Venezuela's socialist response to the global economic crisis

By Marcus Pabian

While US President Barack Obama is desperately trying to rescue the crisis-ridden capitalist system with multi-billion dollar bailouts for the financial corporations, tent cities of newly homeless people are springing up across the US as unemployment and housing foreclosures soar. In stark contrast, poverty and unemployment have continued to drop in Venezuela, where President Hugo Chavez announced on March 21 an “anti-crisis” budget that aims “to protect social programs, the people and the workers” as his government deepens the country’s socialist revolution.

Venezuela’s unemployment rate was 7.4% this February, down from 7.6% the previous February. In February 2007 the unemployment rate was 10.9%. The official US unemployment rate at that time was 4.5%. This February it reached 8.1%.

While the measures in the new budget bring austerity for the rich, the top priority is maintaining spending on Venezuela’s 25 social “missions” — the nationwide programs run by Chavez’s government that aim to meet the needs of working people in food, health, education, housing, social security, and culture, and which contribute to ecological sustainability. These social missions have largely been funded by revenues from the giant PDVSA state-owned oil company that was taken out of the control of its pro-capitalist managers by the Chavez government at the beginning of 2003. The missions provide an alternative public administration to the bureaucrat-dominated civil service inherited from the capitalist regime.

Taking account of the fall in income from oil exports due to the fall in oil prices to their 2004-05 average of US$43 per barrel, Chavez announced a 6.7% reduction in budgeted expenditure for this year, bringing government expenditure to 156 billion bolivars ($72.6 billion) this year. The new budget is based on an oil price of $40 per barrel, correcting previous plans based on an average of $60 this year. The expected budget shortfall of $17 billion in oil revenues will be made up through sale of $10.2 billion in local-currency bonds, an increase in the sales tax from 9% to 12% (yielding an extra $4.2 billion in revenue) and cutbacks to “unnecessary spending”.

The principal target for this measure is a big reduction in the salaries of top state employees. These will be cut from their current maximum of $27,000 per month to a maximum of $4,465, which is 12 times the minimum wage ($372), and four times the base wage of a steelworker ($1037). “It’s necessary to … end with extravagance, finish with corruption … and finish with the mega-salaries”, said Chavez when raising the need for austerity at the top of the state apparatus last year. Chavez also announced a proposed new law to be introduced this year that would “eliminate luxury costs [in the civil service] – [such as] the acquiring of executive vehicles, redecorating, real estate, new headquarters, promotional material and unnecessary publicity, [and] corporate gifts”.

To offset the increase in the sales tax, there will be a 20% rise in the minimum wage, already the highest in South America, over the course of 2009. This will benefit over 2.6 million people whose government pensions and allowances are set at 60-80% of the minimum wage, such as poor women who receive an allowance via the social mission Mothers of the Neighbourhood in recognition of their unwaged domestic labour contribution to the economy.

Oil prices and social spending

Since the price of oil began declining from its July 2008 peak of $147, Venezuela’s opposition media and the US corporate media have predicted Chavez would introduce an austerity budget in 2009 that would cut back spending on the social missions. The February 14 Washington Post, for example, ran an article claiming that, “The beginning of the end is setting in for Hugo Chavez … Oil prices may recover somewhat from their current lows of around $40 a barrel, but not soon and not anywhere near the more than $80 a barrel that Chavez needs to stave off a major currency devaluation that would stoke rampaging inflation and food shortages… With oil largess, Chavez built schools and hospitals for the poor … But … he built nothing economically sustainable.”

The opposition media campaign claimed Chavez would introduce a 400% increase in the price of gasoline, a 25% increase in gas and electricity prices, a freezing of the minimum wage, a hike in the sales tax to at least 19% and the defunding of the social missions. Despite such claims pro-Chavez forces won the regional elections in November last year and the constitutional amendment referendum in February. However, as Rodrigo Cabezas, vice-president of Chavez’s United Socialist Party of Venezuela (PSUV), pointed out on March 21, it’s only the opposition parties that have brought in such neoliberal packages “aimed at preserving capital”, while Chavez’s budget is “aimed at preserving the purchasing power of the workers”.

Despite the new budget increasing government borrowing from $12 billion to $34 billion, the Chavez government has built up considerable reserves from the last few years’ high oil prices. The bulk of Venezuela’s $43 billion international cash reserve has been deposited since 2005 with the Bank for International Settlements in Basel, Switzerland — the central bank of the world’s central banks — rather than the big US private banks. As Chavez pointed out in February, “If we hadn’t stopped trusting our international reserves to the big banks in the United States, a good part of those reserves would [now] be lost.” A second major reserve, the $53 billion national development fund (Fonden) is already being used to fund projects beyond the budget, such as construction of highways and roads, irrigation systems, food processing plants, another petrocasa factory (providing government-subsidised houses made from petroleum processing leftovers) and free distribution of medicines.

