Monday, October 15, 2007

Chavez new constitution: article 167

Article 167 is notable more for what was removed than what was changed or added. Before I start though, take a look at this. Are bolivars green? How about bolivars fuertes? It’s a telling statement about what Chavismo seems to think matters in terms of government revenue…

Here is the original article (translation courtesy of www.constitucion.ve , please blame them for the poor grammar):

Are revenues of the States:
1. Those deriving from their property and the management of their assets.

2. Charges for the use of their goods and services, fines and penalties, and any charges allocated to them.

3. Proceeds from the sale of State-owned commodities.

4. The resources to which they are entitled by virtue of constitutional revenue share (situado constitutional). The revenue share is equivalent to up to 20% of total ordinary revenues as estimated annually by the National Treasure, which is to be distributed among the States and the Capital District as follows: 30% of the aforementioned percentage in equal shares, and the remaining 70% in proportion to the population of each of such entities.
During each fiscal year, the States must invest at least 50% of the amount to which they are entitled by way of revenue share. During each fiscal year, the Municipalities of each State shall be entitled to at least 20% of the revenue share and of all other ordinary revenues of the State corresponding. In the event of changes in the revenues of the National Treasury that require an adjustment to the National Budget, the constitutional revenue share shall be adjusted in the same proportion.
Principles, rules and procedures with a view to ensure the proper and efficient use of the resources deriving from the constitutional revenue share and the share of the Municipalities therein shall be established by law.

5. Any other taxes, charges and special contributions that may be allocated to them by national law for the purpose of helping to develop the state treasuries.
Laws creating or transferring tax revenues to the States may offset these allocations by means of changes in the other revenue categories indicated in this article, in order to preserve interterritorial fairness. The percentage of estimated ordinary national revenues allocated to the constitutional revenue share shall be no less than 15% of estimated ordinary revenues, taking into account the financial position and sustainability of the National Public Treasury, without neglecting the ability of the state administrative authorities to provide adequately for the services for which they are responsible.

6. Resources deriving from the Interterritorial Compensation Fund and from any other transfer, subsidy or special appropriation, as well as those allocated to them as a share of national tax revenues, in accordance with the pertinent law.

Here is a summary of changes in the proposed Article 167. Sections 1-3 were unchanged, as were the parts of 4-6 that aren’t addressed here. (And I kept some of the poor grammar.):
Are revenues of the States:
4. Minimum raised from 20% to 25%. Distribution now includes Federal Territories, Federal Municipalities, Communes and Communities. Proscribed ratio deleted.
Municipality minimum share raised from 20% to 25% (of state total).
Deleted: “In the event of changes in the revenues of the National Treasury that require an adjustment to the National Budget, the constitutional revenue share shall be adjusted in the same proportion.
Deleted: “la participación municipal” in use of revenue share.
5. Deleted: “The percentage of estimated ordinary national revenues allocated to the constitutional revenue share shall be no less than 15% of estimated ordinary revenues, taking into account the financial position and sustainability of the National Public Treasury, without neglecting the ability of the state administrative authorities to provide adequately for the services for which they are responsible.
6. Deleted: “Resources deriving from the Interterritorial Compensation Fund.

First, minimum distribution of revenues has been increased, both for states and for municipality portion of that state revenue. This sounds good on the surface. However, the phrase that was deleted ensures that states will not get what appears to be their full share, at least in terms of share of total federal government expenditures.

The Venezuelan government has, for several consecutive years, created a budget, then gone and passed additional expenditures later in the year. (Often more than once.) I’d like to tell you how much that has been the last few years, but the Ministry of Finance for some reason doesn’t make that little fact easily available on its website. (Perhaps they don’t want us to know?) If you don’t think it’s a big number, consider this: the budget is drafted with an estimate of oil revenue, which is typically low. In 2006, for example, the budget value was $26. Average oil price for the year was $56.45 – 117% above the budgeted value. Since oil income is somewhere around half of national income, states can expect to lose about a quarter of what should have been their revenues. And a quarter of 25% off leaves them with 18.75% of oil income, less than the 20% they would get without the reform.

And that 25% does not include one of Chavez’s biggest pet projects: Fonden. I don’t know quite how much money that fund has supposedly received since it was created, but it’s quite a few billion (not that there are any transparent accounts if it anywhere). Let’s say it’s been 10 billion – that’s 2 billion that should have gone to the states already but didn’t. So there are two mechanisms which will ensure that states will get a larger share of the pie, but guarantee that the pie will be much smaller than it used to be.

Finally, the money distributed also has to be shared with “Federal Territories, Federal Municipalities, Communes and Communities,” not all of which exist or are even defined. Nor does it say what share those entities will get. Since there is no longer a set ratio, any of those could theoretically get all of it. I won’t predict that as a possibility, but note one fact: the new version gives no description of how those funds will be split up. Any guess who gets to decide?

Section 5 removes the minimum amount that the states could receive under any circumstances. In other words, while they used to be guaranteed 15% of total estimated ordinary revenue, there is no longer any certainty of that. Given the size of additional expenditures each year and the Fonden, it’s easy to believe that state share will end up well under 15%.

Section 6 removes the “Interterritorial Compensation Fund” from potential state revenue. Honestly, I’m not even sure what this was, but it evidently was money just for the states, and this makes one more source of their revenue dry up and go away.

So the net result of this reform will be for less money to go directly to the states, and more money to stay with the federal government. This certainly doesn’t preclude the feds from spending money on specific states, including on important projects. But it does create a system which appears designed specifically to facilitate political patronage, which has been one of the best friends of Latin American caudillos of every stripe for the last 200 years.

So the governors (and mayors, plus whatever the name of a commune leader will be) who are seen as the best at their job will be the ones who can secure the most federal funds for their areas. And the ones who succeed at that will probably be the ones who are best at sucking up to Chavez. Is that a skill that anyone really wants in an elected representative?

Our cartoon friends who help us understand the old Constitution tell us that “Los recursos son fundamentales para el desarollo de los estados” – “resources are fundamental for the development of the states.” If that was so true, then what motive does Chavez have for giving them fewer resources?

It’s quite simple: all of the funds that would have been transferred to the states remain under control of the federal government, and with fewer controls and more discretion than before. In other words, Chavez has more money at his disposal and fewer restrictions on how it gets spent.

Thanks to this reform, because even more government resources will depend on Chavez, he will be able to make himself seem even more indispensable than ever – by preventing local elected officials from having the tools they used to have to do their job.

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This is the second article reviewed by AIO
aninterestedobserver at yahoo dot com
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-The end-

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