1942: Venezuela

The first attack of the war on the soil of the Western Hemisphere occurred on Feb. 16, 1942, when German submarines broke through the outer screen of United States and Allied bases guarding the Panama Canal and shelled the Dutch island of Aruba, just fifteen miles off the coast of Venezuela. Aruba is the site of the world's largest oil refinery, where crude oil from Venezuela is ferried over to be refined in the Standard Oil Company of New Jersey's plant. In April Curaçao, another of the Dutch West Indies, where the second largest oil refinery is located, was shelled. Both Aruba and Curaçao are big production centers for high octane aviation gasoline and are so important in supplying the United Nations, especially Great Britain, which gets 70 per cent of the petroleum used by the Empire's armed forces from this source, that they have been placed under the command of a United States admiral. Venezuela has a right to participate with the United States in their protection, and will collaborate with United States and Netherlands forces in defending them.

Venezuelan petroleum production reached its highest peak in 1941, exceeding 33,000,000 metric tons, which put Venezuela second among the world's oil-producing nations. The Standard Oil Companies of New Jersey and New York accounted for 64 per cent of the total increase in production, the Royal Dutch Shell group for 18.5 per cent. Income through taxation of oil properties and production increased from 84,357,306 bolívares in 1940 to 134,332,382 in 1941, with very satisfactory results to the nation's finances.

Although attempts have been made to keep 1942 production up to the 1941 level, the sinking of oil tankers in coastal waters and inadequate shipping have made it necessary to curtail production. Unemployment, as well as loss of government revenue, has followed. Moreover, the shipping shortage has had a serious effect on the food supply since, owing to the nation's unbalanced economy, Venezuela must import most of its rice, potatoes and milk products.

Agricultural Activities.

This situation has brought sharply to the fore the need of making the nation more nearly self-supporting agriculturally. Several plans have been advanced to this end. A pact signed by the Government and the three largest oil companies, in July, calls for the establishment of three agricultural colonies on which unskilled employes discharged because of drastically curtailed production would be settled. The Government will donate the land (25 to 37 acres per man); the companies agree to keep discharged workers who stay on the farms in funds for a thirty-week period. Another proposal, the so-called Ron Plan, submitted by the Director of the Banco Central, provides for the formation of large mechanized farms operated with modern production methods, for which the Government is asked to supply two-thirds of the capital at low interest rates, part in reclaimed public lands.

Venezuelan agriculture up to the present has been largely concerned with commercial crops, such as cacao, coffee and cattle products. Emphasis must now necessarily shift to producing food for domestic consumption. A United States technical commission, headed by U. S. Department of Agriculture experts, in September made an exhaustive study of the cattle regions in the interior to investigate means of increasing meat and dairy herds. The four-year public works program, to be in part financed from an Export-Import Bank loan of $20,000,000 announced in June, emphasizes development of the hinterland and the improvement of communications as a step towards the revival of agriculture and cattle-raising. This loan is in addition to a credit of $6,000,000 assigned in January to the Government-owned Workers Bank for a low-cost housing project in Caracas, the first venture of its type in South America to be aided by the Export-Import Bank. Other steps in the direction of diversifying Venezuela's economic activities and of meeting the war shipping shortage are the establishment of a meat packing and canning plant, a rubber factory, a cotton gin, and a cement plant.

The financial statement reported to Congress by President Isaías Medina Angarita at the time of his annual message in April, indicated a balanced budget, in spite of his administration's ambitious public works program, extension of education and encouragement of new industries and agriculture. Venezuela has no foreign or domestic debt.

1941: Venezuela

The liberal administration of President Eleazar López Contreras came to an end on May 5, when General Isaías Medina Angarita, Minister of War and Navy in the López Cabinet, was inaugurated, following his indirect election on April 28 by a very comfortable majority. The new President promised, in his inaugural, to carry on the 'Bolivarian' ideals and democratic policies of his predecessor, who had his term of office constitutionally reduced from seven to five years, a move unique in Latin America and for which Venezuelan history certainly provided no precedent, since Sr. López Contreras succeeded the 27-year dictator, Juan Vicente Gómez. A further new departure in Venezuelan politics is the organization of a legally incorporated 'opposition' party, called Acción Democrática, which held its first public meeting in September. It is headed by the well-known novelist and educator, Rómulo Gallegos, who was the unsuccessful presidential candidate, and includes the leftist Rómulo Betancourt, who returned from exile in February. The new administration has indicated no opposition to the new party, thus following the lead of López Contreras, who tried to encourage the development of free political parties.