State power and socialist measures

Although Chavez was elected at the end of 1998, it wasn’t until after the April 2002 mass revolutionary uprising that defeated the coup organised by the military top brass and the employers’ federation (Fedecamaras) that Chavez was able to implement radical anti-capitalist measures. The April 11, 2002 military coup that ousted the elected Chavez government was aimed at stopping the Chavistas from taking control of PDVSA, Venezuela’s largest company. The coup was initially successful, with Chavez being detained and his government being replaced by a cabinet headed by Fedecamaras president Pedro Carmona. However, within 48 hours Carmona’s right-wing government was ousted by an insurrection carried out by younger military officers, soldiers and poor working people who wanted to see Chavez use PDVSA’s oil revenues for the needs of the working majority rather than the capitalists. In the wake of the defeat of the coup, those military officers who had plotted its execution were forcibly retired over the following months.

As a result, the “restored” Chavez government had firm control over and support from the armed forces, the key institution of state power. Their was no dissent in the military when Chavez ordered it, in collaboration with oil production workers, to take control of PDVSA in early 2003, defeating an oil bosses’ strike that began in December 2002. In a nationally televised address on January 10, 2003, Chavez declared that, “only now can we say the PDVSA has begun to be the property of Venezuelans, the property of the Venezuelan people”. Since the takeover of PDVSA, the Chavez government has redirected its oil revenues toward funding the social missions and laying the foundations for socialist planning by progressively nationalising telecommunications, electricity generation, the mining, metal and cement industries, US oil company assets and banking companies.

Contrasting the character of the Venezuelan state’s “intervention” into economic life with the interventions, including nationalisations, carried out by the capitalist states in the face of the global financial crisis, Venezuelan foreign ministry official Martin Saatdjian explained in an article published last October on the Venezuelanalysis website that capitalists want state intervention that “translates into strengthening the wealth and power of the richest people”, by nationalising their business losses. By contrast, “socialist state intervention prioritizes the most basic needs of people. This is the type of controlled and planned intervention that has been carried out by Hugo Chavez in Venezuela, while at the same time maximizing democracy, political consciousness, and the participation of the people in managing their own affairs. The enterprises that have been nationalized in Venezuela, such as the main communications company (CANTV), the iron and steel industry (SIDOR), and one of the principal banks of Venezuela (Bank of Venezuela), are highly profitable enterprises… The resources that previously went into the pockets of rich people or became capital flight, are now being used by the government of Hugo Chavez to finance public heath care projects that are highly beneficial to the neediest people.”

‘Expropriation season’

Since winning the February 15 constitutional reform amendment, the Chavez government has launched a drive to nationalise private contractor-run offshore oil rigs, transportation infrastructure and the food processing monopolies, leading Boston-based “for-profit” GlobalPost news website to declare on March 16, “It’s expropriation season in Venezuela”. As well as new nationalisations announced on February 18, Chavez inaugurated a new mobile phone manufacturing and assembly plant (VTELCA) that aims to produce 600,000 mobiles which will then be sold through the state-owned mobile phone company Movilnet. VTECLA aims to eventually meet all demand in Venezuela.

Attempts to reign in the profiteering of the food industry bosses began in 2003. In order to increase access to food by poor people, price controls were introduced on a range of basic foodstuffs including chicken, rice and sugar to counteract the high prices of private food monopolies and intermediates. The government also funded Mission Mercal markets to sell heavily discounted food. Today the markets number over 15,600 and reach over 13 million people. In mid-2008, following the breaking of price controls by the big food companies, the Chavez government enacted the “Strategic Lines for Food Security and Sovereignty” law, laying the legal basis for a state-owned food processing industry.

On January 1, after a spate of food shortages, Chavez ordered the Bolivarian National Guard to begin seizing basic foods being hoarded or smuggled by the food companies, such as rice, sugar, cornmeal and powdered milk. On February 27, the National Guard discovered 16,000 tonnes of hoarded rice at a mill owned by one of Venezuela’s major food companies — Polar — which was only producing 3000 tons a month instead of its capacity of 7000. This prompted Chavez to order the National Guard to take over Polar’s rice mills the following day, telling TV viewers: “I have ordered the immediate intervention in all those sectors of agro-industry, intervention by the revolutionary government to protect the people, not the bourgeoisie or the rich.”

