VICTOR SALMERON
EL UNIVERSAL

Convinced that under capitalism it is impossible to keep the promise of widespread prosperity and development, President Hugo Chávez has embarked Venezuelans upon "transition to new century socialism."

Beyond the string of phrases to define the goals to be attained, i.e., endogenous development, grassroots economy, vertebration, self-employment, market integration, productive chains, among others, the system shows a face where the state gains weight and takes control of the economic process.

Interest rates, exchange rate, pricing of 42 percent of the goods used to measure inflation, and a third of bank lendings are under the state control, in addition to a complex gear whereby the Chávez administration acts as producer, entrepreneur and financial expert.

The anatomy
The head of the new economic body is the state oil holding Petróleos de Venezuela (Pdvsa.) The company fuels social welfare programs and development funds. Also, it is the axis in the integration process with foreign nations under agreements to exchange oil for doctors or agricultural items, as well as Petrocaribe (pact to provide oil and byproducts to 12 Caribbean nations with low interest rates) and Petrosur (under which the government advances the laying of a USD 12-billion gas pipeline.)

The industrial arm crystallizes with the expansion of the Venezuelan Guayana Corporation (CVG) to the telecommunications business through CVG Telecom, as well as the partnership with Iran to establish a manufacture of tractors and a cement plant, manufacture of pulp and paper, and the organization of airline Conviasa.

The bank frame to back government projects includes People's Bank, Women's Bank, Venezuelan Industrial Bank and Bandes, in addition to potential establishment of the Bank of the National Armed Forces, a bank for cooperatives and a housing bank.

With Mercal grocery stores and the Corporation of Agricultural Provision and Services (CASA) as a tool, the government takes active part in the food trade chain. It is estimated that it has a niche of at least 25 percent in the marketplace. With the help of the Venezuelan Agrarian Corporation, it is playing the producer role along with new sugar cane plants and cacao manufacturers.

Endogenous centers, cooperatives, Zamoran farms and social production businesses are an attempt to advance the non-capitalist experience, backed by state capital and procurement of goods secured by public agencies.

By February 1st, the list of conditions on those planning to establish a social company will be published in the Official Gazette. However, Minister of Basic Industries Víctor Álvarez anticipated, "the trading business sells at market prices, the social production business sells at solidarity prices."

Further, state financial bodies are to back these businesses with interest rates as low as 6 percent and terms well beyond the ordinary ones.

The drugstore
Alejandro Uzcátegui manages an association of pro-government small and medium-size businesspersons and is planning to create a drugstore franchise as social business.

"The Social Drugstore Operator is based on a partnership with Belloso Group and an investment estimated at USD 466,000. There are plans to establish 2,000 outlets to sell significantly discounted trademark and generic drugs," Uzcátegui explained.

"The franchise will cost USD 2,328 and will require a loan of USD 74,512 backed by Fonpyme as guarantor. This company may become a social production business. Thus,  by cutting profit and a contribution of 10 percent of surplus to a social fund, the private sector joins President Chávez' socio-economic strategy," he added.

"We have lowered our profit to the full extent. We do not intend to exploit consumers and have reached agreements with laboratories. If a franchise manager sells USD 37,200 monthly, following the payment of the loan, he/she will get a profit of USD 2,328 monthly."

Financial institutions willing to back the project include not only state banks, such as the Venezuelan Industrial Bank and Banfoandes. According to Alejandro Uzcátegui, Banesco, Banco Occidental de Descuento and Banorte have also expressed interest.

Black and white
While the government advances the project and has ascertained that 260 social production business will be organized in an early stage, the traditional private sector, which provides for a significant portion of jobs in the Venezuelan formal economy, remains skeptical.

The last survey conducted by the Venezuelan Industrials' Confederation (Conindustria) found that most businesspersons are ready to invest only to keep companies operational. A fuzzy prospect and competitive imported commodities have made an impact on them.

As a matter of fact, the Venezuelan economy seems to be on a way previously taken. The hike in oil prices allows for increasing public expenditure and provides for a wealth of foreign currency enough to anchor exchange rate and promote an overvalued local currency. Thanks to the US dollar stability, inflation plummets and imports soar. This, and lack of private investment, slows down growth.

When the cycle of high oil prices comes to an end, the government will have to curtail public expenditure and devaluate the currency, resulting in recession and more inflation.

Planning Minister Jorge Giordani thinks otherwise. "Progressive price steadiness and increasing oil production will ensure availability of substantial budget and out-of-budget resources, allowing for effective expansion of public expenditure," he stated in the document entitled "Hacia una Venezuela productiva" (Heading for a Productive Venezuela.

"Exchange and domestic price stability, an improved debt amortization profile and decreasing risk-country will lay the foundations for a decade of unprecedented social and economic progress."

Translated by Conchita Delgado