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 CARACAS 00002013 002 OF 004 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. CARACAS 00002013 003 OF 004 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. CARACAS 00002013 004 OF 004 DUDDY