MercoPress. South Atlantic News Agency

Chavez poised to take control of banks

Venezuela is preparing to take political control of private banks as part of a drive to spread “revolutionary” government control over the economy of the world's fifth largest oil exporter.

Trino Alcides Diaz, Venezuela's banking superintendent, has privately told the heads of several of the country's banks that President Hugo Chavez wants to place two government representatives on the institutions' governing boards. This would affect Banco Santander and BBVA, the Spanish banks, which respectively own Banco de Venezuela and Banco Provincial, two of the largest financial institutions in Venezuela. Others expected to be targeted include Banco Mercantil and Banesco.

An attempt to extend government influence over the banks by installing official representatives rather than by taking equity control is part of Mr Chavez's drive to introduce what he describes as "socialism of the 21st century".

A move to extend political control over banks would be a new stage in what analysts see as the creeping "socialisation" of the Venezuelan economy under Mr Chavez, a close ally of Fidel Castro, Cuba's president.

Experts said government representatives on bank boards would act as "political commissars" who would ensure credit flows were determined by political rather than by financial factors.

Francisco Faraco, a banking specialist and consultant based in Caracas, said: "The government has a revolutionary project and, by necessity, that has to go through controlling the flow of credit."

Private companies across Venezuela are being asked to introduce "co-management" as the preferred model of corporate governance. Approval of new loans from state banks requires companies to formalise a minimum of 20 per cent worker representation on boards.

The Chavez government is also implementing a programme to redistribute land from large estates to the rural poor. Mr Diaz, the banking superintendent and a close ally of Mr Chavez, could not be reached for comment on Thursday.

The Venezuelan legislature, which is tightly controlled by the government, is expected to begin discussing a new banking law over the coming weeks. Venezuelan banks, among the most profitable in Latin America, are heavily exposed to government debt. Public debt can account for as much as 60 per cent of a bank's assets. The government is also the largest single depositor among many banks.

Two months ago, legislators passed a controversial central bank law that allows the government to withdraw and spend part of the country's $30bn in international reserves.