The foreign policy of Venezuela has been anti-German and Nazi influence in the country has been relatively weak. This may be explained, in part, by the nation's long experience with dictatorship; in part by the oil monopoly which the Anglo-Dutch-American petroleum interests enjoy. The rupture of diplomatic relations with the Axis powers, following the opening of hostilities in the Pacific, puts Venezuela, along with Colombia, on a different footing from any of the other South American nations regarding the second World War. Venezuela also has taken special measures to safeguard vital North American properties, such as oil wells.

A century-old frontier dispute with Colombia was settled in April by an agreement delimiting the Rio de Oro and Oira-Arauca regions and providing for free navigation on rivers common to both countries, principally the Orinoco. Negotiation of a trade treaty is contemplated.

A most-favored-nation agreement was concluded in the spring with Canada, which has increased its petroleum imports from Venezuela. This rise in Canadian oil purchases is one of the chief reasons for the rapid recovery Venezuelan petroleum production showed in 1941, indicated by the 10 per cent gain in the first seven months of the year over the corresponding period of 1940, and a rate of production about equal to that for the peak year, 1939. Not only did Canada and the United States increase their demand for Venezuelan oil but Great Britain, confronted with the difficulties of transportation from the Middle East, was forced to shift its purchases from the sterling area to the Western Hemisphere. A substantial improvement in the foreign exchange position and a more satisfactory fiscal condition are the direct results of this revival, since over 90 per cent of the country's foreign exchange income and about 35 per cent of its revenues come from petroleum. It has not been necessary, therefore, to draw on the $10,000,000 credit made available by the National City Bank of New York to ease the exchange situation. In order to strengthen the national economy, the Government this year borrowed $3,600,000 from the United States. Until then Venezuela had the distinction of being without an external debt.

Venezuela has the record of being the world's greatest oil exporter as well as standing third as petroleum producer. The country depends so heavily and so unsoundly on oil, however, that it must import a high percentage of its food. This has strengthened efforts to revive agriculture and cattle-raising. Better organization of farming and marketing is a prime necessity. See also PAN-AMERICAN AFFAIRS.

1940: Venezuela

Local elections in the autumn in thirteen of Venezuela's twenty states have been interpreted as strong endorsement of the program President Lopez Contreras, including his policy of close cooperation with the United States. Interest in these elections centers in the fact that the President is indirectly elected by Congress, in joint session, which, in turn, is chosen by the state legislatures and municipal councils. These last are elected by the public at large. La Crítica, which often reflects the official viewpoint, asserts that the President will not run for office again nor try to prolong his constitutional term when it expires in April 1941.

The withdrawal of Venezuela from the League of Nations became effective July 18, this country being the ninth Latin American nation to quit the League. A social insurance act was passed by Congress in July, based entirely upon the recommendations made by an International Labour Office technical mission in 1938.

Declining exports of petroleum, which accounts for 90 per cent of total export values, and the unsatisfactory coffee situation, are largely responsible for the exchange stringency, which led to an intensified foreign exchange control in October. Over one-half of Venezuela's coffee in 1939 was exported to Germany. It is hoped that the substantial United States import quota (420,000 bags annually as compared with 220,804 bags in 1939-40) (See EL SALVADOR) and the decision of Imperial Oil of Canada (a subsidiary of Standard Oil of New Jersey) to divert about one-half of its purchases of 40,000 barrels daily from the United States to Venezuela will offset the loss of European markets and improve the value of the bolívar, which in the second half of 1940 has been subject to considerable pressure. The new Banco Central, authorized in September 1939, has sole power to issue currency and to control the exchange value of the bolívar. It has just succeeded in securing a private loan from the National City Bank of New York, the proceeds of which will be used to finance the purchase of essential imports from the United States and to liquidate commercial arrears.

Petroleum has shown a sharp decline in production in 1940, both the Royal Dutch-Shell and the Standard Oil groups having decided to reduce output as a result of the war in Europe. The output in 1939 reached a record figure, however, totalling 207,055,000 barrels. The Venezuelan export balance is misleading, since the value of oil shipments is only partly retained by the Republic. Out of total budgetary revenues of 335,000,000 bolivars in 1939, over 110,000,000 however, was derived from petroleum taxes. Receipts and expenditures in the budget for 1939-40 are calculated to balance at 361,325,000 bolivars, which is about 20,000,000 greater than the actual receipts during 1938-39.

