Venezuela: The Politics of Privatization

September 25, 2007

The debates
over privatization
reflect not only
growing frictions between
Venezuela's five major
political parties,
but also deep divisions
within them.
W hen Venezuela's Imataca
Forest Reserve, home to
five major indigenous
groups, and prospecting grounds to
thousands of independent, wildcat-
ting gold miners, was opened to pri-
vate concessions by presidential
decree this year, a fierce debate
ensued that exposed some widening
rifts within Venezuela's fractious
party system. The debate over the
privatization of the two-and-a-half-
million-acre forest reserve near the
Brazilian border has taken place not
only among, but within the coun-
try's five major parties, and reflects
major internal differences over the
process of privatization in general.
Venezuela's 81-year-old presi-
dent, Rafael Caldera, a founding
member of the conservative social-
Christian party, Copei, was elected
in 1993 at the head of a new party
called Convergencia-a breakaway
anti-neoliberal faction of the party
he founded a half century ago. With
the support of the leftist Movement
Towards Socialism (MAS) and a
dozen smaller groups and parties,
he promised to hold back the tide of
Steve Ellner is director of the Research Center for Administrative and Economic Sciences of the Universidad del Oriente in Puerto La Cruz, Venezuela. He is the co- editor of The Latin American Left: From the Fall of Allende to Perestroika (Westview, 1993).
privatization, deregulation, budget
cuts and labor discipline that have
defined the neoliberal agenda-and
that were the undoing of the 1989-
1993 government of his predeces-
sor, Carlos Andr6s P6rez. PNrez, a
long-time leader of the social-
democratic party called Democratic
Action (AD), was indicted and sus-
pended from office in 1993 for the
misappropriation of $17.2 million.
While his legal troubles had no
ostensible connection to his neolib-
eral policies, the pain those policies
inflicted helped turn popular opin-
ion against him at a most inoppor-
tune time.
During Caldera's first two years
in office he tried to govern as a kind
of Christian populist, but last year, in an attempt to attract needed for-
eign capital back to his cash-
strapped country, he acceeded to an
agreement with the International
Monetary Fund (IMF) that would
cut federal spending and ease the
rules of foreign investment. The
agreement was negotiated by
Caldera's planning minister,
Teodoro Petkoff, a former leftist
guerrilla and long the leader of the
Administration's junior partner, MAS.
Just as the once anti-neoliberal
governing coalition has become a
proponent of privatization and the
massive influx of foreign capital,
the party that was voted out of
office due largely to its close identi-
fication with neoliberal policies, AD, has become a firm critic of
wholesale privatizations. In the late
1980s, an important split developed
within the corporatist, social-demo-
cratic AD, long the country's most
powerful party, between a faction of
"modernizing" technocrats and an
opposing faction of nationalistic
populists. P6rez had allied himself
with the technocrats, but the party
now seems to be moving in the
opposite direction.
Like AD, all the parties are
divided on questions of privatiza-
tion, and this past spring, the mili-
tant workers' party, the Causa R
(Radical Cause) literally split apart
over the issue. A more moderate
faction, which keeps the party's
name, is open to certain pragmatic
compromises on the issue, while the
more radical faction, now called
Homeland for All (PPT in its
Spanish initials) is braced for a
long-term anti-privatization strug-
gle. MAS, which for nearly three
decades has been the strongest party
on the left, has remained intact, but
is racked with dissent. When the
prominent MAS congressman,
Walter M.rquez, recently deplored
the opening of the Imataca forest
reserve to concessions, he was
attacking his own party leader-
ship-much of which was behind
the privatizing decree. Mdrquez told
me recently that environmentalist
and indigenous protesters were
unable to sway the government on
the issue because the administration
is "autistic; it attaches more impor-
tance to multinational investment
than public opinion."
Protests against the Imataca con-
cessions did, however, succeed in
influencing members of Congress, virtually all of whom, with the
exception of those in Caldera's
Convergencia, voted to censure the
privatizing decree. The president of
the Chamber of Deputies'
Mining Committee, C6sar
P6rez Vivas of Copei,
marched at the head of the
protests to the Capital in July.
