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Viewing cable 04CARACAS1554, MINIMUM WAGE INCREASE

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Reference ID Created Released Classification Origin
04CARACAS1554 2004-05-12 15:03 2011-08-24 01:00 UNCLASSIFIED Embassy Caracas
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS CARACAS 001554 
 
SIPDIS 
 
 
C O R R E C T E D C O P Y (PARA MARKINGS (U) REMOVING CAPTION) 
 
 
STATE FOR WHA/AND 
NSC FOR CBARTON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
    USCINCSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV VE
SUBJECT: MINIMUM WAGE INCREASE 
 
REF: 03 CARACAS 1357 
 
------- 
SUMMARY 
------- 
 
1. (U) THE GOV UNILATERALLY DECREED A 30  INCREASE IN THE 
MINIMUM WAGE, ATTEMPTING TO KEEP UP WITH INFLATION FOR THE 
LOWEST-EARNING WORKERS.  HOWEVER, THOUGH OVERALL INFLATION IS 
RELATIVELY DOWN, FOOD PRICES ARE INCREASING FASTER THAN ANY 
OTHER CATEGORY, AND THIS NEW ACTION IS ONLY GOING TO 
EXACERBATE THAT.  PURCHASING POWER IS SLIPPING AWAY, AS THE 
GOV CONTINUES TO MAKE ECONOMIC DECISIONS BASED ON POLITICS. 
END SUMMARY. 
 
-------------- 
BY THE NUMBERS 
-------------- 
 
2. (U) ON MAY 1, THE GOV DECREED A MINIMUM WAGE (AND SOCIAL 
SECURITY PENSION) INCREASE OF A TOTAL OF 30 , 20  EFFECTIVE 
ON MAY 1 AND THE OTHER 10  ON AUGUST 1.  THIS BRINGS THE 
TOTAL INCREASE IN THE MINIMUM WAGE TO JUST OVER 100  SINCE 
APRIL 2002.  ALTHOUGH THE LAW ALLOWS THE GOV TO MAKE THIS 
DECISION UNILATERALLY, IT FIRST REQUIRES CONSULTATIONS WITH 
    BUSINESS AND LABOR REPRESENTATIVES, A STEP WHICH WAS IGNORED 
AS IT WAS LAST YEAR (REFTEL).  IN ADDITION, THE GOV RAISED 
SALARIES FOR MOST PUBLIC EMPLOYEES 38  (30  FOR TEACHERS), 
ALONG WITH A ONE-TIME 2 MILLION BOLIVAR (1 MILLION FOR 
TEACHERS) BONUS. 
 
--------------------- 
RE-INFLATION FORESEEN 
--------------------- 
 
3. (U) INFLATION HAS DROPPED TO 23.1  ANNUALIZED (COMPARED 
TO 33.5  A YEAR AGO), WHILE WHOLESALE INFLATION IS AT 33 . 
HOWEVER, ECONOMISTS AGREE THAT THE WAGE INCREASE WILL RAISE 
INFLATION MORE, POSSIBLY TO AROUND 35  BY THE END OF 2004. 
EVEN THE GOV AGREES: WILMAR CASTRO, MINISTER OF PRODUCTION 
AND COMMERCE, SAID LAST WEEK THAT "AS A CONSEQUENCE OF THE 
SALARY INCREASE, THERE WILL CERTAINLY BE AN EFFECT ON 
PRICES."  WHILE OVERALL INFLATION HAS DROPPED, THE HARDEST 
HIT SECTOR HAS BEEN FOOD AND NON-ALCOHOLIC BEVERAGES. 
DESPITE PRICE CONTROLS, PRICES IN THIS CATEGORY HAVE 
INCREASED OVER 40  IN THE LAST 12 MONTHS THROUGH MARCH 
(FOLLOWING A 35  INCREASE THE YEAR BEFORE).  NOTE: THE 40 
FIGURE IS BASED ON MULTIPLE PRESS REPORTS CITING THE NATIONAL 
STATISTICS INSTITUTE (INE) AS THE SOURCE, BUT A CALL PLACED 
BY THE EMBASSY TO THE INE ELICITED THE ANSWER THAT 
INFORMATION SINCE JANUARY IS NOT AVAILABLE TO THE PUBLIC. 
END NOTE. 
 
------- 
COMMENT 
------- 

4. (U) FINMIN NOBREGA HAS CALLED THE CURRENT ECONOMIC 
SITUATION AN "OPTIMAL COMBINATION": CONTAINING INFLATION (THE 
2004 BUDGET ASSUMED INFLATION OF 25 ) AND GDP GROWTH.  THERE 
HAS UNDENIABLY BEEN A PARTIAL RECOVERY IN OVERALL CONSUMER 
SPENDING, AND OUR CONTACTS IN THAT SECTOR ARE REPORTING 
INCREASED SALES.  HOWEVER, THOSE EARNING THE MINIMUM WAGE, 
FOR WHOM FOOD IS FAR AND AWAY THEIR MOST IMPORTANT PURCHASE, 
HAVE LITTLE TO CHEER ABOUT. 
SHAPIRO 
 
NNNN 
      2004CARACA01554 - UNCLASSIFIED