VENEZUELAN INVESTMENT INSTITUTIONS AND POLICIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000020008-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 17
• Document Creation Date: December 16, 2016
• Document Release Date: October 5, 2004
• Sequence Number: 8
• Publication Date: December 17, 1974
• Content Type: MF

STAT
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STAT
(17 December 1974)
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17 Dcccriber 1974
T1r. Raynond J. Albright
Vico-President, Research and Planning
Export-Xinport Bank of the United States
.SUDJECT : Venezuelan investment institutions and
Policies
The attached :acr .oranduni is in response to your
request for i ?iformation on the foreign investment institu-
tions and policies of Venezuela for Mr. Casey's use during
his upco::,inr, vi it to Caracas. Should you reciui rc any
further information on this or related matters, please
MAUI ICE C. ERNST
Director
Economic Research
Attachment :
As stat:d
Distribution: (S-G634)
Orig & 1 - Addrassce
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TAB I INVESTMENT 'NSTITUTIONS
TAB II - INVESTMENT POLICIES
TAB III INVESTMENT STRATEGIES
STAT'
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TABLE OF CONTENTS
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INVESTMENT INSTITUTIONS
Venezuela's official foreign assets are the largest
of any Latin American country. At the end of 1973, they
totaled almost $2.4 billion (see Table 1). Official
holdings should reach $8 billion by year's end. They
will then rival those of every European nation, except
West Germany.
The reserve build-up is a relatively new phenomenon.
Only since 1971 have increases on oil earnings substantially
outstripped the economy's demand for foreign exchange.
Institutions in Flux
The President of Venezuela, Carlos Andres Perez,
has ultimate responsibility for
.
government investment policy. He does not participate in
day-to-day investment decisions, but does set guidelines.
Perez wants to use Vene?auela's new found wealth to enhance
his country's -- and his personal -- power and prestige,
particularly with his Latin American neighbors.
A small group of Cabinet members serve as key advisors
to Perez. Gumersindo Rodriquez is probably the most
powerful mirister in the government and Perez's closest
economic advisor. He directs the Central Office of
a
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STA
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Venezuela's Official Foreign Assets, End of Year
....' .....' .(million US S)
'1970
' !971
' 1972
' 1973
TOTAL
1,020
1,481
1,657
2,366
8,Ot!3
Central Bank Foreign Reserves
1,020
1,481
1,657.
2,356
5,000
Of which :
Gold
384
391
391
472
472
Reserve Position in IMF
164
211
229
248
500
Foreign Exchange
472
886
1,037
1,646
4,028
Venezuelan Investment Fund
---
---
---
--
3,000
iJ Projected
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Coordination and Planning. Hector Hurtado,!Minister of
Finance, also plays a key role in formulating government
economic 'policy.
The Central Off ice of Coordination and Planning
(COORDIPLAN) has the responsibility for formulating
Venezuela's overall economic program. COORDIPLAN's role
in economic planning has been greatly strengthened since
Rodriguez became heal of the office. While not participating
in individual investment decisions, COORDIPLAN has consid-
erable influence over investment policy.
Although the Ministry of Finance has formal respon-
sibility for managing Venezuela's official foreign assets,
it has delegated this responsibility of two major invest-
ment institutions -- the quasi-public central bank (Banco
Central) and the newly established Venezuelan Investment
Fund (FIV). The ministry directly controls the investment
fund and holds a majority of the stock of the central bank.
The banco Central until recently had operational
control over essentially all government foreign assets.
It is expected, however, that in the future official
holdings that do not qualify as international reserves
will be held by other institutions. The bank, a quasi-
public semi-autonomous institution, is headed by
Alfredo Lafee. He is assisted by a small cadre of
y
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experienced personnel. Their investment decisions are
subject only to loose guidelines established by the
gov6rnment.
The Venezuelan 'Investment?Fund, established by
President Perez in June 1974, will probably ultimately
replace the central bank as the principal investment
institution for Venezuela's official foreign assets. The
importance President Perez attaches to the fund is
evidenced by the fact that the fund's president, Carolos
Rangel, holds Cabinet rank. The degree of independence
that Rangel and the fund's staff of 16 professionals will
have, however, remains to be seen.
Foreign banks and institutions will probably be
frequently called upon by the fund for advise. As a
new organization with little investment experience, the
FIV is looking for assistance. It intends to establish
? u
a panel of bankers, investment brokers, and economists to
aid the staff in selecting profitable investments.
S-
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Venezuela has followed a ver7 7 conservative investment
policy. The reserve build-up is relatively new, and Caracas
has' consequently tended to keep its foreign holdings liqui'l
to cover unexpected payment requirements. Venezuelans also
realize that with declining oil reserves, future deve..opment
will depend on a steady stream of investment earnings.
Officials have therefore sought secure and non-speculative
investment outlets.
Investment Composition'
About 70% of the Venezuelan ^.entral bank's foreign
asset holdings are in bank deposits (see Table 2). Time
deposits, most with maturities of 90 days, account for
,, .
about 65% of the total. Between 1 January and 30 September,
holdings in time deposits increased about $1.7 billion.
Highly liquid sight deposits still account for 5% of
Caracas' wealth, although their share has declined since
the beginning of the year.