Chavez warned all the food processing companies against further sabotage of government price controls: “I will expropriate them, I have no problem with that, and I’ll pay them with bonds. Don’t count on me paying with hard cash”. Agriculture minister Elias Jaua said that 90% of the rice milled by Polar was marketed outside of price controls. Three days later, the rice mills of the giant US-based Cargill corporation were taken over. Cargill employs 2000 people in Venezuela and operates 13 plants that also produce oilseed and process animal feeds.

Last October, Francisco Roberto Arias, the UN Food and Agriculture Organization representative, said that Venezuela was better prepared than many countries to face “the world economic crisis and the volatility of food prices, while maintaining the food and nutritional security” of its people. He attributed this to the Chavez government having implemented “strategies including the strengthening of social networks such as [the social mission] Mercal, Pdval and [the] Food Houses, which aim to allow the most vulnerable sectors of society to have a greater access to food”, as well as the government’s “promotion of domestic food production by increasing investment in this sector, organising producers, increasing the access to land and especially the support provided to family farming”.

As a further contribution to increasing food production, the government’s National Institute of Lands (INTI) has seized another 5000 hectares of idle land owned by wealthy families and foreign corporations. On March 9, speaking alongside National Guard troops occupying a 2800-hectare section of the large privately owned Caroni farm, INTI president Juan Carlos Loyo said the “struggle against large land estates” would intensify this year. He explained that there was a “need to change the agrarian structure of our country from the private property of a few people to social property, that is, property of all Venezuelans, socialist property”.

New battle with foreign oil companies

In an effort to save money in the midst of lower oil prices, on March 6 Venezuelan oil minister and PDVSA president Rafael Ramirez announced that the government was slashing by 50% the amount it spends on oil industry contractors. Ramirez said that PDVSA had recently paid off debts to 94% of its more than 5700 small service contractors, but was still in negotiations with 56 “large transnational” service companies. Some of these companies were asking for payments based on last year’s inflated oil prices, he said.

Ramirez warned them that if these companies halted production to demand higher payments “we’re going to take over those rigs like we already did with Ensco”. Dallas-based Ensco announced in January that it had suspended operations on an oil rig off Venezuela’s Caribbean coast because it was owed $35 million, prompting PDVSA to take over Ensco’s operations. Venezuela has 266 active oil rigs but only 51 are operated by PDVSA.

The March 24 Wall Street Journal reported that “PdVSA has paid a fraction of its debt to a group of 56 oil-service companies … Oil service giants Halliburton Co and Schlumberger Ltd have received anywhere between 5% and 7% of their total pending bill which adds to roughly $1 billion combined, by some estimates … Recent comments from top PdVSA and oil ministry officials suggest the fight will be a long one for contractors. Oil Minister Rafael Ramirez said early this month that the government will review the legality of these debts. He has declined to say how much of PdVSA’s pending bills could be considered illegal. Meanwhile PdVSA plans to continue seizing oil rigs that become idle because of lack of payment. ‘We won’t allow these companies to paralyze the industry’, said Eulogio Del Pino, a PdVSA director. Paralyzing equipment, he argues, violates the contracts these companies have signed with PdVSA. Del Pino said that in those cases, PdVSA will take control and operate the equipment for as long as it takes until PdVSA can negotiate new rates and a payment schedule with the contractor.”

Since its February referendum victory, the Chavez leadership has also stripped power from the five opposition state governors. Following the state elections in November last year opposition governors began disrupting the vital social missions. The national parliament voted on March 12 to bring under federal government control all airports, highways and seaports. Three days later Chavez ordered the navy to secure two of the biggest seaports, Port Cabello and Maracaibo Port, in the opposition-controlled states of Carabobo and Zulia, declaring that they had been used for smuggling.

The Chavez government is now pressing corruption charges against Manuel Rosales, opposition mayor of Maracaibo, the capital of Zulia state, for failing to account for $66,000 during his first term as state governor from 2000 to 2004. Rosales is also notorious for helping to lead the capitalist coup against Chavez in April 2002, being among the handfull of people who signed the coup decree scrapping the 1999 constitution and dissolving the national parliament and the Supreme Court.

The April 3 Miami Herald reported that “the opposition governor of Miranda state, Henrique Capriles Radonsky, also faces prosecution after a government legislator, Dario Vivas, called for him to be investigated on corruption charges … In the southeastern state of Tachira, Gov. Cesar Perez Vivas, a member of the opposition, faces the possibility his victory will be declared null and void and a fresh election held. In the capital city of Caracas, Metropolitan Mayor Antonio Ledezma — who has been ousted from city hall by pro-Chavez squatters — is likely to see his powers and resources drained away by a newly created ‘vice president for Caracas’ appointed by Chavez.”