Hugo Chavez: A “Socialist’s” fascination and fixation with banks

September 27, 2009


For a so called socialist, Hugo Chavez has a strange fascination with a tool that is an integral part of capitalism: Banks.

Ever since he became President, Chavez has created quite a few of them. Remember Banco del Pueblo Soberano? It was supposed to give small loans to poor people, who would in turn pay back their loans at preferential rates and allow the bank to give out even more loans. It was an idea copied from the very succesfull Grameen Bank founded by Muhammad Yunus. The Venezuelan version did not work as well. Within a year it had to be capitalized as those running it spen half of the initial equity on the bank’s system. Then there was some sort of scandal because the bank would mostly invest its funds in Government paper, rather than lend it out as was its mandate. But much like the 2,000 Barrio Adentro modules left without Doctors, Chavez lost interest in the project, there was little follow up and nobody ahs heard from it in years. It hasn’t published financials since 2002.

As if they were not part of the “Pueblo Soberano” Chavze created in 2001, el Banco de La Mujer. It was just like the Banco del Pueblo, but aimed at helping women, particularly those head of households that were running a small business to support themselves.

Chavez also converted the old Fondo de Inversiones to Bandes, the Development Bank, which acts in somewhat mysterious ways and participates in lots of teh high level financial operations of the country.

Chavez also created the Banco Del Tesoro, a good idea, whose main function was to concentrate the deposits of the public sector, to make public finances more efficient. It ahs done some of that, but only a small fraction. Public deposits continue to drive a lot of the business of the private banking sector, particular small and medium sized banks, which for a fee, pay Government officials for their deposits. Much of these funds stay in these banks, rather than being used, so that the Government officials that run them can continue receiving fees from this racket, one of the biggest corruption schemes of the Bolivarian robolution.

On the way, the Government’s workhorse bank, Banco Industrial de Venezuela has been recapitalized twice and was recently intervened as the bank continues to lose money in a country where banking and finance has been one of the most profitable activities during the Chavez era.

The Chavez Government also created the Development banks, aimed at financing development projects, but somehow, people can’t tell the difference between them and regular banks. Even the Iranians got into the game, with the foudning in Venezuela of the Banco Internacional de Desarrollo, a fully owned Iranian bank that operates in Venezuela and which has been in the news recently thanks to the warnings of Robert Morgenthau, who argues that these activities represent a serious danger to the US.

Chavze also nationalized Banco de Venezuela, which was a subsidiary of Banco Santander. Reportedly Chavez wanted to buy a bank that would allow the Government to disburse payments to supporters around the country, something Bandes had been trying to do but not very sucessfully. Banco de Venezuela was not the best bank for that, but when Chavez gets an idea in his mind he gets it and he got Banco de Venezuelatwo months ago. He overpaid, given valuations of banks in Venezuela, but not given the profits that well run banks may earn in this artificial financial environment, where even with all restrictions, arbitraging the Government can be quite profitable.

One of the few measures that Chavez has announced was that he named the President of Banco de Venezuela, as if he did not have enough to do, as President of all Government banks, likely hoping that some of the good things that Banco de Venezuela still has will rub off. Unfortunately, the Government has been running that bank for too short a time and it may be that it will be the other way around and soon Banco de Venezuela will see its profits and its competitiveness drop dramatically.

Chavez has also been promoting the idea of Banco del Sur, a regional bank, located in Venezuela which would become a sort of IDB of South America or Latin America. Most countries showed some interest in the belief that Venezuela will put a up a few billions for them to borrow, but Chavez is not that dumb and now he does not even have the money due to the drop in oil prices. But he had to sign something important at the Margarita summit and he revived the idea of the bank, which was so preliminary that Chavez said the bank would have a capital of US$ 20 billion, but his Foreign Minister Maduro said that it would start with US$ 7 billion. I bet everyone will wait for Venezuela to put up the seed capital, which means that the bank will not get going for a while.

As if this were not enough, Chavez came up with even another bank during his ASA Summit (America-South-Africa) and suggested there should be another bank for joint projects among these countries. He even came up with a name: Bancasa.

Thus, Chavez claims to be a socialist but seems to have this fascination or fixation with a very capitalistic institution. Somehow, it may be that he does not get the idea of how banks function quite well. He seems to view banks as institutions that you can get money out of, but does not seem to give much thought to the fact that someone has to put the money in, the money has to be invested and banks are supposed to make some money at the end of the day, or at least break even.

But so far, all Chavez has done is spend money in creating bureaucratic structures, sinkholes for money, which in the end have not resulted in the generation of loans or aid for the poor or for much development. But rather than step back, look at it and evaluate, eliminating some of these wasteful institutions, he presses forward, creating new ones, making bombastic announcements that in the end, are completely useless.

But the fixation continues and in the absence of checks and balances, nobody seems to ask whatever happened any of them as money is wasted on another Chavez whim and fascination.


10 Responses to “Hugo Chavez: A “Socialist’s” fascination and fixation with banks”

  1. GWEH Says:

    Banco del Sur is actually the brainchild of Mark Weisbrot

  2. Lauren Says:

    What exactly is the plan for redeveloping the two continents represented? Will this become wealth in the hands of few i.e. Chavez?

  3. Carne Tremula Says:

    Banco del Alba exists. I have a friend working there. They have no capital just 20 million usd loaned by MEF to run. The other alba member hadn’t ratified its charter. But it has a building in caracas.

  4. moctavio Says:

    Sorry, had to keep track, Banfoandes existed before Chavze, he just gave it more importance, but Banco del Alba (whatever happened to that one?) was certainly another “important” one.
    Oops…forgot to say great post! Looking forward to your next one.

  5. Carne Tremula Says:

    You are missing Banco del Alba (which the only one signing the agreement is Venezuela) and Banfoandes.

  6. moctavio Says:

    Thats why the word socialist is in quotes in the title.

  7. Deanna Says:

    Did anyone see the news about Grace Mugabe (Robert’s wife) owning the biggest dairy farms in Zimbabwe, that had been taken over by the government from the former white owners? I bet anyone that those haciendas and fincas “recuperados” by the government for the “pueblo” will end up in the hands of the Chavez, Cabello, Maduro, and other Chavista families or some Cuban. One former Sandinista told me that it happened in Nicaragua during Ortega’s first dictatorship; her elderly mother’s house was taken over by the government because according to them, the house was too big for her to be living alone, so they took it over and threw her out of the house. When my former Sandinista friend went back to Nicaragua (after Chamorro), she and her sister found out that they no longer owned the house and that it had been bought by a Cuban!!! According to her, some of the best properties in Nicaragua were taken over by the government and ceded over to Cubans, with property papers and all. This is the future of Venezuela and this was what my friend told me would happen–10 years ago when Chavez came into power!!

  8. Deanna Says:

    Sorry, I meant “owning”, not owing!!!

  9. Deanna Says:

    Whoever said that Chavez was a socialist? Just because he says so? All he is, is an authoritarian dictator, with a thirst for owing everything in the country, just like Mugabe and others like him.

  10. Alex Dalmady Says:

    In the absence of credible or independent regulation and oversight, banks can become simply money-grabbing machines for whoever owns them. Perhaps that can explain the fascination.

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