As Venezuela continues to import 70% of the food it consumes, president Hugo Chavez is demanding the central bank the release of a billion dollars from the country’s soaring international reserves to fund agricultural development.
|Venezuelan President Hugo Chavez talks to workers at a new industrial plantain processing plant in the state of Zulia on January 7, 2004.|
Caracas, Venezuela. Jan, 8, 2003 (Venezuelanalysis.com) Venezuelan President Hugo Chavez renewed his demands for Central Bank funds to finance agricultural development. Chavez is demanding the release of a billion dollars from the country’s soaring international reserves to fund an aggressive program to revive the country’s stagnant agriculture sector. The President said that four billion dollars are needed to promote massive and long lasting agricultural development.
“What’s the use of fighting for fair oil prices and struggling to recover the country’s oil production if we are just going to put that money in the central bank which then will deposit it in North American banks?” asked Chavez during a speech on Wednesday after inaugurating a plantain processing plant in the state of Zulia.
Chavez initially made his request to the central bank in November, and since then he has publicly pressured the bank to release the funds.
Food self-sufficiency is a matter of national security, according Chavez. Venezuela, a country of 25 million people, imports almost 70% of the food it consumes. Venezuela’s vast and fertile lands remain largely unused, as previous administrations have concentrated on the development of the oil industry and have not supported the agricultural sector effectively.
The government has implemented an aggressive program to develop agriculture and lower the country’s dependency on imports. Through the new Land Reform sponsored by Chavez, thousands of acres of public land have been transferred to farming cooperatives. Along with the land, farmers receive low interest loans and machinery.
Venezuela’s international reserves have grown about 14 billion US$ in January of 2003 to 21.4 billion US$ in early January of 2004. The increase is largely attributed to the currency exchange controls implemented by the government to curb capital flight after the devastating lockout and sabotage of the oil industry sponsored at the end of 2002 by the opposition to topple the President. The central bank holds most of the reserves.
|Venezuela’s international reserves have increased sharply since currency exchange controls were implemented after three-month lockout and sabotage of the oil industry sponsored by the opposition at the end of 2002.|
Source: Central Bank of Venezuela.
National Assembly joins the battle
The National Assembly finance commission has met with central bank officials to try to convince them of the need to help finance the agriculture development programs. Deputy Rodrigo Cabezas, head of the finance commission, will present a proposal to the Assembly in order to get an official exhortation from the Legislative Branch to the central bank. Cabezas is a member of President Chavez’ party Fifth Republic Movement (MVR).
The central bank said in a statement this Wednesday, that while it shares the President’s concerns and plans to develop agricultural production, “the Constitution forbids the central bank from giving loans to the government and from financing budget deficits.” Central bank officials argue that their institution cannot give loans to farmers directly, but only through facilitating liquidity to banks though rediscount operations, which are currently set at 32%. However, according to law, the banks have to give the loans first before receiving assistance from the central bank.
The central bank argues that banks are limited by law to only give short terms loans, and that a long-term program for agricultural development requires specials funds from an organization designed for such purposes.
However, the government argues that the bank can establish special conditions for those credits. Article 48 of the Central Bank Law establishes the central bank can give credits for up to thirty days, term which could be extended to sixty days. However, that same article also says “the [bank’s] directory can establish special conditions for the operations described here, as long as those are guaranteed by titles from credits to finance agriculture, livestock, forestal, and fishing projects determined by the Executive Branch”.
The President threatened to appeal to the Supreme Tribunal of Justice if the central bank does not cooperate with the government plans. A minority within the central bank directory sympathizes with the President’s requests, according to insiders.
Chavez on a spending spree?
Opposition critics argue that Chavez is on a spending spree in order to “buy votes” as a possible referendum on his mandate approaches. However, according to the Integrated System of Social Indicators of Venezuela, spending in social programs increased only marginally in 2003 to 11.1% of the country’s GDP, up from 10.71% in 2002. In 2001, 11.8% of the GDP went to social programs, therefore the government is actually spending less money now.
Chavez also said he could convoke a referendum, as the Constitution allows the President to consult the people in matters of national transcendence. He said he would wait until January 15 before taking further actions.
During a speech, Chavez said the government could intervene the central bank if necessary. The Minister of Finances Tobias Nobrega later dismissed the idea saying that the President’s words were taken out of context. “The government has no intention of taking over international reserves or to control the central bank. All of the government’s actions are within the framework of the Constitution, which guarantees the independence of the central bank,” said Nobrega.