Will President Hugo Chavez take over all of Venezuela's banks? Three experts share their predictions.
BY LATIN AMERICA ADVISOR
Citing mismanagement and problems with solvency, the government of Venezuelan President Hugo Chavez has seized seven small banks since last month. Arne Chacon, the president of Banco Real and Baninvest, was arrested on charges connected to the scandal, prompting his brother Jesse, a senior government minister, to resign. What factors are motivating the recent bank seizures? Will Chavez make good on his threat to 'intervene in all the private banks'? How is all this affecting the outlook for Venezuela's banking sector in 2010?
Boris Segura, senior vice president and senior economist for Latin America at the Royal Bank of Scotland in Stamford, Conn.: Of the banks that have been intervened—and we might have some others to come in the next few days—the common factor is that these banks were run by people who did not have experience in banking. The first batch of banks that were intervened accounted for around 8 percent of the system. The second group of banks...represented 3 percent more of the system, a bit less in terms of deposits. Other banks that share similarities with those already intervened and closed comprise probably another 8 to 10 percent. So you're talking about 20 percent of the system in trouble. But it's fairly contained, because if you go beyond this group of banks that has been intervened or could be intervened, the rest of the banking system is well capitalized and very concentrated. In terms of taking over the whole private banking system, I see that as very unlikely. First of all, the government doesn't have enough skilled staff to take over the entire banking system. Secondly, the private banking system is already overregulated, so why would you need to take it over? There is a possibility that if the authorities take over the whole private banking system, you might see a run on the banks and intense capital flight. Regarding the outlook for 2010, what you're going to see is a very tepid, or subdued, recovery in Venezuela. We're forecasting a contraction of GDP of 2.3 percent this year and a recovery of 1.5 percent next year. I expect the banks to face similar issues that they are dealing with right now (i.e., non-performing loans under pressure). Profitability in the banking system is going to decrease, but also you're going to see 'flight to quality.' The bigger banks are going to gain market share going forward.
Julia Buxton, senior research fellow at Bradford University: Writing from the U.K., where corrupt and unethical practices in our own banking sector have been exposed, I lean to the view that Chavez has handled a serious problem with deftness. There has been no run on the main banks, market analysts are talking down risks of a wider sectoral nationalization and the episode may lead to improved regulation. On the political front, Chavez dealt decisively with revelations of major corruption within his circle. That Chavez pressed for Chacon's resignation is significant given the closeness of the two former military colleagues and the organizational influence Chacon wields. But these are early days. Revelations of systematic corruption are only the tip of the iceberg—at least they should be if Chavez is going to meaningfully address an endemic problem. This move against the so called boli-bourgeoisie was overdue but raises more questions than answers, while evidence of gross profiteering under Bolivarian socialism is an ideological embarrassment. The intervention is a decisive shift against individuals and factions associated with Chavez's Fifth Republican Party and in particular the axis around another former military colleague, Diosdado Cabello. By contrast, the influence of socialist purists associated with the civilian left, such as Ali Rodriguez, the Finance Minister, and Jorge Giordani, in the Planning Ministry, has been enhanced. These intra-Chavista tensions were buried in the economic boom times but will be played out in recession. How the party base responds will be key. Chavez may be boosted, but only if he is not submerged in deepening scandal.
Francisco J. Gonzalez, chair of the International Services Group at Adorno & Yoss in Miami: At first glance, the seizure of seven smaller banks and the exposure of the excesses carried out by close friends of the government could be perceived as the first true—and seemingly successful—effort by the Chavez administration to tackle one of the most serious threats it faces: corruption at all levels. Chavez was quick to highlight the family links between the 'perps' and some in his government, and he was equally swift in asking for Minister Chacon's resignation. 'Super Comandante' saves the day for the Revolution. A more cynical reading of these events could uncover a veiled fight within the president's own party. Chavez's faction, seizing the opportunity showcased by media reports, moved in to settle a score with the other faction—seen as too close to the private sector (and its ways)—in order to send a message of discipline across his party. The most accurate assessment of the situation is that the truly orthodox faction of the president's party, led by the chief bank regulator and enlisting the help of Cuban intelligence forces, held a dramatic showdown with Chavez to expose the 'cancer within his government' (to paraphrase John Dean)—a 'cancer' led by some of his senior officials who, as a result of selling their soul to 'capitalism,' are threatening Chavez's 'Bolivarian Revolution.' More seizures, particularly those that will give the government 'more bang for its buck' (i.e. the larger banks) seem to be in the pipeline now that the corruption issue in the banking sector has been raised, because they would be 'like a shot to the floor, difficult to miss,' in Caracas parlance.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.