Venezuelan banks face more regulation

Nationalisation of Venezuela’s banks could seriously destabilise Venezuela’s economy but it is unlikely that President Hugo Chávez would carry out his threat soon, if at all, analysts said on Friday.

Mr Chávez said that he was preparing a law to force banks to lend cheaply to national industry, and if they failed to comply they would be nationalised. He also suggested nationalising steelmaker Ternium Sidor, as well as recently threatening supermarkets and hospitals.

He kicked off a nationalisation spree earlier this year by taking control of major oil projects in the Orinoco Belt, as well as telecoms and electricity companies, after being given the power to enact sweeping measures by decree to accelerate his socialist “revolution”.

But analysts cast doubt on whether Mr Chávez would – or could – carry out his plan to nationalise banks. “There is a symbiosis between Chávez’s 21st century socialist revolution and hard-nosed capitalism via the banks that would be difficult for him to break in the short or even medium term,” said Mark Turner, an analyst at Hallgarten, an independent research house based in New York.

“Chávez seems to have been swept up in the moment, as sometimes happens when he is addressing the party faithful in one of his extended and unscripted speeches,” he said.

Francisco Rodriguez, chief economist for Venezuela’s National Assembly from 2000-2004, said Mr Chávez’s announcement was “simply a threat intended to make sure that banks keep on rolling over the internal debt” and said if it were carried out it could “seriously destabilise” the economy.

“Chávez needs the banking sector in order to finance the growing internal debt and to allow him to keep spending up,” said Mr Rodriguez, who was chief economist for Venezuela’s National Assembly until 2004, adding that despite high oil revenues, the government ran a deficit last year and will likely do so again this year.

“This is the only way in which Chávez can keep spending while still limiting the growth of money supply and inflation,” he said. Inflation is currently running at 19.4 per cent, the highest in the region.

However, Mark Weisbrot, an analyst at the Center for Economic and Policy Research in Washington who sympathises with the government, said the banking sector was “very badly” in need of regulation.

“Since the government doesn’t have the regulatory capacity, Chavez is using the threat of nationalisation instead to try to improve their performance,” he said.

“Banks are making a killing and are not performing their role as financial intermediaries as you would expect,” said Mr Weisbrot. He said assets worth 38 per cent of gross domestic product were outside the country while in 2005 lending was only 13.7 per cent of GDP.