Venezuela’s Special Economic Zones: A Conversation with Oly Millán

A former minister of Hugo Chávez talks about the government’s new economic strategy.

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Oly Millán (Venezuelanalysis)
Oly Millán (Venezuelanalysis)
By Cira Pascual Marquina – Venezuelanalysis.com
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[Editor's note: After publication, it was brought to our attention that the interviewee was part of a group of intellectuals that met with self-proclaimed "Interim President" Juan Guaidó in early 2019. This group is not in the US-backed opposition camp and has not endorsed the regime-change efforts, but this meeting still needs to be critically interrogated.

At VA we remain committed to shining a light on debates within the Bolivarian left, especially when it comes to economic policy. We encourage readers to weigh the above fact in the current interview and vow to continue producing content that will allow an English-speaking audience to better grasp Venezuelan reality.]

An economist and a professor at Venezuela’s Central University (UCV), Oly Millán is a former Minister of Popular Economy under Hugo Chávez. In this interview, we talk to Millán about the Law for Special Economic Zones (henceforth SEZs), which is expected to soon be approved by the National Assembly. The law’s white paper, ratified by National Assembly members from the PSUV and opposition alike in late April, has been criticized by many Chavista analysts including writers Luis Britto García, economist Pascualina Curcio, and lawyer and former constitutional assembly delegate María Alejandra Díaz.

The National Assembly just approved the first draft of the Organic Law for Special Economic Zones. Venezuelan SEZs will not be unique. In fact, Latin America plays a vanguard role in implementing SEZs, with Colombia, Honduras, Mexico, Dominican Republic, and Panama ahead of us! By suspending the nation's legal jurisdiction, the SEZs aim to generate conditions favoring foreign investment. Can you briefly explain the SEZ “white paper” to us?

It is important to talk about this, because the approval of the Law for Special Economic Zones would have a big impact on our economy and our sovereignty. In fact, I would argue that it would be the fullest expression of the liberalization process that began in 2014, when the Law for the Integral Regionalization for the Socio-Productive Development was passed. That law opened the path to creating SEZs in that it partially abrogated national laws in some territories.

The key elements for developing SEZs are, technically, economic ones: fiscal and financial obligations are lifted while environmental restrictions are relaxed in favor of capital. In this sense and otherwise, SEZs are undoubtedly neoliberal in character.

The white paper – approved in the National Assembly’s first debate – opens by stating that its objective is to favor investment based on “Venezuela’s comparative advantages,” thus “taking advantage of the potential of the national economy.”

For economic liberals, “comparative advantage” refers to the potential that a country has in terms of its geographical location (proximity to markets), infrastructure (ports, airports, roads, etc.), labor force, and resources. In fact, all this boils down to two key factors: cost advantage and differentiation.

The fact that Venezuela now has the cheapest labor force in the world combined with its significant natural resources, represents both a cost advantage and a kind of product differentiation.

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Map of the Orinoco Mining Arc, which amounts to 111,800 square km or 12% of the national territory. (Mining Press)
Map of the Orinoco Mining Arc, which amounts to 111,800 square km or 12% of the national territory. (Mining Press)

Where exactly would the SEZs be implemented in Venezuela?

The bill doesn’t mention where the SEZs would be developed. We suspect, however, that the de facto SEZs that already exist around the country – often referred to as “Economic Military Zones” – would officially become SEZs after the law is passed.

On December 22, 2020, two such Military Economic Zones were created, one in the state of Aragua, around CAVIM [Venezuela’s military industry] and another one located on the border between Bolívar and Delta Amacuro states, in Venezuela’s Amazon region. The latter is referred to as a “Special Military Economic Zone for Forestry Development” [for lumber extraction]. Both were approved through presidential decrees published in the country’s Official Gazette [number 42.034].

Government spokespeople have talked about developing SEZs in the coastal areas of Puerto Cabello-Morón, La Guaira, Falcón, and Nueva Esparta. They have also mentioned that SEZs could be implemented on the border with Colombia.

Additionally, the Orinoco Oil Belt is expected to become a SEZ. Finally, the Orinoco Mining Arc, which became a National Strategic Development Zone in 2016, is likely to become a SEZ as well. A 2016 decree opened a territory the size of Cuba to gold and rare metal mining. Since then, there has emerged a violent and practically deregulated extractivist underground or shadow economy there.

You and many other Chavista intellectuals have claimed that the SEZ law is unconstitutional. However, National Assembly deputy Nicolás Maduro Guerra [son of President Maduro], has argued that the SEZ proposal reflects the spirit and purpose of Article 300 of the Constitution of the Bolivarian Republic of Venezuela. That article promotes “a new model of economic development as an alternative to oil rentierism.” Isn't it true that Venezuela must look for options outside of rentierism?

The unconstitutional nature of this SEZ bill lies in five areas:

First, it grants powers to the President of the Republic to enclose and fragment the national territory by creating spaces where the existing fiscal, financial, commercial, and even labor laws will not apply. If you review Article 236 of the Constitution, it does not grant such powers to the president. By contrast, article 11 of the Constitution states that “The full sovereignty of the Republic is exercised in the continental, insular, lacustrine, and fluvial spaces, territorial sea, inland marine areas, both historical and vital, and those included within the straight baselines that the Republic has adopted or adopts.”

