Financial sector prepares to fulfill a wider economic role
LEGAL REFORM AND BETTER REGULATION OF BANKING LAWS HAVE HELPED THE INDUSTRY WEATHER TURBULENT TIMES AND PREPARED ITS LEANER AND FITTER INSTITUTIONS TO MEET THE NEEDS OF THE ENTERPRISE STATE

The banking sector in Venezuela has known some turbulent times, culminating in the crisis of 1994, when several institutions went out of business. Since then, reform and better regulation of banking laws have led to a leaner, meaner banking environment, more capable of adjusting to economic change.

LUIS E. OROZCO Former President of Banco Industrial de Venezuela (BIV)

One of the great survivors has been Banco Industrial de Venezuela (BIV). It was established in 1937 with the aim of promoting industry and commerce at a time when oil revenues were beginning to transform the country’s potential. Originally, it was a joint venture between private investors and the state, but subsequently it became entirely state-owned, focusing on helping finance import substitution and industrialization.

More recently, the bank has been allowed to augment its capital through public share offers and it has also widened its range of activities to take in the agricultural sphere. Micro-financing is also now an important aspect of the bank’s work.
“The state has a program to make credit available to people who formerly did not have access,” explains BIV’s former President Luis Orozco. “For example, there is a palm-oil scheme in El Zulia, run by a group of people who came out of the army and took advantage of the credit program. The area is very good for growing oil palms.”

Mr. Orozco believes the bank’s greatest strength is being part of the public sector, but also that BIV has been able to learn some of the best practices of the private banking sector. “BIV has the mentality of a private bank, while at the same time realizing that it is a state bank,” Mr. Orozco says. “And part of being a state bank means that BIV has to concentrate its efforts on involving itself in national projects.”

PUBLIC OWNERSHIP has provided banks with the stability and continuity they need to survive, while allowing them to adopt some of the best practices of the private sector

He believes the bank must play a dual role – fulfilling its state function, while also supplying the non-public sector. “Not all businessmen are part of the state,” says Mr. Orozco. “Nonetheless, we do have an enterprise state, in that the oil industry is state-owned, as are the mining industry and the big aluminum and petrochemical plants. So the state is very powerful, because it controls the natural resources that are the great strength of this country.”

That said, Venezuela is now in a period of transition, in which many of the givens of the past are being questioned. “Today we are confronted by the collapse of the model of a society based on oil revenues,” says Jorge Pérez, President of the Banco de Desarrollo Económico y Social (BANDES). “It allowed the cake to be shared, only some got bigger slices than others.”

JORGE PÉREZ President of Banco de Desarrollo Económico y Social (Bandes)

According to Mr. Pérez this was why President Hugo Chávez came to power. “There was always a need to replace the model, but there was no alternative on offer. But then the moment arrived when there was a blueprint for the country, on the basis of which a strategic plan could be drawn up.”
Turning plans into reality is not always straightforward. But a core function of BANDES is to act on behalf of the state, financing projects aimed at economic decentralization by stimulating private investment in depressed or low-income areas.

BANDES is a young institution, created to replace the former Venezuelan Investment Fund. “The bank is small – just one building – though we have some resources,” says Mr. Pérez. “So we use other institutions as intermediaries.”
He portrays Venezuela as an attractive option for foreign investors, offering lower risks but higher returns than most countries in Latin America. As far as opportunities go, “There’s everything to do with the energy sector,” he points out. “Then mining metals and precious stones, plus some types of livestock rearing. And tourism is significant, too.”