The Economy 02/05/11

Chávez raises minimum wage and increases tax on windfall gains from oil while World Economic Forum takes place in Brazil.

In the week leading up to International Labour Day on May 1st, Venezuelan President Hugo Chávez increased the Venezuelan minimum wage by 26.5%, thereby bringing the basic monthly salary to an equivalent of US$360. Venezuelan Economist Fernando Barrientos considered this rise as insufficient, as it is not enough to cover the basic basket of goods.

The day after, Chávez announced another wage increase, this time for managers and senior public sector workers, of between 43% and 57%, depending on one’s job position. Both wage rises cost the state approximately $3m. The critical platform VenEconomy pointed out that despite these concessions, the government still yet to negotiate a collective employment contract recognizing essential benefits for all state employees, in the municipalities as well as the central government agencies.

In general, the labour situation in Venezuela seems ambiguous, particularly as former trade union leader in Venezuela Eleuterio Benítez points out that the trade union movement lacks both agenda and results. According to Veneconomy, the government’s assaults on trade unions have ‘criminalized trade union activity’ and therefore jeopardized the prospect of secure long-term contracts and appropriate working conditions in the country.

President Chávez also issued a tax increase on extraordinary oil profits to be paid by the state oil company Petróleos de Venezuela (Pdvsa) from a current 60% of profits when the oil price exceeds US$100 per barrel to as much as 95% when the oil price is above US$100/barrel. The current price is at US$110.33/barrel and Oil Minister Rafael Ramírez stated that should this upward tendency continue, the tax increase will bring an additional US$16bn each year.

The extra revenue gained should fund social projects in housing, infrastructure, health, agriculture and food provisions, in the run-up to presidential elections in December 2012. To start, the government announced the launch of ‘Gran Misión Venezuela`, a housing project that should finance 150 000 houses, through cooperation of the public and private sector.

On Thursday last week, President Dilma Rousseff opened the 6th World Economic Forum on Latin America in Rio de Janeiro. The forum provides a platform for 700 top politicians and entrepreneurs from 45 countries to address issues ranging from regional infrastructure projects, innovation and productivity and ensuring an equitable growth cycle to strengthening regional governance and sustainable development.

With a growth rate of 6% last year, Latin America can seize the opportunity to ‘be the great protagonist in the next decade’. Macroeconomic and democratic stability as well as an increase in income and the emergence of a large middle class do in fact provide good conditions, but controlling inflationary pressures and universalizing education and workforce skilling are issues that still need to be addressed, Inter-American Development Bank President Moreno stated.