Identifier
Created
Classification
Origin
04CARACAS3216
2004-10-19 21:31:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

VENEZUELA: REVOLUTIONARY CONTRADICTIONS IN LABOR

Tags:  ELAB PGOV PHUM VE 
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C O N F I D E N T I A L CARACAS 003216 

SIPDIS


NSC FOR CBARTON
USCINCSO ALSO FOR POLAD
STATE PASS DOL FOR I/LAB

E.O. 12958: DECL: 10/19/2014
TAGS: ELAB PGOV PHUM VE
SUBJECT: VENEZUELA: REVOLUTIONARY CONTRADICTIONS IN LABOR
BENEFITS

REF: CARACAS 3164

Classified By: Abelardo A. Arias, A/DCM, for Reason 1.4(b).

-------
Summary
-------

C O N F I D E N T I A L CARACAS 003216

SIPDIS


NSC FOR CBARTON
USCINCSO ALSO FOR POLAD
STATE PASS DOL FOR I/LAB

E.O. 12958: DECL: 10/19/2014
TAGS: ELAB PGOV PHUM VE
SUBJECT: VENEZUELA: REVOLUTIONARY CONTRADICTIONS IN LABOR
BENEFITS

REF: CARACAS 3164

Classified By: Abelardo A. Arias, A/DCM, for Reason 1.4(b).

--------------
Summary
--------------


1. (C) Supporters of Venezuelan President Hugo Chavez are
stuck on how to roll back market-oriented reforms of worker
benefits from the 1990s. The 1999 Constitution reversed
changes to the severance, health care, pensions, and housing
regimes, replacing them with impractical and, so far,
impossible goals of vastly improving the welfare of workers.
The GOV pushed through a state-centered social security law
in 2002, but a debate among Chavez supporters on whether to
exclude the private sector from the new system has impeded
application of the new law. Labor leaders see little hope of
progress in these areas due to polarization and Chavez's
autocratic methods. Meanwhile, Venezuela's hodgepodge social
safety net continues to deteriorate, marked by an increase in
the informal economy. The GOV is unlikely in the medium-term
to reach a societal consensus on reform, to the detriment of
Venezuela's workers. End summary.

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Chavez Promised Better Benefits
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2. (U) Worker wages and benefits in the 1990s deteriorated in
a period of economic stagnation. In 1997, the Venezuelan
Workers Confederation (CTV) negotiated with the business
sector and GOV to overhaul severance payments and the social
security (which includes health care, pensions, and housing
loans) regime along market lines. The results of those
negotiations left workers thinking they had lost out in the
name of the free market, leading to a crippling loss of
credibility for the CTV (ref). Restoration of worker
benefits became an effective campaign theme for
then-presidential candidate Hugo Chavez in 1998. Chavez
later wrote his campaign promises into the 1999 Constitution.
The new Constitution instilled a right to severance payments
and implied a return to the old system; rights to universal,
state-provided health care and a pension plan were also
established. Despite the constitutional language, however,
actions have been few. A bill amending the Organic Labor Law

to adjust severance payments has been stuck in the National
Assembly for three years. In November 2002, during a
political crisis and without opposition support, the
pro-Chavez majority of the National Assembly passed a new
Organic Social Security Law. The organic law requires
specific legislation, all still pending, in the areas of
health care, severance and pensions, housing, workers
compensation, and worker safety. None of these bills has
been mentioned by the majority leaders as a priority for the
current session.

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The Severance Package Dilemma
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3. (C) Severance payments (prestaciones) traditionally had
been calculated based on the employee's current salary times
the number of years worked, though additional factors could
multiply this figure by up to ten times. As a result,
instead of raises, employers paid more in bonuses and food
allowances, so much so that by the mid-90s salaries accounted
for just 30 percent of total income of workers. The 1997
reform changed the calculations to a monthly basis on all
income and imposed caps on severance payments. Workers with
many years of service at a company or government agency
complained they were hurt by the reform. CTV legal advisor
Leon Arismendi, who negotiated the 1997 reform, told poloff
that workers with more than 7.5 years on the job lost some
benefits. The 1997 reform also permitted workers to draw up
to 80 percent of their severance in advance to purchase a
house or cover some other large expense. Rather than let
debts to workers pile up, employers began to pay "severance"
on an annual basis. This essentially eliminated the
severance payment's function as a de facto unemployment
benefit.