The following month, the
congressional Committee on
the Environment and the
Association of Sociologists
and Anthropologists filed
separate lawsuits in the
Supreme Court calling for the
abrogation of the decree.
They questioned its legality
on grounds that it turned over Teodo the exploitation of the reserve govern
to private mining and lumber-
ing interests without congressional
approval, and that it ignored the
rights of indigenous people to their
ancestral lands.
Md.rquez criticized his party's
two-time presidential candidate and
current Planning Minister Teodoro
Petkoff for helping draft the decree.
Mdrquez, who in the past has been
on Petkoff's side in internal MAS
disputes, said he had "a lot of
respect for Teodoro, but on this one
he is wrong. The Imataca reserve is
nature in pure form and, as a part of
our patrimony, needs to be main-
tained intact." Petkoff, arguing that
foreign capital would impose order
on the illegal mining and concomi-
tant ecological devastation in the
area, took the opposite view: "Who
can say, as the decree's critics
claim, that Imataca is the Garden of
Eden where Adam and Eve love
each other surrounded by small
birds and sylphs. Imataca is the
kingdom of anarchy."
Venezuela was a latecomer to
neoliberalism in large part
because oil money cush-
ioned the government from pres-
sures to privatize. The current
Privatization Law was finally
approved in 1992 at the same time
that the state telephone company as
well as "non-strategic" firms such
as small banks, hotels and sugar
ro Petkoff, Planning Minister and an architect o nment's current privatization schemes.
mills were turned over to private
hands. These transfers, however,
were only a prelude to the current
proposals for the privatization of the
economy's crown jewels-the oil
industry and the aluminum, steel
and electrical companies run by the
public Venezuelan Corporation of
Guayana (CVG)-as well as the
social-security system.
The privatization of oil represents
a special challenge for Venezuelan
neoliberals. The celebrated nation-
alization of the oil industry in 1976
boosted nationalist sentiment, just
as it had in Mexico in 1938.
Venezuelan politicians are reluctant
to reverse the process completely,
though with Mexico's gradual pri-
vatization of "secondary" oil facili-
ties as a model, many are willing to
support piecemeal privatization. On
July 21, Time magazine ran an
anonymous eight-page advertise-
ment entitled "Opening the Door to
Foreign Investors: The Venezuelan
Oil Opening." The ad explained that
the plans for the foreign exploita-
tion of reserves, the private owner-
ship of gas stations and the privati-
zation of the petrochemical industry
represent the "back-door route to
privatization" of PDVSA, the state-
owned oil company. The ad ends on
an optimistic note for investors:
"The hard work in the future lies in
convincing a nationalistic public to
accept what is almost inevitable
-in the future PDVSA will be
PDVSA president Luis Giusti
has argued that the privatiza-
tion of PDVSA should not be
taboo, but even he is reluctant
to buck public opinion by
openly advocating its sale. Alf
Rodriguez, vice-president of
Congress' bicameral Mining
Committee, and one of the
breakaway radicals in PPT,
told me it was "not at all sur-
f the prising that no one claims
credit for the Time ad. The ad's
sponsors obviously wanted to
test the waters and prepare public
opinion." The Causa R (prior to the
PPT schism) was the only major
party in congress to vote against the
"Oil Opening," which invites pri-
vate capital to participate in the
exploration and exploitation of oil
The Opening has three modali-
ties: The first allows for the foreign
management of marginal wells.
(The Mining Committee's Rod-
riguez points out that these wells are
not always that "marginal" since
production sometimes doubles the
15,000 barrels per-day limit which
is what defines the term in the
United States.) The second modal-
ity allows for investment in non-
conventional oil, specifically from
the Orinoco Oil Belt, which
requires vast sums of capital and
untested sophisticated technology.
