Venezuelan government wants to participate more in agro-industry
<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 18, 2003 By: Jose Gabriel Angarita
VenAmCham economist Jose Gabriel Angarita writes: In late March 2003 a plan was put forward in the Venezuelan Agrarian Corporation (CVA), by its president Freddy Gil, to create firms to process corn, chicken, milk, and fruits, among other food products. This initiative was intended to offset the effects of the general strike of late 2002 and early 2003, plus the impact of the foreign exchange restrictions on the different sectors of the national economy.
The plan is now again under discussion at the CVA, and the creation of two soy milk plants has been announced, as well as the possible construction of several parboiled corn flour processing plants. Gil revealed a plan to create seven mini-plants over the next 16 months, with a total investment of 34 million dollars contributed by international financial institutions and raised by borrowing under the "Umbrella Act," according to a report carried by the El Universal newspaper in today's edition (Wednesday). But access to financing could prove more difficult than expected, given the perception overseas of high risk in the Venezuela economy and the National Treasury's cash shortage, not to mention the major expansion of public debt since 2001.
Though the new companies' equity structure is not yet clear, the strongest critique leveled against projects of this kind has to do with the well-known inefficiency of State-owned enterprises, with their high transfers and labor costs, low profit margins, and incorrect allocation of resources. As a result, privatization is constantly proposed as the answer to those inefficiencies. The intention of creating an intensely interventionist State is becoming clearer all the time, and that trend impairs the markets' natural dynamics. The end result is a steady decline of supply of goods and services, since the small amounts of available resources are channeled to the most inefficient producers.
Before embarking of projects of this kind, the government should start worrying about how to restore regular commercial activities, overcome the paralysis of the foreign exchange market which is strangling national industry, and allow production to meet the needs of a depressed local market and thereafter market surplus output abroad, thereby spurring the economy's growth by making use of the advantages of foreign trade.