4. (C) Orlando Chirino, a national coordinator of the


pro-Chavez National Workers Union (UNT),said his labor
confederation is fighting to restore the old severance
system, free of caps, with retroactivity back to 1997 (with
interest). Venezuelan labor analyst Rolando Diaz told poloff
such rhetoric is disingenuous, as such payments would be
astronomical for employers, especially the public sector. He
pointed out that even the Chavez administration has not paid
the arrears owed to public workers, which Diaz called
financially impossible. (The GOV also owes severance pay to
the 18,000 ex-workers of PDVSA.) The GOV, in fact, still
works under the 1997 severance system. Pro-Chavez Deputy
Ismael Garcia told poloff October 11 that retroactivity is
probably not feasible. As an alternative, Garcia said his
Podemos party would soon propose a bill to allow workers to
convert severance packages into credits for housing loans.

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Rationalizing Social Security
--------------


5. (C) Though workers contribute to Venezuela's health care
system, the Venezuelan Social Security Institute (IVSS),most
receive medical attention at specialized or private clinics.
Arismendi said the GOV decided in 1992 to open IVSS services
to all patients regardless of ability to pay. This resulted
in a precipitous decline in the quality of IVSS care to the
point that most government agencies (including IVSS)
established their own clinics for their workers. Large
private companies began to offer medical insurance policies
for attention at private clinics. Employers also opted for
private alternatives in pensions and housing loans, as IVSS'
cash reserves for pensions were routinely raided by GOV
administrations. Unions complained that by 2000, workers
were being asked to shoulder the costs of the decrepit IVSS
system while still contributing to other medical and pension
plans.


6. (C) The 2002 Organic Social Security Law sought to bring
the patchwork of separate health/pension/housing plans under
a re-constituted IVSS. Article 86 of the Constitution,
however, gave all Venezuelans the right to universal,
comprehensive, and public health care that could be financed
by direct or indirect contributions of the participants.
Article 86 effectively prohibits private health care
companies from participating in the medical system, though it
left the door open with regard to pensions. A bill proposed
in March 2001 by then-Vice President Isaias Rodriguez had
tried to create a state-run medical system with a mixed
pension plan. Rodriguez's plan was denounced, however, by
Chavez hard-liners as a "privatization" plan. Arismendi
predicted that the GOV's refusal to negotiate with the CTV
and Fedecamaras (both anti-Chavez entities) would impede any
new efforts at reform.

--------------
Venezuela: A Neo-Liberal Paradise
--------------


7. (C) Venezuela's debate over worker benefits is taking
place in the midst of a decline in the formal employment
sector. A National Assembly report on labor said the
formal-informal employment ratio had nearly reversed, going
from 58%-42% in 1990 to 45%-55% in 2002. Leon estimates, by
taking out unemployment, that only 30% of workers (about 3.6
million workers) receive some kind of formal benefit package.
Froilan Barrios, a former Chavez supporter and lead drafter
of the Constitution's labor provisions, said the GOV has an
outstanding debt with the workers to achieve real reform and
to restore their living conditions to those of previous eras.
He said the Chavez administration has become comfortable
with stopgap measures to alleviate social problems (the
"missions," decrees prohibiting firing of workers, etc.).
The result, he concluded, are the lowest labor costs in
Venezuelan history, which he said had created a "neo-liberal
paradise."

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Comment
--------------


8. (C) Chavez came into office promising to reverse
neo-liberal reforms that workers rightly or wrongly blamed
for their shrinking benefits. After five years of Chavez


rule, however, the formal employment sector continues to
wither and unemployment remains high. Serious labor reform
seems unlikely given the constitutional straitjacket against
private sector participation and Chavez's autocratic style of
governance. With oil prices and state revenues up, Chavez
can probably afford to neglect the labor market in the
short-term. In the medium term, however, he will need to
find practical solutions for the working class or risk
spurning a significant constituency.

McFarland


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2004CARACA03216 - CONFIDENTIAL