The Chargé in Venezuela (Dawson) to the Secretary of State

No. 8279

Sir: With reference to previous correspondence concerning the new extraordinary surtax imposed by Decree No. 112 of December 31, 1945 on 1945 incomes in excess of 800,000 bolívares, I have the honor to submit the Embassy’s speculations as to the reasons for the enactment of this measure and the summary manner in which it was done. The following remarks are the result of careful thought by the various responsible officers of the Embassy and conversations with Junta officials, including two by First Secretary Maleady and myself with Junta President Betancourt.

The reasons given by members of the Revolutionary Junta and Cabinet are completely unconvincing. Their thesis is that extra revenues were needed to implement the program enunciated in Junta President Betancourt’s New Year’s address. This program consisted of three principal parts, the financing of a new Instituto de Fomento de la Producctión, of a long-term housing program and of a merchant marine. While the first two of these are admirable and needed projects, all evidence that the Embassy has is to the effect that they could have been financed by the Venezuelan Government from its ordinary revenues. If Venezuela goes into an ocean shipping venture, as has been indicated is the intention, it will inevitably be a losing proposition in which great sums can be sunk, although there is no doubt that there is need for improved coastwise shipping services.

None of the three portions of the New Year program are even in the blueprint stage. Some plans have been laid for increasing production, both agricultural and industrial, through the as yet non-existent Instituto but they have not yet been integrated or detailed. Junta President Betancourt’s New Year’s Day speech estimated that 50,000,000 bolívares would be needed for the housing program which the Minister of Fomento60 has indicated will provide for the building of 40,000 units, 4,000 in 1946. Obviously, the economic way to handle any such enterprise would be by a revolving fund which would require but a fraction of the amount indicated. The origin of the merchant marine idea seems to have been some Colombian suggestions for a joint Colombian-Venezuelan marine which received wide publicity in the local press.

Three explanations come to mind for the issuance of Decree No. 112. The first of these is that Finance Minister Carlos D’Ascoli, a nervous theoretician who has never dealt with large sums before, was honestly worried about the state of the Government’s finances. He has indicated [Page 1333] as much on a number of occasions but there is no justification therefor in his own Treasury figures, which have been forwarded to the Department in appropriate despatches. Junta President Betancourt has himself admitted to me on a number of occasions that the Government had no real financial worries, had an adequate mounting surplus to meet its economic and social objectives, provided oil revenues continued at their present high level, and could even easily reduce the inordinately high customs duties, with their deleterious effect on the cost of living, when it got around to it. The character of D’Ascoli’s worrying mind is exemplified by a remark of the Vice President of the Banco Central, the Government bank of issue, “God, I wonder what Carlos would do if he were faced with a deficit!”

The second explanation is believed to have more weight. It is that some bright lad on the Junta or in the Cabinet, probably Fomento Minister Pérez Alfonso, on whom Betancourt relies increasingly, got the ideas that (a) the major producing oil companies, as is true, made huge profits in 1945 and (b), if the Near Eastern oil fields really entered into competition with the Venezuelan fields in 1946, Venezuelan production would inevitably go down because of Near Eastern advantages in production costs. From these sound premises, it would be easy for Pérez Alfonso, Betancourt and others to conclude that now was the time to get some of the fat off of the geese laying the golden eggs, before their weight went down.

The third explanation, likewise with undoubted validity, is a political one. The Junta has made a practice of periodically issuing decrees of popular appeal in order to cater to public support. Some time had gone by since any such had dazzled the public. The Electoral Statute to provide for the Constituent Assembly to draw up the new Constitution, originally intended to be announced in the Presidential New Year’s Day address, was not ready (there are grounds for suspicion that the Junta would like to put off the elections). There has been increasing evidence of opposition to the Junta from a number of sources, the honeymoon being over. Decree No. 112 had a very marked demagogic appeal and would only arouse the active opposition of the forty or so companies and persons directly affected, largely foreign, and worry only the monied classes. The decree was a simple one and soaked the always unpopular “petrolero” without being openly discriminatory or violating the Petroleum Law.

In short, it is the Embassy’s feeling that the extraordinary income surtax was enacted because the Revolutionary Junta of Government saw an opportunity to gather in some $40,000,000 in extra revenues by a means which would be unquestionably popular with the Venezuelan masses.

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Respectfully yours,

Allan Dawson
  1. Juan Pablo Pérez Alfonso.