Venezuela wins IMF support
The Caldera Administration looks to settle an economic support package by the end of May.

by Aleem Khan, Caracas- Venezuela

Towards the end of the evening of April 15, Venezuelan President Rafael Caldera began recording his address to the nation, in the Cabinet Salon of the Miraflores Presidential Palace. But he didn't like this setting for the composition of his address, so the equipment was moved to his office.

With a picture of his wife in the background, he sat down at his desk and began the much anticipated address. At exactly 8 pm as scheduled, Caldera's presentation, which would announce his new economic package, was broadcast via radio and television. Calm, with an austere expression, very articulate, emotional at times, and with an overall good appearance, he seemed to be addressing an audience waiting for a new beginning.

As is usual with Caldera, reality surpasses expectations, and without going into the details, he outlined the parameters of a macroeconomic "stabilisation" plan. To many, the plan seemed strangely familiar... it was, as it had all the major elements of a similar plan introduced by ex-president Carlos Andres Perez in 1989.

Former President, Carlos Andrez Perez also announced his plan of economic adjustments, known as the Gran Viraje, through a television and radio interception. The plan, like Caldera's was made on the terms set by the International Monetary Fund. But the difference between Caldera's plan and Perez's was that the Gran Viraje came as a surprise to the people who reacted shortly after with riots and bloodshed.

Caldera, on the other hand, waited two years after coming into office to adopt his package but under a different name: Agenda Venezuela. And his publicity campaign for the package began much earlier and is still going on. As he himself said during his speech, "I am not surprising anyone." Since October 1995, Finance Minister Luis Raul Matos Azocar had been preparing the business community when he announced that Government had started negotiations with the International Monetary Fund. In his election campaign, Caldera had promised he would not do like Perez, running to the IMF, but so said so not done. Caldera confirmed his finance minister's statement, by giving an update on the negotiations a few days later.

Subsequently, Matos Azocar made four other announcements in anticipation of the Venezuelian Government reaching an agreement with the Fund but the negotiations just went on. The latest timetable set for the signing is the end of May 1996. This time around may be different as the newly appointed Planning Minister, Teodoro Petkoff, announced the signing of a pre-agreement on April 26, 1996. And the announcement of the new economic package shows there is some common ground for negotiations between the two parties. Caldera's ministers had said the government would take 11 measures in the new package, but in his speech, Caldera limited himself to announcing only a few: a rise in the price of gasoline from an average of Bs.7 per litre to Bs.55 per litre; the lifting of foreign exchange controls; the removal of controls on interest rates; an increase on Luxury Consumption Tax and Wholesale Tax; and social programs to alleviate the impact of the economic measures on low income families.

Without specifications, as to where the money would come from or how the payments would be made, Caldera promised to raise low-level public sector workers' salaries by 70 percent. Privatisation was dealt with very superficially and without any details, while the issue of social security was completely omitted from the 20-minute speech. Caldera also dealt with interest rates in his address to the nation, saying that these measures are very difficult because "when they benefit one sector, they jeopardise another."

What has to be looked at, in trying to balance this situation, he said, is the counterposition, which satisfies the conditions necessary for the country to attract investment and employment. He said, "This liberalisation of interest rates, together with the liberalisation of the exchange regime, is a necessary and convenient measure for the economic health of our country." At this point, Caldera stopped and almost dramatically reiterated his, "intention to make every effort to stabilise, strengthen and recuperate" Venezuela's financial system.

The following day, Matos Azocar announced that government will implement a special system to prevent the negative effects the interest rates rise will have on debtors, "especially those who are up-to-date on their payments." That day interest rates went up 10 points. The first jump took passive rates from 23-24 percent to 33-34 percent, while active rates went up from 47 percent to 57 percent. President of the Federation of Savings and Lending Institutions, Pablo Machado Egui, qualified the President's move to liberate interest rates as "an intelligent decision," adding that free floatation will leave the setting of interest rates in the hands of those who know how savings should be remunerated and how debts should be paid. He said the liberalisation now gives financial institutions greater autonomy in competing for deposits from the public. Meanwhile, at the end of April, interest rates went up for credit card users, who now have to pay between 44 and 75 percent.

Then Caldera announced a 70 percent increase in salaries for public sector workers, with the exception of ministers and high government officials, including himself. The President said the search for a control of the fiscal deficit implies a control of expenses, and it requires strict fiscal discipline which everyone should be able to understand. "That's why our desire to increase remuneration in the public sector has a limit, the beneficiaries of which have to understand that.... they are going to receive considerable compensation in relation to Venezuela's economic and fiscal situation," Caldera said. He said workers have to realise that, "we are making a very big effort, through these offers. We are giving the most we can and must, but if we are asked to give more, the stabilisation process which we are achieving through the economic adjustments, will be destroyed."

