THE BRV'S PROPOSED ECONOMIC CONSTITUTIONAL

C O N F I D E N T I A L SECTION 01 OF 04 CARACAS 002013

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/04/2017
TAGS: ECON PGOV VE
SUBJECT: THE BRV'S PROPOSED ECONOMIC CONSTITUTIONAL
CHANGES: WHERE'S THE RAGE?

REF: A. CARACAS 1635


B. CARACAS 1718

C. CARACAS 1727

D. CARACAS 1913

Classified By: ECONOMIC COUNSELOR ANDREW N. BOWEN, FOR REASON 1.4 (D)


1. (SBU) SUMMARY: President Chavez' proposed economic
changes to the constitution included in his reform package
(Reftel A) are breathtaking in both scope and ambition. The
draft proposals give Chavez, inter alia, the broad
constitutional authority to consolidate his vision of a
socialist model economy, recentralizes authority in the
Executive (in stark contrast to the 1999 Constitution which
promotes decentralization),creates new forms of socialist
property, establishes that community interests supercede
individual ones, allows the BRV to assume control of any
economic endeavor it deems "strategic", eliminates
expropriation protections, and strips the Central Bank (BCV)
of its de jure autonomy. Particularly noteworthy and
attractive for the lower economic strata, is a reduction of
the workday to six hours and the creation of a "Social
Stabilization Fund" for self-employed and informal sector
workers. END SUMMARY


2. (U) Labor Rights: Article 87 of the 1999 Constitution
states "all persons have the right and duty to work, the
purpose of the State is to promote employment and the
employer shall guarantee adequate safety, hygienic and
environmental conditions on the job." It also included
provisions, to be enacted by law, to provide labor rights to
self-employed workers. Proposed changes include: the State,
through the employer, is responsible for the workers' safety
and social conditions. Another proposal is the establishment
of a "Social Stabilization Fund for Self Employed Workers"
(read: mostly informal sector workers) so that with
contributions from the state, and contributions from the self
employed worker, the worker will receive "basic labor rights
such as retirement, pensions, vacations, maternity leave and
other rights established by law." Interestingly, the current
constitution provides provisions for self-employed workers
which were never implemented. The new Article 87 explicitly
lists these "rights" and establishes a stabilization fund to
facilitate. These "self-employed workers" are generally at
the lower end of the economic spectrum and do not file or pay
taxes. They are also largely Chavista. A prominent local
economist estimates that this proposal could cost the state
the equivalent of seven percent of GDP if implemented.


3. (U) Work Day: In article 90 Chavez proposes to reduce the
workday from 8 to 6 hours a day and from 44 to 36 hours a
week. Night work is reduced from 35 to 34 hours a week.
Employers are required to provide mechanisms to improve the
worker's use of free time, to include: education, training,
cultural, spiritual and moral development. Senior BRV
officials have stated that workers will receive the "same
basic salary" as they do now.


4. (U) Economic Rights: Proposed changes to articles 112,
113 and 115 address economic rights to include workers
rights, prohibition of monopolies and redefinitions of
property and associated rights. Article 112 of the 1999
Constitution states: "All persons may freely devote
themselves to the economic activity of their choice."
Chavez' proposal eliminates this statement and substitutes
language promoting the development of a "Productive Economic
Model...based on humanistic values of cooperation and the
preponderance of common interests over individual ones..." to
satisfy the people's needs as well as developing different
forms of businesses and property to "creating the best
conditions for the collective and cooperative construction of
a Socialist Economy." The reference in the current Article
112 which states "the State shall promote private
initiative..." is eliminated. Article 113 strengthened the
restriction on monopolies by outright prohibiting them and
adding language that will not permit activities which affect
systems of "social and collective production and which affect
social and collective ownership of property." Article 113
also clearly reserves concessions to exploit natural
resources to the State, or through social or mixed (see
article 115) concessions, respecting the control of the
State.


5. (U) Property Rights: If adopted the proposed changes in
the definition of private property will be significant.
Article 115 of the current Constitution guarantees the right
of property and gives individuals the right to "use, enjoy,
and dispose of their goods." Only after final legal

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judgment, with timely payment at fair compensation can any
property be expropriated for public benefit or social
interest.


6. (U) Types of Property: The new Article 115 of the
proposed Constitution defines five types of property:
1) Public property: belongs to entities of the State.
2) Social property: belong as a whole to the people and
future generations. There are two kinds of social property:
- Indirect social property: exercised by the State on behalf
of the community.
- Direct social property: when the State assigns the property
under different forms and in limited territorial areas, to
one or several communities, or to one of several communes,
constituting the same in communal property, or to one of
various cities, constituting the same in Citizens' property.
3) Collective property: belongs to social groups or persons
for their common use or enjoyment, which could be of social
or private origin.
4) Mixed property: belongs to different combinations of
public, social, collective and private property, for the use
of resources or the carrying out of activities, always
subject to the absolute respect of the economic and social
sovereignty of the nation.
5) Private property: belongs to individuals or corporate
bodies. It is recognized as goods of use and of consumption,
or legally acquired means of production.


7. (U) In the first four types of property the State is the
owner or co-owner of the property. The fifth type, private
property, appears to be limited to only those goods that can
be used and consumed. It appears that any good an individual
or company owns which is not being used or consumed might not
be considered private property. For example, what
would/could occur to goods that are not, by their very
nature, used or consumed such as savings, stocks, bonds or a
second home? These types of goods could be subject to
expropriation. Moreover, the other limiting language of
"legally acquired means of production" is vague and allows
the "State" broad latitude in deciding what was legally
acquired.


