Venezuelan President Hugo Chavez's government announced a new requirement that will force private banks in Venezuela to purchase government bonds, El Universal reported Feb. 2. The revenue from the bond sales will fund a new loan program for private farms and other businesses, managed directly by Chavez.
The announcement comes just days after Chavez threatened to nationalize the Venezuelan banking industry and amid the government's implementation of a new consumer goods pricing regime. These measures are examples of Chavez's tactic of placing public pressure on companies to raise funds for his populist programs, which will be important for maintaining the Venezuelan president's popularity ahead of the October presidential election.
According to Chavez, the private banking sector holds deposits worth 200 billion bolivars (approximately $46.5 billion) that should instead be used to benefit the Venezuelan people. This confrontation followed a report issued by the Superintendency of Banks that private bankers have seen profits nearly doubled in 2011 from 2010 levels on currency trades and low interest rates to depositors.
The same day, Chavez announced that the government will soon unveil new price controls authorized under November 2011's Law of Fair Costs and Prices. The law required all companies selling consumer goods to submit their pricing matrices for government evaluation, beginning with household goods. When the law was passed, nationalization was explicitly threatened, and in this recent announcement, Chavez threatened to nationalize personal care and cleaning product companies in the event that the new price ceilings created shortages of those goods. This pressure will likely affect a broad swath of consumer goods producers, including foreign companies such as Procter & Gamble, Johnson & Johnson and Colgate-Palmolive.
For Chavez, the next nine months leading up to Venezuela's October presidential election make up a critical window for demonstrating that his political and economic models are still benefiting the Venezuelan people, despite increasing concerns about ongoing economic instability. Caracas has already increased spending by 42 percent since January 2011, and high spending levels will likely continue as the government relies on populist initiatives to raise support for Chavez and his United Socialist Party of Venezuela. Businesses can expect increasingly steep pressure similar to the recently issued rules to aid such populist policies.
