Mérida, December 18th 2009 (Venezuelanalysis.com) – The Venezuelan government announced on Wednesday that it will take control of a private insurance company that had contracted with the government to serve public sector employees. The move came amidst a month-old state intervention into the private banking and finance sector to combat fraud. Also, the National Assembly passed a banking law reform to increase depositor insurance and tighten banking regulations.
After determining that the insurance company Seguros La Previsora was two months behind on its payments for contracts with public institutions, the state decided to take over the administration of the company, President Hugo Chavez announced from Copenhagen, Denmark, where he is currently participating in the United Nations climate change conference.
Over the past month, the government opened national investigations of eight private banks, one state-owned bank (Banfoandes), and several stock brokerage firms for alleged fraud. Two of the banks were liquidated, two were rehabilitated and incorporated into Banfoandes, and four were fused into a new, state-owned bank called Banco Bicentenario. Several investigations are still pending.
National authorities have arrested ten bankers and issued arrest warrants for dozens of others in the crack down on fraud, including, most recently, the head of the national securities commission. They have also seized dozens of small companies, tens of thousands of hectares of land, and other such assets owned by the bankers who are under investigation, four of whom are suspected to have fled the country to avoid going to trial.
“We are assuming the obligations of the state,” Chavez said, emphasizing the contrast between his government’s intervention in the banking sector and the massive bailouts issued by the U.S. government to private banks during the financial crisis that hit in 2008.
National Assembly Legislator Rafic Souki, from the Finance Committee, said six out of the eight private banks that the state intervened in recently will re-open on Monday.
On Tuesday, the National Assembly approved a reform to the General Law on Banks and Other Financial Institutions. The reform increased the bank deposit guarantee from 10,000 bolivars (US $4,650) to 30,000 bolivars (US $13,950) per depositor, increased banks’ mandatory contributions to the public deposit insurance fund and granted the government more power to enforce this, and placed prohibitions on long-term credits in some sectors of the economy.
With the law reform and the recent bank interventions, which increased the state’s share to nearly a quarter of the national banking sector, the government seeks to gradually change Venezuela’s capitalist economy into one that reflects the values of “21st Century Socialism.”
A long-term blueprint for this transition was laid out in a seven-year development plan after Chavez was elected to his second term in 2006. A series of laws passed in 2008 further outlined the transition by detailing new types of social and communal property that may co-exist with private property, and new forms of enhanced democratic participation in economic decision making.
Next year, the government plans to increase and focus investments in the productive sector, including food production and manufacturing, to accelerate the diversification of Venezuela’s oil-dependent economy.
National Assembly Legislator Carlos Escarrá, who is from the governing United Socialist Party of Venezuela (PSUV), was quoted by the Venezuelan daily El Universal saying that the country is in a “phase of the installation of socialism.”
Escarrá said part of the long-term vision for the economy is a network of productive units managed by local community councils on the basis of social property, rather than private property, according to El Universal.
The new state-owned Banco Bicentenario that was created as a result of the recent bank interventions “will be a development bank for the socialist productive model,” Escarrá said.