Bank-subsidy policy fails

In an effort to foster the development of strategic sectors, Hugo Chávez's administration has forced the banking sector to grant a large number of loans with very low interest rates to the agriculture, manufacturing, tourism and mortgage sectors over the last five years, but in spite of this multimillion subsidy, the outcome has not been as expected.

Statistics show that in 2011 the subsidized loans granted by the banking sector to the protected recipients, at preferential rates much lower than those applicable to all other enterprises and individuals, amount to USD 3.06 billion.

On average, any component of the strategic areas identified may access loans at an interest rate of 12%, whereas the rest of the economy is subject to a rate of 22%. Nevertheless, this move has garnered little response.

Last year, loans intended for the agricultural sector rose by 49.9%, that is, USD 4.64 billion; however, production of key commodities fell as well as the number of related jobs.

Over the past twelve months, loans for the manufacturing sector surged 73.4%, but the sector's production is still lower than that of 2008, the industry's used capacity remains low and non-petroleum exports remain at the same level as in 1999.

In the mortgage area, where loans grew 32.3% in 2011, stagnation has been so glaring that the government has had to launch a special home-building plan aimed at a large portion of the population.

Financial executive officers believe that it is quite evident that a strategy to boost different sectors of the economy requires, in addition to the loans being granted, a far more favorable business environment.

An environment marred by price controls, foreign exchange restrictions, expropriations, supply shortages and currency overvaluation makes it difficult for production to thrive; therefore, loans tend to seep toward imports.

A relevant factor to be taken into account is that everything seems to indicate that only a small portion of loans is ultimately used for investments.

After plummeting for two years, funds aimed at the purchase of machinery, equipment and buildings to enhance production capacity rose by only 1% and remain below the level reached in 2008.

The Central Bank has disclosed only a mere overview of last year's investments, failing to differentiate between the public and private sectors of the economy, yet everything seems to prove that the latter is finding it hard to breathe.

Between 2007 and 2010, private investment fell an alarming 43% and, without the business environment undergoing any relevant changes, it is highly unlikely that there was a significant rebound last year.

Nelson Merentes, president of the Central Bank of Venezuela, acknowledged in his 2011 report that investment "underwent certain volatility throughout the year, and its components displayed heterogeneous behavior."

This investment deficit means that once companies use up all the machinery available for production, the economy will reach its apex, and new formal jobs will continue to stifle.

At the end of last year, the government acceded that, even though more loans were granted, agricultural production was not as expected. But instead of reviewing existing policies, it announced that brigades would be deployed out to farms to conduct audits.

Translated by Félix Rojas Alva