8. (SBU) Public Administration: The current Article 141 is
short and speaks to the need for "Public Administration" to
serve the citizen and be based on principles on "honesty,
expeditiousness, efficacy, efficiency, transparency,
accountability,..." The proposed Article 141 strikes such
language and gives the "Executive Power" widespread authority
and latitude to create organizations to meet the needs of the
population. The article also specifically provides for
Chavez' "missions" as another form of public administration.
(Comment: The language in this article is particularly
convoluted. End Comment.)


9. (U) Competence of National Public Power: Buried in the
proposed Article 156, which spells out authorities granted to
the executive, are two noteworthy additions under numbers 30
and 34. Number 30 adds subscription TV to the ranges of
public services the executive can regulate. This is clearly
directed at RCTV, and Globalvision, among others, which are
now broadcasting via cable. Number 34 is a completely new
addition and states the following: "The management of
different branches of the National Economy as well as the
eventual transfer to the economic sectors of public, social
or mixed economy."


10. (U) Decentralization: Article 300 currently provides
that national laws shall establish the conditions for, inter
alia, a functionally decentralized economy. The proposed
change deletes all references to decentralization and
requires that national laws establish conditions for the
performance of economic and social activity under the
principles of a socialist economy, driven by the state, which
correspond to a model of economic centralization.


11. (U) Oil Activity: Article 302 currently reserves for the
State, through respective organic law, the exploitation of
the petroleum industry, and goods and services of a strategic
nature. The Statement of Motives of the 1999 Constitution
explains that as a matter of national convenience, the mining
and petroleum sectors are reserved for State exploitation.
The proposed change gives constitutional authority, without a
separate law, to the exploitation of liquid, solid, and
gaseous hydrocarbons as well as goods and services of public
interest and of a strategic nature; gas is specifically
added. (Note: This article will allow the State to legally
circumvent the National Assembly in order to make decisions
pertaining to exploitation of the hydrocarbon sector.

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Despite the vagueness of the wording of the proposed article
302, during Chavez' August 15, 2007 speech before the
National Assembly, he specifically referred to the strategic
oil reserves of the Faja, north of the Orinoco River. End
Note.) In addition, the State shall give preference to
domestic technology for all hydrocarbon processing.


12. (U) Agriculture, Livestock and Fishing: Article 305
currently tasks the State with promoting sustainable
agriculture as the strategic base for overall rural
development and guarantees the population a secure food
supply. Article 305 in the proposed Constitution would
authorize the State to take over any sector involving
agriculture, livestock, fishing and aquaculture production
and transfer it to any social, cooperative or community
organization in order to guarantee food security. In
addition the State is given full power to expropriate,
appropriate and occupy any sector deemed necessary to secure
the food supply.


13. (U) Latifundos: In the current Article 307 large land
estates are deemed contrary to the social interest. The new
Article 307 would outright prohibit large land estates and
calls for their elimination and transfer to the State. These
estates shall become public entities, cooperatives, communes
and social organizations. It also states that the government
will confiscate lands used for the production of illegal
narcotics, trafficking in persons, environmental damages, or
other criminal acts against the security and defense of the
nation.


14. (U) The Central Bank: Proposed Articles 318, 320 and 321
collectively remove the autonomy of the Central Bank of
Venezuela (BCV) to manage monetary policy and give this
authority to the State, who will manage this policy through
the BCV. Article 318 currently states that monetary
competence shall be exercised exclusively by the BCV with the
goal of achieving "price stability and to preserve the
internal and external value of the monetary unit." The BCV
is also given autonomy to formulate and implement policies
within its spheres of influence. In the proposed article
318, along with the goals included in the current article
318, an additional higher goal of favoring the "essential
aims of the Socialist State and the well-being of citizens,
over any other consideration" is added. It also specifically
removes the BCV's autonomy to formulate and implement
monetary policies. The BCV will now participate jointly with
the National Executive Authority in the formulation and
implementation of monetary policy. Additionally, "the
international reserves of the Republic will be managed by the
BCV, under the direction and administration of the President
of the Republic..."


15. (U) Central Bank Reserves: Article 320 currently tasks
the BCV and the National Executive to establish annual policy
agreements for growth objectives and their social impact,
external balance of payments, foreign exchange and monetary
policy. It also states that the BCV shall not be subject to
directives from the National Executive and may not endorse or
finance fiscal deficit spending policies. The proposed
article 320 removes the requirements for an annual policy
agreement between the BCV and the National Executive, and
also removes the above language regarding insulation from
directives from the National Executive. It also tasks the
"State" with monitoring monetary policy and fiscal policy to
achieve macroeconomic objectives.


16. (U) Macroeconomic Stabilization Fund: The current
Article 321 established a Macroeconomic Stabilization Fund
(MSF) with the purpose of guaranteeing the stability of State
expenditures in the face of fluctuating revenues. The
proposed Article 321 eliminates the MSF. Also, the "Head of
State" is tasked with establishing, in coordination with the
BCV the level of reserves required by the national economy,
as well as the amount of surplus reserves that shall be used
in funds for production investment, infrastructure, financing
of the mission programs and "endogenous, humanist and
socialist development of the nation."


17. (C) Comment: Collectively, Chavez' proposed economic
changes concentrate enormous power in the hands of the
Executive, diminish economic and property rights, and provide
a legal framework for the creation of a socialist state. In
view of the inducements for the lower socio-economic strata
and an opposition that is energized but so far ineffective,
the widely held view among local observers is that the
constitutional reforms will pass in pretty much their current
form.

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DUDDY