Second, it is the people, as defined in Article 5 of the Constitution, who exercise this sovereignty, and it is non-transferable.

Third, in creating the SEZs, an archipelago of autonomous “republics” within the republic will come to exist. The SEZs are territories whose primary stated objective is to attract investment. As such, the proposed law violates Article 317 of the Constitution which reads: “No taxes, state fees, or contributions established by law may be levied, nor may exemptions and rebates be granted.”

Fourth, the SEZs would practically void the functions and responsibilities of local governments in the territories where they are implemented, since the new law grants the president the right to appoint a general coordinator of sorts to each SEZ. That coordinator holds power in the SEZ and is directly accountable to central power. This person will also control and administer the SEZ’s budget. All that represents a substantial modification of the country’s territorial organization as defined in the Constitution.

Fifth, the bill opens the door to financial and currency-exchange deregulation. What this really means is that it is setting in place an institutional pathway toward legitimating the “underground economy” that has developed in the course of the crisis. In fact, some of the law’s defenders talk about installing casinos in the SEZs.

But to come back to your question: indeed, the government's discourse justifying the SEZs strategy is that the country needs to look for alternatives to the oil rent. They repeat this time and again. However, the SEZs will not overcome the extractivist, enclave model. On the contrary, implementing them will surrender sovereignty to transnational capital and also strengthen the extractivist model through a process of financial deregulation.

Here I should add that the SEZ law is complemented by the Anti-blockade Law, which allows deals between the government and private capital to be carried out behind closed doors, without public knowledge of the agreements.

Venezuela is going through a deep crisis (which among other things impacts basic services and transportation) and the sanctions are very crippling. From the perspective of capital, can the SEZs actually work in this context? And if they work, what type of capital will they attract?

Through much of the 20th century and up to today, the predominant form of capital in Venezuela has been financial.

Financial capital is extremely speculative, and it is also predatory. In Venezuela, its process of valorization depends on capturing the rent based on a natural resource that is held in common, always seeking short-term profits. Financial capital is very efficient when it comes to taking advantage of crises: it thrives on “high risk, high profits” schemes. Additionally, financial capital likes opacity and deregulation. The government is aware of this and is catering to business demands… So, yes, I think the SEZs may work well here for the interests of capital.

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Problems such as fuel shortages persist in Venezuela. Will such problems, which are in part due to the sanctions, have an impact on the implementation of the SEZs? (Adriana Nuñez)
Problems such as fuel shortages persist in Venezuela. Will such problems, which are in part due to the sanctions, have an impact on the implementation of the SEZs? (Adriana Nuñez)

Proponents of the SEZ law claim that it is needed to reactivate the economy and increase salaries. They also contend that the policy will allow the government to reactivate social programs. While the use of SEZs seems contrary to a progressive agenda, can they be seen as a tactical retreat for getting out of the current crisis?

One cannot say that the government’s moves are merely tactical. From my point of view, they represent a strategic shift. If you look at laws and policies from the past few years, you will find a common thread: the government seeks to consolidate a neoliberal extractivist economic model. This is not one step back with a view to taking two steps forward!

As an economist, what strategies would you propose to overcome the crisis (and the sanctions) in a way that is compatible with the socialist project?

The first step would be to acknowledge that we are facing a deep, structural and systemic crisis as a result of two forces acting together.

At the internal or national level, we have to reflect on our mistakes in terms of economic policy. With Chávez and later with Maduro, the country did not break with oil dependency. In fact, dependency grew. To give you an example, from 2004 to 2014 the average price of a Venezuelan barrel was 69 USD, but paradoxically, during that same period of high oil revenues, the nation contracted the largest debt in its history.

This, together with corruption, generated huge amounts of capital flight and the creation of a new sector of the bourgeoisie organized around what is called the “underground economy”: new companies with capital that is highly questionable in origin. If we look at the sources of their wealth, we find both access to subsidized dollars and to mining.

The economic crisis has been evident since the end of the last century with the exhaustion of the oil rentier model, but little has been done to move toward a post-rentier, post-extractivist economy.

The collapse of the oil industry began to be evident long before US imperialism imposed economic sanctions. The sanctions began in August 2017. Then they got worse, to the point of preventing third-party negotiations with PDVSA. However, if we had had a well-administered oil industry with both technical and managerial capacity and transparency, the sanctions would not have had this level of impact.

Another thing that should be taken into account is climate change and the civilizational crisis. A shift away from the energy matrix currently centered on fossil fuels is required. We have to rethink the way we relate to nature as it connects with economic development. This concerns not only Venezuela but Latin America as a whole, which was incorporated into the world capitalist system as a provider of raw materials.

As we reflect on solutions for Venezuela, we should think beyond rents based on natural resources. However, the “alternative” that consists of offering the country to international capital on a silver platter is not a solution either.

Overcoming the crisis will require a process of self-critique. Although the sanctions are real, we cannot blame all our problems on others. The US operates with a political agenda, and we reject that, but the problems with our economic model go back much further.

To obtain a solution to our problems, we must overcome institutional opacity. This means respecting the Constitution and looking for real answers to the ongoing political crisis.

Finally, we must define a comprehensive economic plan balancing the main macroeconomic variables… And life must be placed before the interests of capital.

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