Venezuela is bankrupt because of socialism and is relinquishing control of its companies

The Venezuelan government, which has hundreds of bankrupt state-owned companies in a free-fall economy, abandons socialist doctrine and transfers important companies to private investors, offering profit in exchange for a portion of the income or products.

Dozens of Chemical factories, coffee processors, grain silos and hotels seized over the past two decades have been transferredBut not sold to private operators in so-called strategic alliances, nine knowledgeable people said. Administrators pay payroll and investments, and provide products and a percentage of their income to the government.

“We think this is positive because it is the synchronization of the public sector with the private sector”said Ramón Lobo, a legislator for the ruling Socialist Party and a former finance minister. “The state acts as a regulator and receives compensation.”

The change is noticeable in agriculture, part of the effort Nicolás Maduro for feeding a starving population after seven years of economic and social collapseIt is unclear how much money the new policy will bring in, following the passing last year of an “anti-blockade” law aimed at reducing the impact of US sanctions and boosting investment. The government now allows remittances to flow and private businesses to thrive in small pockets.

Maduro took power eight years ago after the death of Hugo Chávez, which kick-started the socialist revolution by seizing more than 1,000 businesses and numerous farms and properties, including assets of multinational corporations such as Kimberly-Clark, Cemex and Kellogg. The new state-owned enterprises have failed due to maladministration. Using its enormous oil revenues, the government replaced local crops and production with imports.

The Venezuelan state oil company PDVSA was placed in the hands of allies and also became inefficient, effectively making it a branch of the ruling party.It was ruined and forced to cease production. Between that and the recent US sanctions, which have increased significantly during Trump’s presidency, they destroyed a society that was once among the richest in the world.

More than 5 million Venezuelans have fled the country in a desperate attempt to avoid ruin.

“Maduro’s government made a turnaround in late 2019 by promoting ferocious capitalism,” said Rodrigo Agudo, head of the Venezuela Food Network. “It stopped collecting taxes from certain companies, granting import permits, and convincing military officials and others to invest money from unknown sources in local businesses.”

In 2017, strategic alliances began to form silently. The publication of the anti-blockade law last year gave the deals a legal basis, bypassing rules such as bidding processes.

But the exact nature of the new agreements, whether for leases, licenses or bailouts, is unclear. The anti-blocking law, in theory, prohibits the disclosure of such information protect companies from US sanctions, which target entities that do business with the government but exclude private companiesThe Ministries of Agriculture and Information have not responded to requests for comment.

The new agreements will affect the main companies and mainly concern businessmen with ties to the government, but not exclusively. In some cases, seized property is returned to those from whom it was seized. In others, the owners refuse to participate. Similar association conditions have previously been established in the oil industryPDVSA gave local businesses more control over state assets such as oil and gas compression plants to operate and increase production. And in some cases, PDVSA gave partners more capital in their joint ventures.

Lobo, the socialist lawmaker, said the agreements have terms, generally five to ten years, and act like a concession. The private company agrees to invest, increase production within a certain time frame and manage the assets

Most of the new arrangements are made in the country’s rural areas. Agropatria, a 2010 nationalized agricultural supplies monopoly company that ran five businesses, now turns to private managementMore than half of the 70 stores and two of the pesticide factories, which President Chávez said were seized “to free producers from extortion and middlemen,” are now managed by Agrollano 2910, a local farm that generates nearly $ 150. million invests. according to four people.

Lácteos Los Andes, a large milk processor and beverage manufacturer bought by the government in 2008, is now managed by a private Venezuelan company, although no official changes have been made to the board.

Two government grain processing plants, largely inactive since opening in 2007, have been transferred but not sold to local private companies. The same is true of the milk and coffee factories built during Venezuela’s oil boom and under bilateral agreements with regional allies such as Cuba, Bolivia, Brazil and Argentina.

Conditions for companies vary. The major contribution is a percentage of the state’s profit or output. In some cases, the government and managers are discussing a standardized monthly salary scale between $ 60 and $ 80 for workers and technicians, some people added.

Not all companies with which the government wants to cooperate arouse interest. Local business people are wary of years of poor maintenance under state supervision and fear new nationalizations.

Maduro, who cut allocations for some state and local governments during the crisis, has given them the space to partner with local businesses to generate revenue. In December, the governor of the agricultural state of Portuguesa, Rafael Calles, told the public media that alliances with the private sector in the management of 24 state-owned companies fetched $ 60,000 a month for the state government.

The government has never published the number of properties it has confiscated over the yearsBut a survey by the national industrial chamber Conindustria found that between 2002 and 2015, a total of 1,322 livestock farms, food stores, energy companies, mills, glass blowers, banks, supermarkets and cold stores had been expropriated.

Many ceased to exist and there are only about 700 left. Most of the former owners are still awaiting compensation or in a lawsuit hoping to receive payment, according to a 2019 study by Transparency International.

Some analysts point out that what is happening in Venezuela has precedents in other authoritarian left-wing states.

“This process is similar to the privatization process in Russia in that assets are transferred to local private companies and investors from countries affiliated with the government,” said Asdrubal Oliveros, head of the economic consultancy Ecoanalítica, of the 1990s. But unlike Russia, there has not been a deep stabilization program with the help of multilateral organizations.Being isolated and under sanctions makes it a different situation ”.

(Bloomberg)

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