1939: Venezuela

After a year of negotiations a reciprocal trade agreement between the United States and Venezuela was signed on Nov. 6, to take effect Dec. 16. The principal concession made by the United States was the reduction by 50 per cent of the import tax on crude petroleum (from ½ to ¼ a cent a gallon), provided the total imports from all countries do not exceed 5 per cent of the crude petroleum processed in United States refineries during the preceding calendar year. Imports in excess of this 5 per cent are to be subject to the full import tax. This concession will be granted to all countries that receive most-favored-nation treatment from the United States, but import quotas are to be set up for this 5 per cent margin. By pro-rating on the basis of imports during the first ten months of 1939, Venezuela has been assigned 71.9 per cent of the total, the Netherlands 20.3 per cent and Colombia 4 per cent. All other countries, including Mexico, share the remaining 3.8 per cent. The dwindling of Mexican oil exports, due to the expropriation of oil properties, practically excludes Mexico from the benefits of this treaty. A policy of encouraging the limited importation of more foreign petroleum, in order to conserve the national oil reserves of the United States, which are somewhat less than 50 per cent of the known world reserves of crude petroleum, may be foreshadowed in this agreement with Venezuela.

This concession is of the greatest importance to Venezuela since the oil industry is the chief factor in the economy of the country, and crude petroleum and fuel oil constitute 85 to 90 per cent of Venezuela's exports. The output in 1938 reached a record total of about 188,000,000 barrels. In return, Venezuela cut the tariffs on thirty-five items imported from the United States, including hog lard, wheat flour, lumber, agricultural and industrial machinery parts, automotive products, etc., and bound present schedules on sixty-one more items. Altogether, these items represent about 36 per cent of United States exports to Venezuela, or $19,000,000 out of a total export trade to that country of $52,000,000. Exports of North American products to Venezuela have more than doubled in the last three years, due largely to the increased activity in the petroleum industry and, also, to substantial purchases of supplies and equipment in connection with the public works program. The United States supplies over one-half of Venezuela's imports (56.2 per cent in 1938, as compared with 11.9 per cent from Germany and 7 per cent from Great Britain).

This trade pact is the twenty-second signed by the United States under the Hull trade policy and the eleventh with a Latin-American country. Negotiations with three other countries of South America have been in progress during the year. Opposition to these last has been so strong from Western agricultural, livestock and copper mining interests that the trade agreements program is under fire; and when the United States Congress convenes in January 1940, a fight is expected in the Senate over the renewal of the Trade Agreement Act, due to expire on June 12, 1940. The present law gives the President power to negotiate trade agreements without Senate ratification; and this constitutional point is likely to become the target in the attack rather than the interests of the cattle-growers, farmers and laborers who fear the competition of commodities now restricted by tariff duties.

One of the first efforts of the Lopez Government to improve the condition of the workers is the profit-sharing law passed in December 1938, and made retroactive to July 1936, which provides a bonus to each employee based on a percentage of earnings for the year. The law applies to the oil companies, which employ about 20,000 workers, and to other business concerns. It institutes a form of compulsory saving, since one-half of the bonus is deposited in a local bank in the employee's name and is cumulative from year to year, resulting in an individual retirement fund.

On invitation of President Lopez Contreras, a Social Action Mission, headed by the president of Notre Dame University, visited Venezuela this year to advise the Government on a social program.

1938: Venezuela

Rapid progress in the development of the Venezuelan oil fields, resulting in a new peak of production of 187,000,000 barrels in 1937, with exports valued at approximately $224,000,000, is due, in part, to unsettled conditions in the Mexican petroleum industry. As a result Venezuela has recently replaced Soviet Russia as second oil-producing country in the world. Since oil is the principal source of national revenue, the López administration is able to keep the budget balanced — the 1937-38 budget estimated revenues and expenditures at 254,632,000 bolivares — and at the same time finance an increased social program. In his presidential message President López Contreras announced a three-year public works program, to be realized out of Venezuelan resources, without appealing for foreign loans. He has extended the educational system and the public health services.

The oil and mining industries are almost entirely in the hands of foreign interests — Standard Oil of New Jersey, Gulf Oil Corporation and Royal Dutch-Shell — which means that the tremendously large export balance represents an export of profits and is a fictitious advantage to Venezuela. The actual returns to Venezuelan interests come from the sales of agricultural commodities abroad, chiefly coffee and cacao, which explains the government's promotion of domestic agriculture and industry. Steps taken to develop a national element in the country's economy include an export bounty system, the creation of a Banco Industrial to make loans to small domestic mining and manufacturing enterprises at low interest rates, and the increase of capital and of powers of the Agricultural and Cattle Bank.

In July the United States State Department called hearings on a proposal to negotiate a reciprocal trade agreement with Venezuela. Early in the year barter contracts were reported negotiated with Italy to exchange cruisers for crude oil.

Venezuela withdrew from the League of Nations on July 12, making the ninth Latin-American state to take this step.