUELAN PAYMENTS LATE FOR BRAZILIAN EXPORTERS

    SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY

    Summary
    -------

    ¶1.  (SBU) The Venezuelan Office that regulates the payment of
    foreign currencies (Commission for the Administration of Official
    Exchange - CADIVI) is taking an average of six months or more to pay
    Brazilian companies for their products, adding up to a total
    estimated at USD 100 million, according to representatives of the
    Sao Paulo Federation of Industry (FIESP).  Although this represents
    only 3 percent of Brazilian exports to Venezuela, the impact on
    individual businesses is significant, especially for smaller
    companies, and the situation is giving pause to all enterprises
    selling to Venezuela who wish to be paid in a timely manner.
    According to the Sao Paulo Federation of Industries (FIESP),
    representatives of 75 companies met in their offices in late May to
    express concern over CADIVI's cumbersome processing guidelines,
    multitude of forms, and priority system in approving payments.  In
    some cases, companies have been waiting up to three years to receive
    payments.  With the drop in the exchange rate of the U.S. dollar in
    Brazil, waiting an extra 3-6 months for payment can signify an
    additional loss of income.  FIESP has responded by sending two
    working groups to Venezuela to express concern and address the
    problem, and plans to send a more formal mission in the near future.
     Industrial sectors most affected by this payment delay are
    aluminum, electrical materials, vehicles and tractors, and machinery
    and mechanical instruments.  End Summary.

    ¶2.  (SBU) During a meeting on a related matter, representatives of
    the Sao Paulo State Federation of Industries' (FIESP) Department of
    International Relations and Foreign Commerce raised with Econoff
    ongoing problems in dealing with CADIVI.  An article on the subject
    appeared that same day on the front page of Valor Economico, one of
    Brazil's major economic journals.  Pedro Pedrossian Neto, the
    Foreign Trade Economic Analysis Supervisor handling the matter for
    FIESP, cited the intensive bureaucratic process required for
    Brazilian companies to receive payment for exports to Venezuela (18
    distinct procedures), and the two controls required for foreign
    exchange payments that CADIVI must authorize (acquisition and
    liquidation of exchange funds).  In order to trade with Venezuela,
    Brazilian companies must register with CADIVI, a process requiring
    the originals and copies of nine separate documents.  (Comment:
    Brazilian companies are all too familiar with the document-heavy
    regulations and bureaucracy of doing business in Brazil, so to bring
    complaints against another country's governmental agency implies
    that the difficulties they are facing with Venezuela must be
    serious.  End Comment.)

    ¶3.  (SBU) Adding to the payment delay is the priority system of
    payments determined by the Venezuelan government:  1) goods and
    services designated as most urgently needed; 2) foods, raw materials
    and products for health; and 3) raw materials for industry.  This
    places industry last in line for payment processing.  Carlos
    Cavalcanti, FIESP's Deputy Director General for International
    Affairs and Foreign Trade, is of the opinion that "the motive for
    the delay is not a lack of funds, because Venezuela has the money,"
    but rather is a tactic of BRV President Chavez to discredit
    Venezuelan private sector entities in preparation for a future
    attempt to nationalize more industries.  Cavalcanti stated that this
    is also the opinion of the Venezuelan importers.

    ¶4.  (SBU) In the meeting of the 75 businesses present at FIESP to

    SAO PAULO 00000538  002 OF 003

    complain about the situation, the sectors whose representatives
    cited the biggest problems were aluminum, electrical materials,
    vehicles and tractors, machinery and mechanical instruments,
    representing 36 percent, 26 percent, 11 percent, and 5.5 percent
    respectively of the total volume of export payments owed.  Total
    delayed payments owed to Brazilian companies amount to about USD 23
    million, with some companies having waited up to three years.
    However, according to Cavalcanti, the real figure of payments owed
    for Brazilian exports to Venezuela is probably closer to USD 100
    million, as many of the companies do not wish to reveal their true
    figures.  Pedrossian Neto mentioned this was the case with
    Coca-Cola, whose representative attended the meeting but probably
    did not disclose the full amount of payment the company is owed.

    ¶5.  (U) The aluminum sector cited 26 outstanding transactions to the
    tune of USD 8.4 million, with 80 percent of them having already
    waited 3-6 months.  In the area of electrical materials - for the
    most part cell phones, the principal item on the export list for
    Brazilian products to Venezuela in 2006 - the delayed payments total
    USD 5.9 million, with 56 percent of the companies waiting six months
    to one year.  Companies exporting vehicles and tractors are owed USD
    2.6 million corresponding to 110 transactions.

    ¶6.  (SBU) Another crucial factor affecting Brazilian companies is
    the dollar loss associated with the wait time.  With the falling
    dollar exchange rate, a payment made even 3 months later than normal
    can mean a significant loss in income.  Pedrossian Neto provided one
    company's real life experience to highlight the seriousness:  A
    company exported USD 1.96 million worth of goods to Venezuela and
    expected payment on 25 October 2006.  At that time, a dollar was
    worth 2.14 Reals, which meant an expected income of 4.2 million
    Reals.   If the company were to receive the payment as of today,
    after a wait of over seven months with the dollar trading at less
    than 2 Reals, the payment would be approximately 3.8 million Reals,
    representing an income loss of more than 421 million Reals.  FIESP
    also calculates a "lost opportunity cost" for this transaction: If
    the company had received payment at the time of product delivery,
    and invested this amount at a rate of 7.66 percent for this same
    period, the investment would have yielded 320,000 Reals.  This "lost
    opportunity cost," in addition to the actual lost income for the
    payment delay, would amount to a total loss of 741,000 Reals.

    ¶7.  (SBU)  According to Pedrossian Neto, FIESP has sent two separate
    working groups to Caracas to discuss the problem with CADIVI, one in
    March and the other in early June.  FIESP has also solicited the
    assistance of Banco do Brasil in Venezuela, since the bank has
    offices and contacts there and is more familiar with the process of
    converting funds.  A more formal mission will be sent in the near
    future if the problem is not resolved.  Also, FIESP plans to request
    assistance from the Brazilian government to address this problem
    with Venezuela.  According to Cavalcanti, however, this will not be
    an easy mission and may not yield results.  He cited FIESP's
    attempts last year to request GoB assistance with non-tariff
    barriers that were hindering Brazilian commerce, among them the
    slowness of CADIVI.  All these barriers were duly reported to the
    WTO, with the exception of those related to Venezuela.

    ¶8.  (SBU) Comment:  Even though the delays in payments for exports
    to Venezuela encountered by Brazilian companies  represent only
    three percent of total trade between the two countries (USD 3.6
    billion in 2006), CADIVI's performances presents an institutional
    risk that could affect continued bilateral trade.  Brazilian
    companies are accustomed to bureaucratic procedures, but delayed

    SAO PAULO 00000538  003 OF 003

    payment of several months to years, compounded by the loss of income
    caused by the falling dollar rate, has created a serious
    disadvantage for Brazilian exporters and constitutes a severe
    disincentive for companies that may be considering entering the
    market.  While some of the problem may be attributed to bureaucracy,
    Venezuelan importers stated to FIESP that this is simply a maneuver
    of Chavez to discredit Venezuelan private industry in order to
    nationalize those industries in the future.   End Comment.

    ¶11. (U) This cable was coordinated with Embassy Brasilia.

    McMullen

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