The third part of the opening,
known as "Shared Profits," opens
conventional oil fields to foreign
capital. Rodriguez calls it "the true
privatization of oil." The govern-
ment somewhat misleadingly labels
the plan "high risk" investment. In
fact, exploration is anticipated to be
costly but the risk is relative. Prior
to bidding, PDVSA had undertaken
preliminary explorations of the
eight blocks that were auctioned off
and the findings were handed over
to the winning bidder. According to
the June 14 issue of The Economist,
in at least two of the blocks,
PDVSA had encountered proven re-
serves, and the rich potential of all
of them was widely recognized.
Rodriguez criticizes the Shared
Profits plan for limiting the state's
participation to between 1% and
35% of the total capital of each
joint venture. Undoubtedly, the
arrangement generates substantial
public revenue, but the state's relin-
quishment of its status as major
investor points in the direction of
the early days of the industry when
Shell and Standard ruled the oil-
Originally, PDVSA proposed par-
ity between its representatives and
those of private capital on the
"Control Committees" making
decisions for the exploitation of
individual blocks. In Congressional
debate, veteran AD leader Carlos
Canache Mata attacked the plan on
grounds that it "is not what we
voted for when we approved the
Nationalization Law in 1975,"
which guarantees "the monopolistic
control by the state of any associa-
tion with private capital." Canache
succeeded in getting Congress to
modify the proposal to stipulate that
a representative nominated by the
Ministry of Mines preside over the
Control Committees and have the
decisive vote. He also played a key
role in getting AD to oppose the pri-
vatization of the petrochemical
industry as a whole, though in rati-
fying the Oil Opening, AD and
other parties in Congress have cer-
tainly helped open a beachhead for
foreign capital.
Debates over privatization are
also underway in the "Iron Zone" in
the state of Bolivar, which consists
of one steel and two aluminum
complexes that utilize locally
extracted iron and bauxite. For
many decades, the ambitious devel-
opment plans for these state-run
industries were a source of consid-
erable national pride. The Iron Zone
was a latecomer
to neoliberalism
in large part because
oil money cushioned
the government from
pressures to privatize.
was also the home of a radical
trade-union movement known as
"New Unionism" which catapulted
the Causa R onto the national polit-
ical stage in the 1980s.
In the recent past, New Unionism
has organized two marches to
demand that the privatization of
CVG-owned companies be carried
out humanely. The group calls for
the sale of 20% of the stock of the
new aluminum consortium to the
workers and another 20% to the
general public. Jorge Roig, a Causa
R member of the Congressional
Mining Committee, has won other
committee members over to a pro-
posal which would allocate half the
proceeds derived from the CVG's
privatization (after paying off out-
standing debts) to a plan to
"relaunch" the Iron Zone. This
would include a fund for retraining
workers, another for stimulating
small and medium-sized businesses,
and a third to promote new models
of development in the region. The
Mining Committee also modified
the plan proposed by the CVG and
other government technocrats by
freezing the size of the workforce in
both the steel and aluminum indus-
tries for one year.
AD's role on the Mining
Committee has actually been more
combative than that of the Causa R.
The party is willing to hold up the
CVG-sponsored plan for as long as
necessary in order to make major
revisions which favor national inter-
ests. AD's Senator Virgilio Avila
Vivas, who heads the bicameral
Mining Committee, favors breaking
up the aluminum industry, rather
than selling it in one block-as the
CVG (with the support of the Causa
R's Roig) proposes-to a vertically
integrated aluminum company such
as Alcoa. Avila Vivas warns that the
CVG-sponsored plan, although
earning the state more revenue,
would exclude the 170 Venezuelan
companies which process aluminum,
since production will be exported to
the new owner's subsidiaries
throughout the world. This preoccu-
pation is shared by MAS' former
president Gustavo Mdrquez, head of
Congress' privatization committee,
who fears that Venezuelan firms
will be deprived of a sure and
steady source of raw material and
will not be able to survive if obliged
to import aluminum from abroad.
