Industrial Policy, Chavista Style

(A nugget of a story that landed in my Inbox, courtesy of a long-time reader)

Hey chamos! Wanna laugh a bit? Check out this story of how our glorious leader wants to “develop” our country.

With a few partners, I own a medium-sized factory outside of Maracay. A few weeks ago, right before the election, BANDES offered us a credit line of US$4 million to expand our factory.

Baffled at our good fortune, we soon realized the old saying was true, and that nothing in life is really free.

Here are the red, very red conditions:

1) We have to give the workers 20% of our business under the “Co-gestión” model. That means that 20% of our company’s capital goes to the workers – for free. Their representative gets a seat on the board.

2) We have to show we have $1 million of our own money in order to get the loan.

3) We get the money in BsFs. When we asked about getting any help through CADIVI/SITME to purchase the dollars we need for the machinery, they basically scoffed, saying we were on our own.

Keep in mind that no machine manufacturer will ship a screw, let alone an expensive piece of equipment, to Venezuela without receiving 100% up front. They build machines to order, they don’t have them in stock.

4) We have to pay 8% interest rate with one year grace period.  That, really, is the only good part.

5) The equipment would take 6-9 months to arrive, and that’s if everything goes smoothly. CADIVI doesn’t pay us until the machines arrive in La Guaira. So really, we have to pay $4 million in cash with our own dollars up front, wait for almost a year, and pray Cadivi lets us buy the dollars with the BsFs from the loan when the machinery arrives and we are able to take it out of the port.

6) We have no guarantees that the interest rate will remain at 8%. We could wake up tomorrow and have it be 36% if Hugo feels like it.

7) 10% of future profits should go to a designated chavista school.

8) Workers must be given full health benefits.

9) The company must place a plaque at the entrance saying it was financed with a loan from Bandes.

10) The company may not sell or exchange stock without Bandes’ approval. It may not merge with another company without Bandes’ approval. It cannot incur further debt without Bandes’ approval. Basically, Bandes owns our balls.

11) If the loan is not repaid, Bandes can unilaterally declare that the loan is overdue and act on the warranties, without having to sue.

12) The value of the warranty is the entire capital stock of the company, including all existing plants, factories, and machinery.

Oh, and did I mention they wanted us to sign the document, but did not want us to take a copy with us?

The reason they approached us with this “sweetheart” deal in the first place was that, according to them, 95% of the loans they have handed out have either disappeared or gone to a company that went bankrupt. In other words, they have very little to show to justify their existence.

To their credit, they told us they knew we were straight shooters, and that we wouldn’t leave them hanging. I guess having a reputation is cold comfort for us.

So, to sum it all up, we have to give away 20% of all our years of hard work, and we have to risk $4 million of our own money in a country that depends on the whim of El Sabaneitor. Not surprisingly, none of the partners want to take out the loan.

But they would have none of it. They insisted, wanting us to go to the Notary on Thursday to get the loan, and on Friday to Miraflores to get the loan from the President.  After all, that is how the country is managed.

The irony is that we could use that money to update some of our equipment and get rid of some very inefficient lines. We could probably replace half of the machines in one department alone and still have greater capacity, quality, and throughput.

Question is, what do you do with the workers that won’t be needed? The law says you can’t fire anyone, and if you do, either you pay them triple what you would normally pay a fired worker, or you pay them even more to get them to resign.

Then there’s the issue of the “Sindicato Bolivariano,” the chavista union.

In July those idiots called the Labor Ministry because we were paying out too much in overtime (they were right on that score). Thing is, even the Supervisor that visited us from the Ministry told them they were nuts to complain about that! After all, she said, nobody is forcing anybody to work overtime, the workers WANT it. They need it to live.

Sensing an opening, I jumped in and said, “Don’t worry, ma’am. Tomorrow we will do away with overtime in that department.” I then asked the chavista idiot if it would be OK for his co-workers to show up every week at his house to pick up the cash they were missing, and also at Christmas when we paid for vacations and bonuses.

I wish I had taken a picture of his face.

I then asked the Supervisor what we needed to do to eliminate overtime, and whether or not we would we get fined. In a surprisingly reasonable tone, she said no, that if the complaint was left as it was, all we needed to do was file a form at the Ministry stating that due to the nature of our processes (24/7, 350 days a year) overtime was inevitable. She would rubber stamp it right then and there, and that would be that.

You know what the chavista idiot said? If the factory would not be reprimanded, they wanted to drop the matter. All they wanted was the reprimand. They don’t care about their fellow workers, they just wanted us reprimanded.

Why? Easy – build up enough reprimands and you get to star at the latest expropriation.

Our take is that both the loan incident and the union scuffle are clearly ways in which the government simply starts eating away at companies. Through these loans, the government keeps close tabs on companies. It expands its tentacles and establishes relationships with key workers. It gets to peer into your books, and it develops a series of informants that will become quite valuable once they decide to go all out and nationalize you.

Chavista industrial policy is not implemented, it is metastasized.

Anyway, keep up the good work,