LABORING UNDER CHAVEZ' ECONOMIC PLANNING

C O N F I D E N T I A L SECTION 01 OF 04 CARACAS 001628

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/07/2017
TAGS: ELAB ECON PGOV EINV VE
SUBJECT: LABORING UNDER CHAVEZ' ECONOMIC PLANNING

REF: A. CARACAS 994


B. CARACAS 861

C. CARACAS 1031

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (SBU) Summary: Since 2005 the BRV has tightened the noose
around the Venezuelan private sector by steadily approving
rigorous labor laws, including the Organic Law on Prevention,
Work Conditions, and Work Environment (Lopcymat),a laundry
list of nearly impossible to fulfill labor regulations.
Chavez' impending Work Stability decree could make it illegal
for the private sector to fire or transfer its employees
without government permission. The BRV's new labor laws and
regulations slash at the private sector's bottomline,
partially contributing to the 26 percent drop in the number
of manufacturing jobs over the past nine years even during
an economic boom. Labor laws being debated in the National
Assembly would reduce the work week, institute socialist
indoctrination classes, and create worker councils,
suggesting even greater state interference and deterioration
of the private sector and further marginalization of trade
unions in the near future. End Summary.

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Lopcymat Swings BRV Labor Laws from One Extreme to Another
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2. (U) The 2005 Organic Law on Prevention, Work Conditions,
and Work Environment (Lopcymat),implemented in 2007,
instituted many changes to Venezuelan labor law. It
redefined work place accidents to include those occurring to
employees on their way to and from work and making businesses
liable for contractors' accidents. It also created the
National Institute for Occupational Prevention, Health, and
Safety (INPSASEL),a monitoring and regulating agency that
can close businesses and impose severe fines.


3. (U) Under Lopcymat, employers must set up employee-led
Occupational Safety and Health Committees that submit
periodic reports on work place conditions to INPSASEL.
Businesses must jointly file with the committee a safety and
health program describing policies to reduce accidents, pass
INPSASEL inspections, and keep an updated registry of all
occupational safety and health incidents. If an accident
occurs, under this law, an employer must notify INPSASEL
within 60 minutes, file a preliminary report to the employee
union and Safety and Health Committee within 12 hours, and
write up a formal report to everyone within 24 hours.
Lopcymat also drastically increases fines (there are 18 pages
discussing sanctions) and employers can also face criminal
charges for violating this law.


4. (C) According to Manuel Diaz Mujica (strictly protect),a
Baker & Mckenzie labor lawyer, Lopcymat has taken Venezuelan
law from one extreme to another, explaining that before
Lopcymat workers received very little protection and laws
were rarely enforced. With Lopcymat, employers are now
nearly automatically at fault for any accident. He explained
that with all the bureaucracy and regulations, it is nearly
impossible for businesses to fully comply with Lopcymat,
adding that INPSASEL has nearly complete discretion enforcing
this law. Although Diaz has not observed INPSASEL being used
for political ends against companies, he believed that
Lopcymat was only being enforced in the private sector,
noting state oil company PDVSA would otherwise be out of
business.


5. (C) Miguel Perez Aba, president of Fedeindustria (a
pro-Chavez business association representing small to medium
sized industrial companies),told the media that Lopcymat
primarily affects the industrial sector because creating
safety committees, risk manuals and other technical norms
imply time and resources. Former Bristol-Myers Squibb
government relations manager, Juan Garnica, told EconOff that
between the BRV currency exchange body, Cadivi, and new labor
legislation, he was forced to hire people full-time to ensure
that they were complying with the new laws. The CEO of Marsh
Venezuela, C.A. told EconOff that he had 8 people on staff to
ensure compliance. Even businesses with as few as five
employees must setup committees and fulfill Lopcymat's
bureaucratic requirements.

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Labor Laws Slashing Profit Margins
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6. (C) Auturo Guevara, President of the VENAMCHAM human
resources committee, told EconOff on August 7 that there have

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been 20 labor laws passed since August 2005. Besides
Lopcymat, Guevara said that the Unemployment Benefit Law, the
Housing Loan Law, the Worker's Nutrition law, the Anti-drug
law, the Obligatory Social Service law, and the Integration
of Disabled People law all reduce profitability and
competitiveness. Victor Maldonado, executive director of
Conindustria (the Commercial, Industry and Services
Association),told EconOff that he viewed these laws as
another tax to support Chavez' social system. Employers
contribute an equivalent of two percent of employees' monthly
salary to a housing fund per the Housing and Loan law,
provide food stamps or cafeteria meals for workers making
less than USD 857 a month per the Nutritional law, and must
invest one percent of yearly profits for anti-drug programs
per the Anti-Drug law. The Obligatory Social Service law
requires employers to set aside five hours a month for
employee community service and the Integration of Disabled
People Law requires five percent of the employees in every
company to be disabled.


7. (U) Besides also requiring business to contribute an
amount equivalent to two percent of each workers' salary to
an unemployment fund, the Unemployment Benefit Law created
the National Job Institute (INEM) to oversee employment and
created Local Labor Observers to act as an early warning
system to prevent a fall in production capacity due to
closure or "transformation of a business." Businesses must
report to the INEM or the Local Labor Observers any changes
to corporate officers, company addresses, or any other
required information. This law also institutionalized the
principle that if there are any doubts over interpretation of
the law, a court should favor the worker.


