Banking in Venezuela – by Stephen Lendman
The Banco Central de Venezuela’s web site (Venezuela’s Central Bank) relates BCV history from its September 8, 1939 inception. At the time, conservative forces feared monetary instability under uncontrolled Central Bank spending. As a result, opponents (unsuccessfully) said giving it exclusive money creation power was unconstitutional.
Thereafter BCV reforms occurred in 1943, 1960, 1974, 1983, 1984, 1987, 1992, 2001, and most recently making banking a “public service” in 2010. More on that below.
In 1992, legislation established “administrative autonomy,” in part transforming the bank into a “public legal entity. Until then, (it was solely) corporate in nature.” Thereafter, Venezuela’s president appointed “a collegiate body of seven members, a president and six directors,” requiring two-thirds Senate approval for a six-year term. Its mandate is “monetary stability, economic balance and well-ordered economic development.”
Under Article 156 (11) of Venezuela’s 1999 Constitution, National Public Power controls:
“Regulation of central banking, the monetary system, foreign currency, the financial and capital market system and the issuance and mintage of currency.”
Under Section Three: National Monetary System, Article 318:
“The monetary competence of National Authority shall necessarily be exercised exclusively by the Venezuelan Central Bank (BCV). (Its) fundamental objective….is to achieve price stability and preserve the internal and foreign exchange value of the monetary unit….The Venezuelan Central Bank is a public-law juridical person with autonomy to formulate and implement policies within its sphere of competence.”
Article 319 says it “shall be governed by the principle of public responsibility.” Failure to do so “shall result in removal of the Board of Directors….(It) shall be subject to oversight by the Office of the General Comptroller of the Republic…”
Under Venezuela’s 2010 Organic Law on the Domestic Financial System, banks, insurance companies, brokerage firms, and other financial institutions “have the obligation of collaborating with sectors of the productive, popular communal economy through healthy financial intermediation, inspired by the spirit of productive transformation.”
In other words, their mandate includes funding traditional economic sectors as well as social and communal production entities and related organizations. In addition, advancing collective savings and promoting alternative communal investments is required.
Moreover, a recent Law of the Central Bank of Venezuela amendment abolished its autonomy, mandating a new financial structure to include adapting its “legal, administrative and functional structure to the goals of the production model, and the Central Bank may not be detached from the actual needs of the economy.”
BCV operations must also conform to the National Development Plan “to meet the objectives of a socialist state,” even though Venezuela’s economy is more private than public. The amended law, however, states that “changes shall be construed as part of a progressive and timely reform to the financial system and as an opportunity to enhance the role of the institution in the transformation process of the social production model.”
Monetary Control in America
Under the Constitution’s Article 1, Section 8, only Congress has power “To coin Money (and) regulate the Value thereof….”
Most often, however, throughout America’s history, banks, not the government, controlled the nation’s money. For two centuries, private banks fought for what they only partly had before success under the 1913 Federal Reserve Act. Earlier, Thomas Jefferson opposed the first Bank of the United States, Andrew Jackson the second for similar reasons:
— distrust of profiteers controlling the nation’s money; and
— concern about foreign control of America’s banking system.
As a result, Jefferson, in 1811, got Congress to refuse charter renewal for the first US Bank. Later, Madison signed a 20-year authorization. However, when Congress renewed it, Jackson vetoed it, calling private banking control “a hydra-headed monster,” entrapping nations in debt.
It’s truer than ever today with Wall Street’s stranglehold on public wealth, able to create or destroy it freely. No responsible government should allow it, but Republicans and Democrats endorse it, institutionalizing big money power.
Venezuelan Banking: A Public Service
On December 20, Venezuela Analysis contributor Juan Reardon headlined, “Venezuelan National Assembly Passes Law Making Banking a ‘Public Service,’ ” saying:
Approved on December 19, it defines banking as a “public service,” required “to contribute more to social programs, housing construction efforts, and other social needs while making government intervention easier when banks fail to comply with national priorities.”