The new investment fund will eventually replace the
central bank as the major conduit for Venezuelan forcigr-
investment. The fund's portfolio --'at least in the short
term -- will closely resemble that of the central bank.
to
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Composition of Venezuela's Official Foreign Assets:
Banco Central, 30 September 1974
Percent
Gold and Reserve Position in the IMF
15
Other Foreign Reserves
85
Bank Deposits
70
Highly Liquid (current and call
5
accounts)
Relatively Liquid (time account and
certificates of deposit)
Treasury Stocks and Bonds
.5
Selected Notes, Loans, and Bonds
negl.
Other Foreign Assets
10
(million US$)
TOTAL FOREIGN ASSETS 4,733
7
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The bulk of this year's $3 billion allo;:ment and most of the
next year's proposed $3.5 billion commitment will probably
be held in time deposits and call accounts until suitable
alternatives can be found.
Caracas is diversifying its foreign holdings as the
reserve build-up accelerates. The central bank held virtually
no foreign assets other than gold and bank deposits at the
beginning of the year. By 30 September, however, the bank
had acquired $119 million in foreign treasury securities
and $66 million in foreign bonds, including
$24 million in IBRD bonds, $18 million in Inter-American
Development Bank bonds, and $2 million in Andean Development
Corporation bonds. During September, $86 million was also
lent to the IMF oil facility. An additional $45 million was
provided for the oil facility in October and $100 million
in treasury issues were purchased.
A small but growing portion of the investment fund's
assets also will be held in foreign treasury issues, foreign
bonds and other foreign assets. The fund has already loaned
$500 million to the World Bank i.nd agreed to contribute
$60 million to tt- Central American Bank for Regional
Y
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Integration. It is expected the fund will also make loans
to other regional oLganizations such as the Inter-American
Development Bank, the Caribbean Development Bank, and the
Andean Development Corporation.
Investment Location
About 80% of Venezuela's foreign assets are located
in the United States (see Table 3). This concentration
reflects longstanding economic ties, the continuing
influence of US financial experts and institutions, and
the fact that almost all oil payments are made in dollars
in the 'Jnited States. About 5% of Venezuela's foreign
assets are located in other countries -- mainly West
Germany, the United Kingdom, and Guatamala.
The central bank is increasing the size of its
holdings outside the United States. While the bulk of
concessionaire oil payments continue to be placed in US
financial markets, some maturing time deposits have been
transferred to London branches of US banks.
Nevertheless, the bulk of Venezuela's petrodollars will
probably continue to be invested in the United States. Concern
over the Eurocurrency market's ability to absorb additional
petrodollar flows and the limited size and depth of other
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TABLE 3
Location of Venezuela's Official Foreign Assets:
Banco Central, 30 September 1974
Percent
Gold and Reserve Position in the IMF
15
80
United States
other (including Germany, the UK, and Guatamala) 5
International and Regional Organizations negl
(million US
TOTAL FOREIGN ASSETS 4,733
/D
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non-,US financial centers limits Caracas' ability to
geographically diversify its investments.
'Currency Composition
Over 80% of Venezuela's official foreign holdings
are in dollar-denominated assets (see Table 4). Less
than 5% are in other currencies -- mainly Deutschemarks.
There is no indication that Venezuela is attempting to
diversify the currency composition of its holdings.
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TABLE y
Currency of Venezuela's Official &"ci:Cign Assets:
Banco Central,'31 September 1974
Percent
Gold and Reserve Position in the IMF
15
Dollars
80
Others (mainly Deutschemarks)
5
(million US $)
TOTAL FOREIGN ASSETS
4,733
420
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It is not clear how closely the fund will adhere to
these guidelines. With a current capital stock of $2.5
billion, the present investment ceiling is only about
$125 million. In its first transaction -- a $500 million
loan to-the Worl' Zank -- the FIV exceeded its proposed
funding limit. Continuing flexibility, especially when
a high rate of return is possible, is likely.
The fund has also formulated a broad outline of
geographic preferences in investment. To the extent
possible under the investment guidelines, the FIV will
concentrate its investments in:
?Selected industries in the domestic economy.
?Regional projects in Central and South America.
?National projects in Latin America.
?Projects in other less developed economies.
The fund is expected to devote substantial
resources to financing the foreign exchange cost of
investment projects of major domestic industries. Indus-
tries of primary interest include iron and steel, hydro-
carbons (including petrochemicals), shipbuilding, shipping
(particularly oil tankers), and agriculture. It is
expected that the FIV's next: major investment will be in
a Venezuelan project -- perhaps Sidor, the national steel
company.
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Regional and national projects in Latin America
will also receive priority. Investment in Latin America
is seen as a way to support Venezuela's foreign political,
commercial, and economic policy. The government recognizes
the opportunity afforded by its new wealth to assume a
leadership role in Latin Americar ^ffairs. Caracas hopes
that its oil dollars will allow Venezuela to replace
Argentina, Brazil. and Mexico as the major powers in
Central and South America.
The fund is particularly interested in helping Latin
American countries ease their oil-induced payments
problems. The fund plans to concentrate its investment
.in export industries, particularly in manufacturing and
mining. The projects discussed include: refinery facilities,
pulp and paper mills, sugar mills, "fertilizer plants, ando
natural resource exploitation. The FIV seems particularly
attracted to poorer Latin American countries such as
Bolivia, Costa Rica, Guyana, Haiti, and Hondures, although
investment in more developed neighbors is also likely.
The FIV is also interested in loans to regional
and international organizations. This is probably, however,
a short-term phenomenon. The fund's first major transaction,
the World Bank loan, was widely criticized for not adequately
advancing Venezuela's national interests.
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