International Business: Venezuela
Venezuela: "Investors Are Arriving from Around the World" (extended)
President Hugo Chavez speaks out on Venezuela's "peaceful revolution"
They call him Hurricane Hugo -- and with good reason. Since taking office as President of Venezuela in February, 1999, Hugo Chvez, the paratrooper turned politician, has swept away much of the old political order. The parties that once dominated the scene have been reduced to bit players as Chvez and his supporters have assumed control of the legislature and the courts. A new constitution, drafted and approved at the end of last year, paved the way for a "mega-election" on July 30. Chvez was reelected with a record 60% of the vote. That's surprising, since he has presided over one of the worst recessions in Venezuela's history.
On Sep. 5, editors Robert Dowling, Rose Brady, and Cristina Lindblad interviewed Chvez in New York, where he and other leaders had gathered for the U.N.'s Millennium Summit. During the hour-long conversation, Chvez outlined some of his plans for what he termed the second phase of Venezuela's peaceful revolution. Following is an extended version of the interview that appears in the 9/18/00 issue of Business Week.Q: You have spent a great deal of time on political matters in the past months. But what do you intend to accomplish on the economic front?
A: The problem of the first order was the political foundations of the country. I remember being in Washington a few days before taking office and meeting with President Clinton. I spoke about the need for a political fast-track. And it worked. A year and a half later, Venezuela had left behind a political order which was decayed and anarchic. And we did this within the confines of democracy, respecting the liberties and the opinion of the majority. We've had five electoral processes [two elections and three referendums] -- it has been democracy, democracy, and more democracy.
Now, we are in the beginning of the second phase, where the main problem is the economy. But that doesn't mean that during the first phase we neglected the economy. When I took office, the price of our main commodity had hit the floor. Oil was at less than $8 a barrel. Now, the average so far this year is $29.5. That has strengthened the bolvar and has permitted an economic reactivation.
We inherited a fiscal deficit of 8% of GDP and we lowered it in one year to less than 4%. Inflation, which was running at near 40%, is now down to 15%. International reserves, were at $13 billion to $14 billion, are at $18 billion. Lending rates were at 50% and now they are at 30%. In other words, we achieved a lot in one year. Furthermore, we have dragged the economy out of a hole. After four consecutive quarters of decline, in the first quarter of the year, gross domestic product grew 0.3%. And in the second quarter, there was growth of 2.6%.
Where are we headed? What we want to do is to transform the economic model. For decades, we have been solely dependent on the price of oil. We are looking to diversify the economy. Do you know how many laws my government has drafted? More than 40 just on economic matters. Venezuela never had an electricity law. We made one -- a tremendous and modern law. We've also passed a law to exploit gas. Also a law to promote investment. A telecommunications law, which has been applauded by the world. In other words, a bunch of laws designed to reactivate the economy. Q: What happens if oil prices go down -- let's say to $16?
A: We don't want to repeat the mistakes of our predecessors. Every time oil prices went up, they would say: "Let the party go on." Now, we are saving money. We have a macroeconomic stabilization fund -- a sort of piggy bank. When oil prices rise beyond $9 a barrel, a portion of the excess is channeled into the fund. And this money cannot be used for anything other than productive investment or for repurchase of debt. We are starting to leave behind our days of oil slavery. Q: What other sectors will support Venezuela as it moves away from oil?
A: Nonoil exports [are] up 20% in the first half of the year and are set to reach a record for the year as a whole. [In] agriculture, we've had a significant recovery. [In] tourism, we are opening the sector to private investment. Construction and infrastructure, natural gas, petrochemicals, and electricity are some of the areas that we are promoting.
We are also investing in the reactivation of 11 industrial complexes. These zones look like ghost towns. Weeds covered the warehouses, machinery was buried under the brush. These were installations that had cost millions of dollars and had been entirely abandoned. Q: Is Venezuela open to any kind of foreign investment?
A: There are no restrictions. Investors are arriving from around the world. In oil, in gas, in mining, in tourism, petrochemicals. In fact, we have even removed obstacles to investment that existed before. We've increased the level of legal security. Companies in Venezuela now realize that there is a judiciary that is not in the hands of the mafias. That there is a government that is not taking money under the table. Q: Would you care to comment on the controversy involving Ford and Firestone in Venezuela?
A: No, I really have nothing to say. The matter is in the hands of competent agencies. If a family goes out in a vehicle and a tire explodes and the car flips over and the children die, as the father of those children, of course I'm going to try to take recourse in the law. Of course, it's not just one tire -- its two, three, four. So something strange is going on.Q: What is your long-term policy on taxes?
A: Our strategy is to ease the tax burden on an economy that was bankrupt. For example, we've just declared a five-year income tax moratorium for companies in the agricultural sector. We have also created special tax-free zones to promote investment. We are trying to improve collection. Tax evasion averaged 40% over the last few years. It has already dropped by 10%, and it's still falling. We want to launch a public-education campaign to teach the people that it's their duty to pay taxes. Q: Many say the bolvar is overvalued, but you rule out a devaluation.
A: The currency is not overvalued. Our exports are growing, our international reserves are growing -- we'd be crazy to consider a devaluation. Devaluation, in Venezuela and in other Latin countries, used to be a way to finance fiscal deficits. It was irresponsible -- and inflationary.Q: Do you think there's still a lot to be done to rid Venezuela of corruption?
A: Yes, lots. Corruption in Venezuela is like a cancer that has penetrated everything. Presidents were common thieves. And not just Presidents but magistrates, governors. Do you know how many judges we've removed? Two hundred in just one year. Many are now facing trial.
Thanks to a new constitution, we now have five branches of power. Besides the judiciary, there is what we call the citizens' power, which is made up by an ombudsman, a general controller, and the attorney general. The process which we've set in motion is advancing towards a democratic model that, beyond being representative, is also participatory. Q: The new constitution approved at the end of last year makes bold promises on health care, education, employment, and women's rights. Can your newly elected administration realistically fulfill all these pledges?
A: I wouldn't say bold. I would say fair. These are not the government's objectives -- they are the people's. Venezuelans, in this peaceful revolution, have gathered all the longings of mankind and sowed them into their constitution. And all of this has nothing to do with the price of oil.