US embassy cable - 04CARACAS3216

C O N F I D E N T I A L  CARACAS 003216 
 
SIPDIS 
 
 
NSC FOR CBARTON 
USCINCSO ALSO FOR POLAD 
STATE PASS DOL FOR I/LAB 
 
E.O. 12958: DECL: 10/19/2014 
TAGS: ELAB, PGOV, PHUM, VE 
SUBJECT: VENEZUELA: REVOLUTIONARY CONTRADICTIONS IN LABOR 
BENEFITS 
 
REF: CARACAS 3164 
 
Classified By: Abelardo A. Arias, A/DCM, for Reason 1.4(b). 
 
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Summary 
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1. (C) Supporters of Venezuelan President Hugo Chavez are 
stuck on how to roll back market-oriented reforms of worker 
benefits from the 1990s.  The 1999 Constitution reversed 
changes to the severance, health care, pensions, and housing 
regimes, replacing them with impractical and, so far, 
impossible goals of vastly improving the welfare of workers. 
The GOV pushed through a state-centered social security law 
in 2002, but a debate among Chavez supporters on whether to 
exclude the private sector from the new system has impeded 
application of the new law.  Labor leaders see little hope of 
progress in these areas due to polarization and Chavez's 
autocratic methods.  Meanwhile, Venezuela's hodgepodge social 
safety net continues to deteriorate, marked by an increase in 
the informal economy.  The GOV is unlikely in the medium-term 
to reach a societal consensus on reform, to the detriment of 
Venezuela's workers.  End summary. 
 
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Chavez Promised Better Benefits 
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2. (U) Worker wages and benefits in the 1990s deteriorated in 
a period of economic stagnation.  In 1997, the Venezuelan 
Workers Confederation (CTV) negotiated with the business 
sector and GOV to overhaul severance payments and the social 
security (which includes health care, pensions, and housing 
loans) regime along market lines.  The results of those 
negotiations left workers thinking they had lost out in the 
name of the free market, leading to a crippling loss of 
credibility for the CTV (ref).  Restoration of worker 
benefits became an effective campaign theme for 
then-presidential candidate Hugo Chavez in 1998.  Chavez 
later wrote his campaign promises into the 1999 Constitution. 
 The new Constitution instilled a right to severance payments 
and implied a return to the old system; rights to universal, 
state-provided health care and a pension plan were also 
established.  Despite the constitutional language, however, 
actions have been few.  A bill amending the Organic Labor Law 
to adjust severance payments has been stuck in the National 
Assembly for three years.  In November 2002, during a 
political crisis and without opposition support, the 
pro-Chavez majority of the National Assembly passed a new 
Organic Social Security Law.  The organic law requires 
specific legislation, all still pending, in the areas of 
health care, severance and pensions, housing, workers 
compensation, and worker safety.  None of these bills has 
been mentioned by the majority leaders as a priority for the 
current session. 
 
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The Severance Package Dilemma 
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3. (C) Severance payments (prestaciones) traditionally had 
been calculated based on the employee's current salary times 
the number of years worked, though additional factors could 
multiply this figure by up to ten times.  As a result, 
instead of raises, employers paid more in bonuses and food 
allowances, so much so that by the mid-90s salaries accounted 
for just 30 percent of total income of workers.  The 1997 
reform changed the calculations to a monthly basis on all 
income and imposed caps on severance payments.  Workers with 
many years of service at a company or government agency 
complained they were hurt by the reform.  CTV legal advisor 
Leon Arismendi, who negotiated the 1997 reform, told poloff 
that workers with more than 7.5 years on the job lost some 
benefits.  The 1997 reform also permitted workers to draw up 
to 80 percent of their severance in advance to purchase a 
house or cover some other large expense.  Rather than let 
debts to workers pile up, employers began to pay "severance" 
on an annual basis.  This essentially eliminated the 
severance payment's function as a de facto unemployment 
benefit. 
 
