UPDATE 4-U.S. expels Venezuelan diplomats in tit-for-tat move over unrest

Wed Feb 26, 2014 1:05am IST

By Andrew Cawthorne and Eyanir Chinea

CARACAS Feb 25 (Reuters) - The United States on Tuesday ordered three Venezuelan diplomats to leave in reprisal for President Nicolas Maduro's expulsion of three American embassy staff accused of fomenting unrest that has killed at least 13 people.

Students and others opposed to Maduro want him to quit over high rates of crime and inflation, lack of basic foodstuffs and what they call his heavy-handed suppression of their protests.

Disputes between the ideologically opposed governments in Washington and Caracas were common during the 1999-2013 rule of late socialist leader Hugo Chavez and have continued under his successor Maduro.

When it comes to oil, though, pragmatism trumps politics and the United States remains the OPEC member's main export market.

The U.S. State Department said in a statement that two first secretaries and a second secretary at the Venezuelan embassy in Washington had been declared personae non gratae in response to Caracas' Feb. 17 move against the three Americans.

"They have been allowed 48 hours to leave the United States," it said.

Venezuela and the United States have been without ambassadors since 2008, and Maduro expelled the three U.S. diplomats last week on accusations of recruiting students to hold violent, rock-throwing protests against him.

Washington has rejected the claims as baseless.

Despite the latest dispute, Maduro's government proposed Maximilien Sanchez, a former envoy to Brazil, as its new ambassador to Washington on Tuesday to try to kick-start talks and combat what it sees as propaganda.

"U.S. society needs to know the truth about Venezuela," Maduro said in the latest of his daily speeches to the nation at a meeting with state governors late on Monday.

"They (Americans) think we're killing each other. They think we can't go out to the corner. They're asking for U.S. military intervention in Venezuela. What madness! Should that happen, you and I will be out with a gun defending our territory."

The crisis, in which more than 500 people have been arrested and about 150 injured over two weeks, has brought remonstrations from the U.S. government and attracted wider attention.

The great majority of those detained in connection with the protests have been freed pending trial, but celebrities such as Madonna and Cher have condemned Maduro.

The 51-year-old former union activist, who narrowly won a presidential election in April to replace Chavez, says international media are in league with "imperialists" abroad to project an image of chaos and repression in Venezuela.

MARADONA BACKS MADURO

Argentine former soccer great Diego Maradona backed that stance while signing a deal to be a commentator for Caracas-based Telesur network at the upcoming World Cup in Brazil.

"We're seeing all the lies that the imperialists are saying and inventing. I'm prepared to be a soldier for Venezuela in whatever is required," said Maradona, a friend of both Chavez and Cuban revolutionary leader Fidel Castro, before declaring:

"Long live Chavez, long live Maduro, long live Venezuela!"

Sporadic protests continued on Tuesday, with students mounting roadblocks in the more affluent eastern districts of the capital. In a sign of spreading violence, officials and residents in the provincial cities of San Cristobal, Maracaibo and Maracay all reported looting.

Demonstrations began at the start of the month but mushroomed after the first deaths on Feb. 12. The students are demanding Maduro resign over Venezuela's high rates of crime and inflation and shortages of staples such as milk and flour.

They also accuse him of brutally putting down their protests.

"I'm not going until he goes," said student Pablo Jimenez, 24, pointing to a photo of Maduro with a big red cross painted over it as he tried to start a fire on a road in the wealthy Sebucan district of Caracas soon after dawn.

Moderate opposition figures have called for peaceful protests only and voiced despair at the tactics of barricading roads and burning trash in largely middle-class neighborhoods that are already overwhelmingly pro-opposition.

"There are thousands of reasons to protest but you have to be aware of the risks and the costs of the barricades, which could end up strangling our neighbors and the protests themselves before the government," wrote Ramon Muchacho, the opposition mayor of the upscale Chacao district of Caracas.

CARNIVAL HOLIDAY COMING

As on most days, both sides organized rallies in the capital and elsewhere. In Caracas, the opposition planned to march to the Cuban embassy to protest alleged interference in Venezuelan affairs by the island's communist government.

Many Caracas residents stayed home, schools were largely closed and some businesses also stayed shut.

Residents of Caracas' poorer west side have staged only a few minor demonstrations, though government critics there have joined in traditional protests of banging pots and pans at their windows during Maduro's hours-long television broadcasts.

The demonstrations are the biggest challenge to the president's 10-month-old government, though there is no sign they could topple him or affect oil shipments.

Venezuela is Latin America's biggest exporter of crude oil and has the world's largest petroleum reserves.

Venezuela's sovereign bond prices, which had tumbled on the unrest, rallied broadly on Tuesday, due to investor optimism over previously planned changes to a foreign currency auction system. The price on the benchmark 2027 bond rose 1.87 points, pulling the yield down to 14.76 percent.

Total returns across Venezuela's sovereign yield curve rose 1.23 percent on the day, with spreads contracting by 39 basis points to 1,290 basis points above corresponding U.S. Treasuries, according to JPMorgan's EMBI+ index.

Venezuelans are approaching a long weekend for Carnival, and Maduro has also declared Thursday and Friday national holidays.

That could take the heat out of the situation as many people head for the beach, though some Venezuelans speculate it might have the opposite effect because people will have more time to protest should they want to.

Maduro has also invited church, business and opposition leaders to meet him on Wednesday at the Miraflores presidential palace for a "national peace conference".

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