Formerly called the Law of Banking Sector Institutions, the new measure “protects bank customers’ assets” from owner irregularities. It also prohibits banking hour changes, and mandates the Superintendent of Banking Institutions to serve the interests of customers as well as owners.
United Socialist Party (PSUV) legislator Ricardo Sanguino called it necessary “to consolidate a responsible financial sector,” what’s entirely absent in America where giant banks are more predators than responsible financial institutions. Sanguino said Venezuela’s new law “restrict(s) unregulated speculation. (Now) there is absolutely no chance that a banking institution becomes involved in irregularities,” as happened previously.
Speculation now will be controlled by limiting the credit amount to individuals or private entities to “20% (of the) maximum amount of capital a bank can have out….Commercial banks, insurance companies, investment banks, and brokerage firms must also operate” separately, unlike in America without restraint.
Further, 5% of pre-tax bank profits must be used solely for communal council projects, and 10% of bank capital for a fund “to pay wages and pensions in case of bankruptcy.”
While the new measure doesn’t suggest full banking nationalization ahead, it does mean the government must act responsibly to secure the system for all Venezuelans, not solely for powerful capital interests as in America. Though many companies, including banks, have been nationalized in the last decade, “private banks still play a majority role (with) roughly 70% of assets.”
In May 2009, the government bought the Bank of Venezuela from Spain’s Santander Group after nationalizing it in July 2008. In June 2010, it took over Banco Federal operations after temporarily closing and investigating it for failing to comply with minimum reserve levels and legal quotas for productive sector investments. Other nationalizations also occurred, amounting to 30% of Venezuelan banking, but not without criticism.
Distorted US Media and Washington Criticism
On December 8, ahead of the new banking law, Wall Street Journal writer Dan Molinski headlined, “Venezuela Threatens Takeover of Large Banks,” saying:
Chavez “threatened to take control (of) Banco Bilboa Vizcaya Argentaria SA and other large institutions if they don’t ensure that homes and apartments they finance are occupied immediately….(Earlier he) threatened to expropriate banks….saying they must follow government orders to provide more loans to small business owners and increase the number of home loans to poor people in their portfolio.”
Imagine if Washington forced US banks to operate responsibly instead of ruthlessly for maximum profits. Imagine if those refusing were nationalized to do publicly what private predators reject. Instead, Molinski reacted negatively to good policy, saying “many companies, including banks” wonder if they’re next to be nationalized for following business as usual policies.
A December 17 Reuters report headlined, “Venezuela bank law makes nationalizations easier,” saying:
“Few analysts believe Chavez plans” sweeping nationalizations, “but many say he could further increase the state’s role in the industry. US-based economists at IHS Global last week said they believed the risk of nationalizations in the sector was not ‘very high.’ ” Analysts also said “the new law makes it harder, but not impossible, to operate successfully.”
On December 17, AP headlined, “Chavez’s allies approve new Venezuelan banking law,” saying:
“Venezuela’s banking association expressed concerns about the law. Opposition lawmaker Ismael Garcia condemned (it) saying private banks are left ‘up against the wall.’ ” He also claimed the law is “a prelude to a state takeover of the banking sector.”
On December 6, ahead of the new banking law, New York Times writer Simon Romero headlined, “Venezuela Takes Greater Control of Banks,” saying:
Chavez “assert(ed) greater financial control by detaining one of the country’s most powerful financiers and forcing the resignation of the banker’s brother,” a minister and top Chavez aide.
On December 4, Arne Chacon was arrested, his brother Jesse, removed as science minister. Romero called it “purg(ing) a group of magnates known as Boligarchs, who built fortunes (from) closes government ties.” Several other bankers were also detained, including billionaire businessman Ricardo Fernandez Barrueco. He was arrested for not explaining his source of funds to buy seven troubled banks, now seized.
Chavez called them “vulgar thieves, white collar robbers, (and) pickpockets.” Romero raised the possibility of systemic nationalization instead of explaining that only irresponsible ones may be seized.