4. (C) Orlando Chirino, a national coordinator of the 
 
 
pro-Chavez National Workers Union (UNT), said his labor 
confederation is fighting to restore the old severance 
system, free of caps, with retroactivity back to 1997 (with 
interest).  Venezuelan labor analyst Rolando Diaz told poloff 
such rhetoric is disingenuous, as such payments would be 
astronomical for employers, especially the public sector.  He 
pointed out that even the Chavez administration has not paid 
the arrears owed to public workers, which Diaz called 
financially impossible.  (The GOV also owes severance pay to 
the 18,000 ex-workers of PDVSA.)  The GOV, in fact, still 
works under the 1997 severance system.  Pro-Chavez Deputy 
Ismael Garcia told poloff October 11 that retroactivity is 
probably not feasible.  As an alternative, Garcia said his 
Podemos party would soon propose a bill to allow workers to 
convert severance packages into credits for housing loans. 
 
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Rationalizing Social Security 
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5. (C) Though workers contribute to Venezuela's health care 
system, the Venezuelan Social Security Institute (IVSS), most 
receive medical attention at specialized or private clinics. 
Arismendi said the GOV decided in 1992 to open IVSS services 
to all patients regardless of ability to pay.  This resulted 
in a precipitous decline in the quality of IVSS care to the 
point that most government agencies (including IVSS) 
established their own clinics for their workers.  Large 
private companies began to offer medical insurance policies 
for attention at private clinics.  Employers also opted for 
private alternatives in pensions and housing loans, as IVSS' 
cash reserves for pensions were routinely raided by GOV 
administrations.  Unions complained that by 2000, workers 
were being asked to shoulder the costs of the decrepit IVSS 
system while still contributing to other medical and pension 
plans. 
 
6. (C) The 2002 Organic Social Security Law sought to bring 
the patchwork of separate health/pension/housing plans under 
a re-constituted IVSS.  Article 86 of the Constitution, 
however, gave all Venezuelans the right to universal, 
comprehensive, and public health care that could be financed 
by direct or indirect contributions of the participants. 
Article 86 effectively prohibits private health care 
companies from participating in the medical system, though it 
left the door open with regard to pensions.  A bill proposed 
in March 2001 by then-Vice President Isaias Rodriguez had 
tried to create a state-run medical system with a mixed 
pension plan.  Rodriguez's plan was denounced, however, by 
Chavez hard-liners as a "privatization" plan.  Arismendi 
predicted that the GOV's refusal to negotiate with the CTV 
and Fedecamaras (both anti-Chavez entities) would impede any 
new efforts at reform. 
 
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Venezuela:  A Neo-Liberal Paradise 
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7. (C) Venezuela's debate over worker benefits is taking 
place in the midst of a decline in the formal employment 
sector.  A National Assembly report on labor said the 
formal-informal employment ratio had nearly reversed, going 
from 58%-42% in 1990 to 45%-55% in 2002.  Leon estimates, by 
taking out unemployment, that only 30% of workers (about 3.6 
million workers) receive some kind of formal benefit package. 
 Froilan Barrios, a former Chavez supporter and lead drafter 
of the Constitution's labor provisions, said the GOV has an 
outstanding debt with the workers to achieve real reform and 
to restore their living conditions to those of previous eras. 
 He said the Chavez administration has become comfortable 
with stopgap measures to alleviate social problems (the 
"missions," decrees prohibiting firing of workers, etc.). 
The result, he concluded, are the lowest labor costs in 
Venezuelan history, which he said had created a "neo-liberal 
paradise." 
 
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Comment 
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8. (C) Chavez came into office promising to reverse 
neo-liberal reforms that workers rightly or wrongly blamed 
for their shrinking benefits.  After five years of Chavez 
 
 
rule, however, the formal employment sector continues to 
wither and unemployment remains high.  Serious labor reform 
seems unlikely given the constitutional straitjacket against 
private sector participation and Chavez's autocratic style of 
governance.  With oil prices and state revenues up, Chavez 
can probably afford to neglect the labor market in the 
short-term.  In the medium term, however, he will need to 
find practical solutions for the working class or risk 
spurning a significant constituency. 
 
McFarland 
 
 
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      2004CARACA03216 - CONFIDENTIAL