Other social compensation measures outlined by the head of state were: to double old age pension for those who retired under the Social Security system; to double the food grant given to underprivileged families; to begin the Strategic Feeding Program which aspires to get five basic foods groups to some 4 million people at 40 percent below market value, through a private sector distribution company; to begin a Medicine Supply Program providing medicine at 20 percent below cost, through the Ministry of Health; and to expand the Multi-Home and Youth Employment Programs, from which 200,000 persons will benefit. Caldera admitted that the measures will have an impact on the general cost of living but added that, "we are determined to do all we can to make that impact less severe on the low income classes."

He said that in the talks with the IMF, the World Bank and the Inter-American Development Bank (IADB), the social issued have been the most important ones, "because they have realised that pure economics do not solve the country's problems, instead they worsen them."

In a partial surrender to his critics, Caldera said, he was willing to open the petrochemical, mining and agricultural sectors to private investment. The privatisations will proceed and immediately the government will try to sell the aluminium companies of the Corporacion Venezolana de Guayana: the remaining state-owned shares of the telephone company, CANTV; Aeropostal; and the banks that were nationalised as a consequence of the financial crisis, among these are Banco de Venezuela and Banco Consolidado.

In a very optimistic tone, Caldera said that "investors are lining up" in light of the possibilities that are emerging in the country's tourism and agricultural sectors and the protection offered by the Government to small and medium-sized industries, as well as the concession system. "Venezuela truly has a bright future. That's why we think this is the best moment to begin the new era which goes from the comfortable bourgeois economy to the productive economy," Caldera said. Ending his address, Caldera referred to Pope John Paul II's visit to Venezuela, calling for that "spirit of unity" which prevailed during those three days.

While Caldera's address did not provoke any major disturbances as that of his predecessor, there were small commotions in four Venezuelan states. Protestors partially ignited a Pepsi-Cola truck on Avendida Las Americas in Merida state, minutes after the President's televised address. The National Guard and state police had to detour vehicular traffic along this avenue as demonstrators stoned vehicles passing by. In this same state, the Federation of University Centres of the University of Los Andes started a protest after Caldera's speech. La Beliza low-income settlement in Puerto Cabello was also the scene of disturbances after the presidential address.

Protestors burnt tyres in public transitways, impeding the flow of vehicles. Police and firemen had to had to be called in. In Porlamar, Nueva Esparta state (Margarita), a group of students obstructed vehicules, also by burning tyres, in protest of the President's message and of the killing of two university students last January 23, in Caracas. The youths, led by Eugenia Paredes and David Bonilla demonstrated their disapproval of the speed in which Caldera is implementing the measures. Paredes said that although he agreed with the measures, they should have been introduced gradually. The students were also protesting the gunning down of two of their activists, accusing the the police corps of executing the students.

In another riot in Anzoategui state, demonstrators also disrupted the free flow of traffic between Barcelona and the resort city of Puerto La Cruz, by sporadic confrontations with the police. However, the general atmosphere among civilians was not that of protest, but of panic buying in expectation of a rises in prices. Nervous buyers depleted some supermarkets' supplies of rice, cornflour and canned foods. This behaviour extended to gas stations, as automobile owners rushed, after Caldera's address, to buy gasoline at the old price. As with everything else, Caldera's economic package attracted its share of critics and commentators. Former President Perez said he was expecting a more dense and more complete address from the President, "but this is the problem when you create high expectations." He said Caldera's package is very similar to the one he tried to apply in 1989, "only this one is small and incomplete." He added that after two years of committing so many atrocities, he (Caldera) has done tremendous damage to the country and the situation has now become too complicated."

Perez said, "There has been substantial increase in the price of gasoline, which is going to have very negative consequences because the blow is going to be very violent. We were told there would be gradualism, but these measures are being taken very abruptly." He said that although Caldera's plan aspires to repeat the adjustments of his (Perez's) package, "the difference is that this one is absolutely incomplete; it does not even contain an economic development program." Perez also criticised Caldera's timing, "the present situation is now much worse" than in 1989.

"To double the food grant is not of much use because inflation rates exceed all these figures." Despite this, Caldera's economic plan attracted the praise of many, including US President Bill Clinton. A Venezuelan daily newspaper, El Nacional, reported that the White House praised Caldera's measures in a written statement through the State Department. "We are deeply interested in Venezuela's economic welfare and stability and we congratulate and applaud the economic reforms announced by President Caldera." The White House statement described Venezuela as "a bastion of Latin American democracy.

"It is our main petroleum supplier and one of our main economic partners in the hemisphere...We believe the adjustment measures will contribute to taking Venezuela out of the economic and financial crisis it has been going through." But some experts still contend that Caldera waited too long to take these measures because in the two years he has been in power, the economic crisis has worsened.

But, maybe Caldera, a doctor of political science, knew exactly what he was doing. When compared with Perez, who took office on February 15, 1989, he has a good record. Two days after Perez became President, he announced his package, and twelve days later, was faced with the first of two coup attempts. So far, Caldera has had none.

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