THE FENCE CONTINUES TIGHTENING AROUND THE PRIVATE

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002535

SIPDIS

SIPDIS

COMMERCE FOR 4331/MAC/WH/CAMERON

E.O. 12958: DECL: 08/24/2016
TAGS: ECON PGOV VE
SUBJECT: THE FENCE CONTINUES TIGHTENING AROUND THE PRIVATE
SECTOR

REF: A. CARACAS 2331


B. CARACAS 1289

C. CARACAS 1067

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Summary
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1. (SBU) Two pieces of draconian draft legislation currently
in the National Assembly - the Anti-Monopoly and Public
Services Draft Laws - manifest the BRV's intention to further
restrict and control the private sector. The draft
Anti-Monopoly Law proposes replacing the existing anti-trust
regulating body, Procompetencia, with a politicized
organization that can impose astronomical fines, enact penal
sanctions (reportedly exceeding those for manslaughter),
authorize wiretaps and seizures, and set corporate profit
margins. The Public Services bill contains a very broad and
loose definition of public services (it includes
slaughterhouses and cell phones, for example),and would
allow the state to set rates and exert greater control over
private service providers. While the BRV has passed numerous
laws over the past few years to corral the private sector,
Post's assessment is that these two bills in particular are
in the vanguard of the BRV's program for "21st Century
Socialism." Going forward, we see little to mitigate the
adoption of other measures that ensure a docile and
self-censoring private sector and underscore the role of the
state (read: Chavez) in the economic life of the country.
End summary.

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Economic Vision
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2. (SBU) The draft Anti-Monopoly Law, in second debate,
strives to "protect endogenous, sustainable economic
development." It expressly seeks the protection of small and
medium businesses (including "Bolivarian business models,"
such as cooperatives, co-managed companies and social
production enterprises - REF B),from "large companies and
corporations that harm the endogenous development of the
country." The draft calls for "just" (not "free")
competition and does not apply to the public sector
(including BRV joint ventures). The Public Services Draft
Law also favors these business models, and amplifies the
control of the state over non-traditional "public services"
such as slaughterhouses and cemeteries.

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The Anti-Monopoly Bill
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3. (SBU) The bill would create the National Anti-Monopoly
and Anti-Oligopoly Institute (INANTI) to replace the existing
anti-trust agency, ProCompetencia. According to the draft,
INANTI's president would be nominated by the Executive,
ratified by the National Assembly, and would "be identified
with the economic policy of the executive." INANTI would
have the ability to open investigations, grant exemptions,
enact fines (fine revenue will be part of their budget),and
set its own recruitment and salary regulations. Companies
whose assets exceed USD 39 million or whose business volume
exceeds USD 15 million would have to seek INANTI's "prior
authorization" before any merger or action of "economic
concentration." In addition, the Institute will acquire some
abilities heretofore reserved only for tribunals, such as
authorizing/planting wiretaps, carrying out confiscations and

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mandating business closures.

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Excessive penalties
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4. (SBU) Over the last few years, application of current
legislation by ProCompetencia has resulted in an average fine
of 1 percent of gross income (in some cases, up to 10
percent). However, the new draft law stipulates a penalty of
35 percent of gross income for a violation, and up to 45
percent for repeated violations. The draft also includes
tough penal sanctions for perpetrators, such as a ten-year
maximum sentence for participating in a cartel (in contrast,
the maximum penalty for manslaughter in Venezuela is six
years). The bill, however, does not clearly define the
company officer that would be put in jail if a company was
found to be in violation of the law.

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BRV sets margins, end of chambers
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5. (SBU) Perhaps the most alarming article of the bill would
give INANTI authority to intervene in the "production,
industrialization, and sales" phases of any product that is
deemed to be "essential" to the lives of citizens. The BRV
would be able to set profit margins for all segments of the
production chain, for any product that fits this definition,
and non-compliance will result in a fine. Legal experts also
believe that the bill could easily be interpreted to ban
private sector chamber groups.


6. (C) Particularly troubling to the private sector are
draft Articles 117, 118 and 119. The first two define
"usura" (usury) as obtaining "benefits above the averages
provided by Central Bank economic indices," and set penalties
of 2-5 years imprisonment for setting price margins or
obtaining profits above this average. The third article
establishes the same penalties for hoarding that results in
shortages and/or increased prices (which affect "economic
security.") A similar law was passed in early 2006 for
agricultural products. (Comment: A VenAmcham contact told
EconCouns that these articles were introduced by deputies not
on the Economic Development Committee, and that legislative
staff said that this entire bill was being managed from
"elsewhere" (not in the committee). The head of the
Committee, Ricardo Gutierrez (MVR),reportedly also told
VenAmcham members that the concern about hoarding and
speculation came from a belief that such activities helped
bring down Allende in Chile. End Comment.)

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The Public Services Bill
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7. (C) The Public Services draft bill would allow the state
to regulate traditional public services, such as water,
sanitation, and parks, but also includes cemeteries, markets
and storage facilities, telephones (land and cell),
slaughterhouses, parking lots, banking services, and gas
stations, as well as any service the BRV believes will
"increase the quality of life." It also requires that rates
for services be "in tune with the public's income" and based
on principles of "solidarity." The law also contains
references to the public paying for services according to
their income. The draft creates a National Council on Public
Services, chaired by the President and composed of ministers,

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governors' and mayors' association heads, and a
representative of the community. The draft legislation calls
on Community Councils (Ref C) to "maintain vigilance" over
the services and report on infractions. (Note: Some analysts
believe that this law is being promoted by BRV hardliners and
that even if the bill passes second debate, more pragmatic
heads in the Cabinet such as Finance Minister Merentes will
kill it (primarily out of concern that it is too unwieldy)).

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Private sector strategy
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8. (SBU) Private sector companies are alarmed about both
bills, but see the Anti-Monopoly legislation as the most
pressing (rumors abound it will pass in September). In an
Aug 10 Caracas Chamber of Commerce "emergency" meeting,
attendees commented that public pressure has backfired in the
past, and that a purely technical, behind-the-scenes approach
should be taken, also engaging the international community.
Representatives from the British and French Embassies (both
countries have Bilateral Investment Treaties with the BRV)
said they would study the issue.


9. (SBU) Legal experts noted that some minds were still open
in the National Assembly, and that lobbying should be
aggressive. Participants agreed that they should put aside
their differences in order to fight this law and one person
emphasized the urgency of the issue by calling on the private
sector to put "all eggs in one basket." The hope of some in
the private sector is that when the Anti-Monopoly bill is
taken up again mid-September, the more onerous provisions
will be dropped, as existing legislation (Consumer Protection
Law) already includes similar stipulations. Their hope is
that the NA will realize that the legislation will have a
negative effect on investment and could cause companies to
move to Mercosur partners.

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Comment
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10. (SBU) Both bills are clearly geared toward controlling
the private sector's earnings and cementing the economic and
political portion of Chavez' "21st-Century Socialism." If
passed in current form, both pieces of legislation will choke
the private sector's ability to maneuver in the Venezuelan
economy. At the very least, they represent a Sword of
Damocles hanging over the heads of the private sector.
Fighting the laws once they are passed is possible, but the
probabilities of a favorable ruling from the pro-Chavez
judiciary are very slim. There's little hope that
Venezuela's international obligations might blunt the most
objectionable provisions. While certain Andean Community
regulations covered free competition, their legality is now
questionable (REF A),and Mercosur does not have any binding
norms in this area. Chavez' vision is coming into focus: a
"socially-minded" economy in which a "profiteering" private
sector has little space to operate unless it is compliant.
End comment.
WHITAKER