• In its June 26 issue VenEconomy Weekly reported that:

  • Law and disorder
    Two terrible events shook Venezuelan society last week which reflect both the worsening wave of violence in the country, as well as the breakdown of Venezuela's institutions in general, and of the judicial system in particular. Last Tuesday, following a robbery at a bakery and ice-cream shop in Sabana Grande in which a female police officer and one delinquent were killed in a shoot-out, seven police officers took the law into their own hands, executing two other thieves involved in the robbery, instead of delivering them to jail. In another incident, a lone gunman shot and killed Jose Alberto Totessaut Salicetti, a well-known lawyer, and son-in-law of journalist Jose Vicente Rangel, while he and his wife were driving their three-year old son to school. The deterioration of personal security and a general institutional breakdown, is even worse in the poor neighborhoods ("barrios"). In the face of their deep distrust of the police, slum residents have also taken the law into their own hands on occasion, resorting to publicly humiliating and lynching known local criminals. So far this year, seven such incidents have been reported, plus a further 10 attempted. Escalating violence is not only a major problem in the big cities but also in rural areas, especially along the Colombian border. Behind much of this escalation in violence is the state's inability to stop the expansion of the drug trade, and failure to promote the creation of decent and well-paid employment opportunities or to reform the country's politicized and ineffective judicial system. Even more important, the Venezuelan state has done nothing to stop the increasing politicization and decay of the country's judicial and law enforcement systems. Reducing violence is a long-term objective which will demand much more than better policing. It requires not only a radical economic reform that ensures sustained and equitable economic growth, but also a major restructuring of the state - including the judicial system - to eliminate the interference of political parties' in areas which are beyond their constitutional scope of influence.

  • GENERAL SALES TAX increase from 12.5% to 16.5% cleared Congress last week and becomes effective July 1. The law exempts capital goods and service purchases during the construction stage of industrial, agro-industrial, oil or mining projects. On the other hand, Congress for some mysterious reason saw fit to completely exempt Margarita Island from the levy, creating an even larger loophole through which many billions of bolivars of revenues will be lost. (Previously, only imports were exempt.) The number of residential telephone message units exempt from the tax was doubled, to 1,000 units per month. (Most congressmen have telephones at home.)

  • INFLATION The CPI rose just 6.3% in the first three weeks of June and appears certain to come in at under 9% for the month as a whole. The general sales tax increase (to 16.5% from July 1) should cause the rate to go higher again in July, however.

  • ZURICH INSURANCE GROUP acquired 68% of Seguros Sud-America ($20 million annual premiums). A major player in the world insurance market (1995 premium income = $23 billion), Zurich Insurance has operations in 45 countries.

  • MERCOSUR Venezuela and Colombia will continue to negotiate a joint entry into the Mercosur group.

  • CORPOVEN unveiled its 1997 - 2006 business plan which entails $18 billion of investment (37% of which will come from third parties) to increase production to 1.63 million b/d. The company expects to sign a strategic association with ARCO to develop heavy and extra heavy crudes in the Faja within the next few weeks, although they are currently in negotiations with a number of foreign oil companies to take a one third stake in the association.

  • ELECTORAL REFORM AD, opposed to introducing total uninominality into the electoral process, is indulging in delay tactics. AD members of the Special Commission for the Reform of the Suffrage Law are said to have been conspicuous by their absence at meetings of the commission, holding up discussion considerably. The preliminary proposal due to be submitted to Congress before the 5th of July is beginning to look unlikely.
    VenEconomy is a Caracas-based publication and consulting firm specializing in the study and analysis of Venezuelan economic, political and social issues. Publications edited and distributed by VenEconomy include the VenEconomy Weekly newsletter, VenEconomy Monthly magazine and The Outlook, an annual scenario analysis projecting key trends five or six years into the future. Other group publications include the Law Report (edited by Baker & Mckenzie), the InvestAnalysis Stock Guide (security analysis) and InvestAnalysis Renta Fija (fixed- income securities) edited by Alex Dalmady and Daniel Lahoud and VenEconomy's newest offering, Insight 21 (produced jointly with Consultores 21).

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