8. (SBU) To receive foreign exchange for imports, a firm must
receive a labor certificate (solvancia laboral),certifying
the firm is complying with all the aforementioned labor laws.
To receive a labor certificate, an enterprise cannot have a
single outstanding labor complaint against it (Reftel A).
This requires approval from nearly every level of the
government bureaucracy charged with monitoring labor laws.
Multiple contacts have told us that organizations such as
INPSASEL, INEM, and the Ministry of Labor and Social Security
lack the infrastructure to process labor certificates in a
timely manner, causing long delays in receiving much sought
after foreign exchange.

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Bolivarian Job Security
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9. (U) On July 25 the BRV announced that the Supreme Court
(TSJ) was in the final process of revising Chavez' Work
Stability Organic Law/Decree. This law would make it illegal
to fire or transfer any employee working in the private
sector who had worked for more than three months without
government authorization from the Inspector of Labor. The
Work Stability law does not apply to the public sector or
businesses with less than 20 workers. It also exempts
managers, temporary workers, domestic workers, professional
athletes, and intellectuals. Businesses failing to abide by
this law would face a fine between 20 and 300 tax units (USD
350 to 5250) for every active worker, meaning an
establishment with 100 workers would pay a fine up to USD
525,000 for firing one worker. This law also creates another
committee, named the Committee for Support, Mediation, and
Conciliation which consists of the employer, a worker, and a
Ministry of Labor and Social Security representative. Each
member will write a report to the Labor Inspector and the
inspector will then decide whether the employer is entitled
to fire the employee. This law would supplement the Labor
Immobility Law that made it illegal to fire anyone making
less than USD 857 per month.

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The Proletariat Strikes Back with More Councils
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10. (SBU) Given its vagueness and potential to drastically
alter employee-employer relations depending on how it is
enforced, the Worker Council Law, still in its first reading
in the National Assembly, has our business contacts very
worried. Our union contacts are also concerned that worker
councils will take over functions that trade unions currently
have. The draft version of this law permits current and
former workers to organize work councils, assemblies, and
smaller committees to exercise real and effective "social
control" over private and public enterprises. According to
this law, worker assemblies will approve and present plans
and projects to management on innovations, production,

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efficiency, administration, and work conditions. The work
councils will also monitor and evaluate how management meets
legal and labor obligations and will have access to all
accounting information to prevent the paralysis or closing of
a plant for "speculative" reasons. It is very unclear in the
draft law exactly how much power these councils and
assemblies will yield in the end, however, the guiding
principles of the worker councils are "class unity,
solidarity, and the fight for liberation against all
exploitation."

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Apparently the New Man Works Less
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11. (U) Besides increasing the minimum wage by 20 percent in
May to USD 286 a month (Reftel B),Chavez declared his
intention to reduce the Venezuelan work week from 42 hours to
36 hours (with a maximum of six hours daily) by 2010. Chavez
has also floated the idea of requiring companies to set aside
four hours a week for workers to attend optional classes on
socialism. Although few details have been announced on these
classes, the state-run Bolivarian News Agency (ABN) reported
that during the trial phase the classes will teach "the
evolution of Venezuela" and "historical materialism," a
Marxist approach to the study of history, economics, and
society.

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The Disappearing Industrial Sector
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12. (SBU) According to statistics from Conindustria, the
Venezuelan industrial association, and the National Institute
of Statistics (INE),the number of manufacturing jobs in
Venezuela has decreased from 449,636 in 1998 to 331,033 jobs
in 2007, a 26 percent drop. Interestingly, the number of
jobs in small industries consisting of 20 or less employees
have fallen even more dramatically from 93,879 jobs in 1998
to 49,418 in 2005, a 47 percent reduction in jobs. In
comparison, large industrial concerns with 100 or more
workers have only experienced a 20 percent reduction.
According to Conindustria, the overall number of
manufacturers has fallen from 11,117 in 1998 to 6,756 in

2005. (Note: INE stopped releasing manufacturing statistics
in 2003. End Note.)

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BRV Unemployment Numbers Provide Plausible Deniability?
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13. (SBU) Chavez has used his social missions and the
expansion of the public sector to help mitigate the loss of
jobs in the industrial sector. (Note: According to the INE,
the number of public workers in Venezuela has climbed from
1.4 million in June 1999 to 2 million in June 2007, a 43
percent increase over the last eight years. End Note.) As
reported in reftel C, the BRV's unemployment statistics are
highly suspect; INE considers anyone working at least four
hours or participating in a government funded social mission
as "employed." This has contributed to official unemployment
dropping to 8.3 percent in June from 9.7 percent during the
same month a year earlier. However, according to INE, the
unemployment rate for the poorest part of Venezuelan society
has increased from 14.9 in 2005 to 20.6 percent in 2006, a
surprising increase considering the amount of time Chavez
spends showcasing his concern for the plight of the poor.
Also, approximately 45 percent of Venezuelans work in the
informal sector, without job security, health care, or the
other benefits that accrue to salaried employees (Reftel C).

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Comment
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14. (C) The BRV's growing regulation of the labor sector has
focused on weakening private industry and increasing
government control. Industry representatives are very
pessimistic about the direction of future labor "reform" and
anticipate that the new laws will further reduce productivity
and profitability. Bolivarian institutions have nearly full
discretion in enforcing often ambiguously worded labor laws,
and since full compliance is nearly impossible, many contacts
agree that targeted enforcement of labor laws could be used
as a quiet way to cripple strategically important companies
before expropriation. Although the official unemployment
rate has fallen and people with jobs have better safety nets,
the Venezuelan private sector is ill-prepared for any
economic downturn. With the new labor laws, businesses have

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less of an incentive to hire more workers and less ability to
adjust during hard times, making the impact of any economic
downturn even more severe.

FRENCH