On December 24, Romera again bashed Chavez, headlining: “New Laws in Venezuela Aim to Limit Dissent,” saying:
“The National Assembly has approved (sweeping new laws) that impose penalties for spreading political dissent on the Internet, grant (Chavez) decree powers (for) 18 months and prevent legislators from breaking with his political movement.”
An earlier article explained how “decree powers” really work, accessed through the following link:
As for dissent, Venezuela’s free and open society makes America look despotic by comparison, a topic Romero and other Western journalists won’t touch. Instead he quoted legislator Ismael Garcia saying, “One has to say it clearly: a new dictatorial model is being imposed in Venezuela,” how opponents always describe Bolarvarianism.
On December 23, AFP headlined, “Venezuelan opposition decries Chavez ‘coup,’ ” saying:
New laws passed before January grant Chavez “sweeping new powers.” An unnamed US lawmaker urged the OAS “to stand up against (his) ‘tyranny,’ ” the same Washington/US media theme since February 1999 when he took office. They’ve called him a dictator, a Latin American caudillo, even another Hitler, threatening freedom and democracy throughout the region. Conveniently, they’ve ignored his electoral landslides, judged free, open and fair by independent observers, including the Carter Center.
After receiving Constitutionally permitted Enabling Law power for 18 months, opposition lawmakers “condemn(ed) the coup d’etat that is taking place by the regime,” accusing Chavez of allying with Cuba “to implant a communist system in Venezuela through a totalitarian and militarized state.”
In Washington, extremist Rep. Ileana Ros-Lehtinen, incoming House Foreign Affairs Committee chairperson, “blasted the OAS for doing” too little, saying “Choosing to take no side in the battle between tyranny and democracy in Venezuela only helps the tyrannical side.”
State Department spokesman Philip Crowley accused Chavez of “finding new and creative ways to justify autocratic powers.”
Other Banking Reforms
Last August, the National Assembly reformed the Bank Law, prohibiting owners, directors, and administrators of media or telecommunication companies from managing banks. Its purpose is to prevent information manipulation, including deceptive offers and other type fraud, benefitting them at the expense of ordinary citizens.
It also clarified what institutions are affected. As a result, Sudeban (the Superintendency of Banks and other Financial Institutions) will require Sovereign People’s Bank (BPS) to provide more communal services by facilitating deposits, withdrawals, savings, and credit issuance.
In 1999, BPS was founded to fight poverty by offering non-financial services, like training and micro-financing, to communities, small companies, and cooperatives, sectors private banks often ignored.
Added US-Venezuelan Tensions
Relations are further strained after Venezuela’s Foreign Affairs Minister Nicolas Maduro rejected America’s proposed ambassador, Larry Palmer, saying:
“It’s well known how (he) broke the basic rules of respect for the country that was going to receive him, crudely insulting Venezuela’s institutions,” including suggesting the country’s military had “morale and equipment problems,” something Washington should exploit advantageously. He also cited Cuban influence and accused Chavez officials of ties to FARC-EP “terrorists,” ignoring their freedom-fighting credentials with or without ties anywhere outside Colombia.
A Final Comment
Count on opposition lawmakers, hostile US ones, Venezuela’s right-wing media, and its US counterparts to use any opportunity to bash Chavez and Bolivarianism. The same decade-long drumbeat echos now about banking and other reforms. They’re absent in big money-run America where Wall Street and other corporate predators exploit working households for themselves.
Under Obama alone, regressive legislation solidified corporate control of healthcare, food, the media, telecommunications, and finance and banking, besides expanding militarism, imperial wars, and homeland repression. Ahead is planned austerity when Main Street stimulus is needed – a new New Deal as bold and innovative as Roosevelt’s.
Instead, free market fundamentalism sacrifices public welfare for society’s super-rich while assuring unrestrained corporate profit-making. In 2011, expect Obama to shift further right to accommodate greater Republican control and more pressure to serve powerful constituency interests, not working Americans losing out for their enrichment.
Stephen Lendman lives in Chicago and can be reached at email@example.com. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.