As with steel, aluminum and
oil, few political leaders, if
any, propose to exclude the
private sector from a restructured
social-security system. Neoliberals,
on the other hand, such as the main
business organization Fedecdmaras,
do want to exclude the state, and
envision social security's privatiza-
tion along the lines of the Chilean
model. Fedecdinaras points to the
need to avoid the experience of the
Venezuelan Social Security Institute
(IVSS), which was a hotbed of
corruption and which had funneled
employee-employer contributions
to other government programs and
even invested in real estate. The
business organization argues that
the state is an inherently inept
Nevertheless, the self-righteous-
ness of business leaders belies their
own responsibility for the IVSS'
virtual collapse. According to the
Finance Ministry, the gov-
ernment recently "de-
tected" that the debt of all
employers-both private
and public-to the IVSS
was on the order of sev-
eral billion dollars.
Indeed, Fedecdnaras' in-
terest in divesting the state
of institutional mecha-
nisms to oversee the
social-security system
may stem from a not-so-
unconscious desire to
evade their obligations as
debtors. "We are left with
the impression," a leader
of the public employees The bidd
union told me, "that busi- explorati,
nessmen are hoping for a repeat of
what happened with the loans
granted by the CVF [Venezuelan
Development Corporation]. When
the CVF was dismantled, the multi-
million debt of the private sector
was simply forgiven and forgotten."
The government and the coun-
try's principal labor confederation,
the Venezuelan Workers Conf-
ederation (CTV), have insisted on a
mixed public-private system which
includes state administration and
supervision. Labor leaders question
the reliability of the financial insti-
tutions which would be in charge of
investing the money deposited in
individual worker accounts under
the new arrangement. The govern-
ment bailout of over half of the
nation's banks as a result of a finan-
cial debacle in 1994 serves as a
vivid reminder for trade unionists,
who refuse to write the state out of
the new system.
The workers' confederation, how-
ever, has been less than firm in its
attitude. Earlier this year, for exam-
ple, it accepted the elimination of a
system of severance pay calculated
on the basis of years of service at
the worker's current salary. The sys-
tem, which a 20-year old Rafael
Caldera helped draft in 1936, was
one of the most advanced of its kind
ing process for the Punta Pescadores oil field, o
on blocks auctioned off by the PDVSA.
anywhere. The CTV blindly ac-
cepted Fedecdnaras' argument that
business' onerous severance-pay
obligations tied up capital and dis-
couraged companies from hiring
workers and increasing salaries.
Furthermore, in the words of CTV
executive committee member
Freddy Iriarte, "we were led to
believe that, in addition to higher
wages and more jobs, doing away
with retroactive payments would
somehow magically pave the way
for the creation of a new, viable
social-security system."
Nothing of the sort happened, and
in response, a CTV-sponsored gen-
eral strike on August 6 completely
paralyzed the economy. The shut-
down was directed against those
companies which did not grant
"substantial" wage increases, as the
president of Fedecimaras explicitly
promised, and against those who
laid off workers, as Fedecinaras
assured would not happen. Indeed, the strike was a tacit admission that
the CTV had been hoodwinked by
the private sector.
The government profited from the
CTV's rhetoric which focused on
the irresponsibility of the private
sector. Planning Minister Petkoff
stated that as a "social fighter" from
way back, he supported the August
strike. Petkoff insisted
that the shutdown was not
directed against the gov-
ernment, which had duti-
fully met its obligations
by increasing salaries for
public employees, but
against businessmen, who
in general lacked the
"Schumpeterian zeal" of
their counterparts in other
The ongoing debates in
Congress over the terms
of privatization of alu-
minum and steel; the
opposition to the privati- ne of the zation of oil, petrochemi-
cal production and
hydroelectric energy; and the
CTV's resistance to the complete
privatization of the social-security
system, all belie the claims of some
neoliberals that the lack of differ-
ences over economic policy
demonstrates Venezuela's accep-
tance of the fabled consensus on
modernization and globalization.
Progressives in all the parties now
need to insert economic policy and
strategy more explicitly into the
national political debate. Not only
does it make electoral sense, but it
is also the best assurance that
whomever comes to power in next
December's presidential elections
will not attempt to railroad through
an IMF-style program of wholesale

Tags: Venezuela, privatization, neoliberalism, politics, oil

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