The Politics of Privatization

By Steve Ellner, NACLA Report on the Americas, 30 April 1998

When Venezuela's Imataca Forest Reserve, home to five major indigenous groups, and prospecting grounds to thousands of independent, wildcatting gold miners, was opened to private 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 country's five major parties, and reflects major internal differences over the process of privatization in general.

Venezuela's 81-year-old president, 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 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 predecessor, Carlos Andres Perez. Perez, a long-time leader of the social-democratic party called Democratic Action (AD), was indicted and suspended from office in 1993 for the misappropriation of $17.2 million. While his legal troubles had no ostensible connection to his neoliberal policies, the pain those policies inflicted helped turn popular opinion against him at a most inopportune 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 foreign 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 identification with neoliberal policies, AD, has become a firm critic of wholesale privatizations. In the late 1980s, an important split developed within the corporatist, social-democratic AD, long the country's most powerful party, between a faction of modernizing technocratics and an opposing faction of nationalistic populists. Perez 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 privatization, and this past spring, the militant 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 struggle. 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 Marquez, recently deplored the opening of the Imataca forest reserve to concessions, he was attacking his own party leadership-much of which was behind the privatizing decree. Marquez 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 importance to multinational investment than public opinion.

Protests against the Imataca concessions 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, Cesar Perez 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 the exploitation of the reserve to private mining and lumbering interests without congressional approval, and that it ignored the rights of indigenous people to their ancestral lands.

Marquez criticized his party's two-time presidential candidate and current Planning Minister Teodoro Petkoff for helping draft the decree. Marquez, 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 maintained intact. Petkoff, arguing that foreign capital would impose order on the illegal mining and concomitant 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 Eden 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 cushioned the government from pressures 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 mills to be 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 nationalization of the oil industry in 1976 boosted nationalist feelings, just as it had in Mexico in 1938. Venezuelan politicians are reluctant to reverse the process completely, though with Mexico's gradual privatization of secondary oil facilities as a model, many are willing to support piecemeal privatization. On July 21, Time magazine ran an anonymous eight-page advertisement entitled Opening the Door to Foreign Investors: The Venezuelan Oil Opening. The ad explained that the plans for the foreign exploitation of reserves, the private ownership of gas stations, and the privatization 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 privatized.

PDVSA president Luis Giusti has argued that the privatization of PDVSA should not be taboo, but even he is reluctant to buck public opinion by openly advocating its sale. Ali Rodriguez, vice-president of Congress's bicameral Mining Committee, and one of the breakaway radicals in PPT, told me it was not at all surprising 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 private capital to participate in the exploration and exploitation of oil reserves.

The Opening has three modalities: The first allows for the foreign management of marginal wells. (The Mining Committee's Rodriguez 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 modality 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 government 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 reserves, 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 relinquishment of its status as major investor points in the direction of the early days of the industry when Shell and Standard ruled the oilfields.

Originally PDVSA proposed parity 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 association 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 also oppose the privatization of the petrochemical industry as a whole, though in ratifying the Oil Opening, AD and other parties in Congress have certainly 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 utilizing locally extracted iron and bauxite. For many decades, the ambitious development plans for these state-run industries were a source of considerable national pride. The Iron Zone was also the home of a radical trade-union movement known as New Unionism which catapulted the Causa R onto the national political 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 proposal which would allocate half the proceeds derived from the CVG's privatization (after paying off outstanding 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 work force in both the steel and aluminum industries 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 interests. 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 preoccupation is shared by MAS' former president Gustavo Marquez, head of the 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 Fedecamaras, do want to exclude the state, and envision social security's privatization along the lines of the Chilean model. Fedecamaras points to the need to avoid the experience of the Venezuelan Social Security Institute (IVSS), which was a hotbed of corruption and which 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 administrator.

Nevertheless, the self-righteousness of business leaders belies their own responsibility for the IVSS' virtual collapse. According to the Finance Ministry, the government recently detected that the debt of all employers-both private and public-to the IVSS was on the order of several billion dollars. Indeed, Fedecamaras' interest in divesting the state of institutional mechanisms 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 union told me, that businessmen are hoping for a repeat of what happened with the loans granted by the CVF [Venezuelan Development Corporation]. When the CVF was dismantled the multimillion debt of the private sector was simply forgiven and forgotten.

The government and the country's principal labor confederation, the Venezuelan Workers Confederation (CTV), have insisted on a mixed public-private system which includes state administration and supervision. Labor leaders question the reliability of the financial institutions which would be in charge of investing the money deposited in individual worker accounts under the new arrangement. The government bailout of over half of the nation's banks as a result of a financial 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, however, has been less than firm in its attitude. Earlier this year, for example, 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 system, which a 20-year old Rafael Caldera helped draft in 1936, was one of the most advanced of its kind anywhere. The CTV blindly accepted Fedecamaras' argument that business' onerous severance-pay obligations tied up capital and discouraged 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 general strike on August 6 completely paralyzed the economy. The shutdown was directed against those companies which did not grant substantial wage increases, as the president of Fedecamaras explicitly promised, and against those who laid off workers, as Fedecamaras 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 government, which had dutifully met its obligations by increasing salaries for public employees, but against businessmen, who in general lacked the Schumpeterian zeal of their counterparts in other nations.

The ongoing debates in Congress over the terms of privatization of aluminum and steel; the opposition to the privatization of oil, petrochemical 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 differences over economic policy demonstrates Venezuela's acceptance 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 privatization.