Reasons and Implications in Sale of Venezuelan Public Companies Shares

By Mision Verdad – May 17, 2022

Last week, President Nicolás Maduro announced that between 5% and 10% of the shares of several state-owned companies will soon be offered on stock markets in Venezuela, in order to attract national and international investment.

Amongst the companies mentioned by President Maduro to go public are: public telecommunications companies CANTV and Movilnet, Pequiven petrochemical company, a series of joint venture oil and gas subsidiaries, and a number of companies in Guayana.

The response so far
In an interview for Union Radio, Gustavo Pulido, president of the Caracas Stock Exchange, the most important stock market in the country, said that President Maduro’s announcement was received positively by markets. “CANTV’s Type ‘D’ shares have risen around 19%,” he said.

Some opposition-leaning economists have considered the move as “improvised,” and are skeptical that investors would be motivated to buy the state company shares.

Pulido assured that, since the installation of the new National Assembly, conversations had been taking place to evaluate the possibilities of having certain state companies go public. Hence, this was not a spur of the moment improvised move, as some have claimed, and also attests to the fact that interest in acquiring shares already existed before the announcement.

On May 16, Pulido had indicated that the registration of public companies to be offered is a quick process, but he warned investors that they should increase their transactions in bolívars in order to be able to participate, and expressed concern about the absence of a banking system that could assure the participation of foreign investors.

Reasons behind the announcement
The announced measure is aimed at raising fresh capital to invest in the technological modernization of these state-owned companies, which have been hit particularly hard in terms of their services and financial sustainability. This is due to the prolonged economic and financial blockade by Washington and the consequent drought in foreign exchange earnings in recent years.

The restrictions imposed by the US economic war on Venezuela have resulted in the erosion of the State oil income, which, for years, had been injected into nationalized companies and which maintained subsidized price tariffs for the public.

However, the economic war has resulted in a loss of 99% of oil revenues between 2014 and 2019. This has irremediably fractured the subsidization scheme and, although both oil production and international crude oil prices have been recovering lately, the current geopolitical crisis in Ukraine and the technological deterioration and accumulated failures in Venezuelan State companies have hindered their economic recovery and reactivation.

Economic heterodoxy and Maduro’s political economy
Making state companies go public responds to the economic reality of Venezuela. The measure implies a heterodox wager that seeks to balance between state ownership of strategic sectors and sustainability through non-rent-seeking mechanisms.

The reasons behind such a move constitute, one the one hand, the impossibility of public companies to access foreign capital financial markets to get capital to invest in technology and modernization of services. On the other hand, the high legal reserve requirement that persists within the financial system, one of the factors that made it possible to abate hyperinflation and provide exchange rate stability so far this year, does not make it feasible for banks to assume the costs that state companies need.

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Although the reserve requirement decreased a few months ago from 85% to 73%, the banking sector does not currently have the capacity to finance the investments that state companies need. Moreover, the Venezuelan government has been careful not to allow an unusual flow of bolívars into the economy that could dissolve what has been achieved so far in terms of inflation control.

The closure of traditional financing channels has thus forced a push for alternative options. This is where the stock market, which has shown rapid growth in recent years, comes in as an alternative. The stock market, which has had a capitalization between $1.2 billion and $3 billion, can finance companies in w way the State cannot.

With such a move, President Maduro has continued to shape his own economic policy, building his own heterodox balance between economic pragmatism and preservation of state control of the strategic sectors of the national economy.

Tactical and prospective calculations
The initial public offering of state companies adds a new layer of consolidation to Maduro’s economic strategy of resistance, by subordinating a tactical concession to the private sector for the strategic interests of the Bolivarian Revolution.

It has thus become a central thesis of Maduro’s political economy to get money from the private sector to support his government’s recovery and welfare agenda. This strengthens the government’s position of authority and stimulates stagnant private capitals whose natural alliance with Washington and Guaidó has been fading. All this is based on the objectives of a general economic recovery in exchange for controlled profitability and an investment boost.

Such pragmatics have given ground to political critiques that insist that Maduro is leading a privatization process and “betraying Chávez’s legacy.” Nothing can be further from reality. This does not constitute a “gradual privatization,” as some claim, but rather a democratization of state capital that further establishes the public nature of state companies, since it allows everyone to participate in them as a savings and investment opportunity.

The measure also serves to accumulate tactical advantages in the face of the ongoing negotiations with the US and the opposition, while protecting the non-negotiable points of sovereignty and recognition of Maduro’s government. With such alternative economic means designed to weaken the stranglehold of the blockade, Washington’s bargaining incentive of loosening “sanctions” in exchange for political concessions loses power.

The progress achieved so far in the economic sphere, with a climate of stability based on recovering wages and giving new incentives for entrepreneurship, needs the improvement of public services to consolidate itself in the medium term.

With the latest economic move, Chavismo is now playing its seven of spades; it is repairing its trust and credibility levels which were diminished by foreign aggression, and is coming to terms with the fact that, at this point in the game, the Bolivarian Revolution is defined more by management than by dogmas.

Featured image: CANTV is among the state companies to offer some shares on the stock exchange. File photo.

(Misión Verdad)

Translation: Orinoco Tribune

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