VenEconomy: Chavez has become expert at implementing half measures

VenEconomy: Over these past 12 years, the Hugo Chavez administration has become an expert in implementing half measures. Unfortunately, while such measures bring momentary relief from some ill in this or that sector, they generally open the doors to new and even greater problems for other sectors of the population.

One example of this is the announcement the President made at the weekend that he will issue a decree with the rank, value, and force of law whereby the debts of agricultural producers who were affected by the torrential rains in November and December last year will be written off.

It is very easy to applaud this decision if one looks at just one side of the coin: the grave situation facing the agricultural producers; a situation, it has to be pointed out, that is not solely the product of the rains brought by La Nina or the draught caused by El Nino during the early months of 2010, but, more particularly, of the government's wrongheaded policies that have led it to expropriate thousands of hectares of farmland without rhyme or reason, discouraging investment and the planting of crops.

Equally understandable is the enthusiastic welcome given the measure by Fedeagro, whose president, Pedro Rivas maintained that this "would help to alleviate our indebtedness and allow us to give a fresh boost to planting in the upcoming seasons."

But the situation is far from rosy for the other side of the coin: the private banks. According to the few details announced by the President, this decree-law, to be issued under his enabling powers and which will write off "all the debts of agricultural producers, even though those people in the private banks don't like it," will be ready in just a few days' time.

The point is not whether the banks like it or not, but that this decree could drive many of them into bankruptcy.

It so happens that, for some banks, the agricultural loans portfolio (25% of the total portfolio) that the government requires the banks to maintain could be substantially more than 100% of their net worth (in November, 25% of the banks' portfolio was equivalent to 92% of the system's net worth. Assuming that half of a typical agricultural portfolio is to be written off, this would wipe out 46% of the banks' net worth, which, in some cases, could represent more than 100%.)

The details of this proposed decree-law have not been made public so far. However, from the little that has been leaked, there is no indication that the government is thinking of compensating the banks for any possible losses that this forced pardoning of agricultural loans will cause.

A rational government would be concerned over the well-being of all sectors of the population, which involves understanding that having a strong banking system in which the general public has confidence -- something achieved by means of clear policies reached on the basis of consensus -- is essential for the healthy development of any country.