This sprawling industrial center hit its stride on a tropical river bank scarcely a decade ago, a symbol of crash development by an ambitious oil-exporting nation. Now, in a new era, it could be a symbol of financial crisis.
A state steel complex still waits for the finishing touches of a nearly $4 billion expansion, one of the largest such projects ever undertaken. But it has lost more than $1 billion in the last four years of operation and owes $1.4 billion of Venezuela's short-term foreign debt.
Nearby, two huge new aluminum plants stagger under heavy losses and loans and sharp production cutbacks. An alumina factory, scheduled to open this month after a government investment of more than $1 billion, is dangerously short of cash. "We're missing $200 million in financing," said its president, Oscar Martinez. "What happened is that the state began a lot of projects, and in the middle of the road the money ran out."
In the five years after the first boom of oil prices in 1973, more than $10 billion of Venezuela's new riches as an OPEC member were spent here on some of the largest and most expensive steel mills, aluminum smelters and hydroelectric projects in the world. The dream was that this sudden city of 400,000 would become one of the region's great industrial belts, leading Venezuela's economy out of underdevelopment and petroleum-export dependence.
What is happening for now, however, is something like the reverse of that ideal. Industrial projects, stricken by underfunding, heavy borrowing, and overly ambitious planning, have become one of the largest strains on Venezuela's finances even as the oil revenues and foreign lending that built them melt away.
A large infrastructure for industrial development has been completed here, but after a decade of heavy state spending Venezuela remains as dependent as ever on exports of oil and OPEC's ability to maintain high prices.
"Venezuela has tried to build a modern economy, but the only part that has kept up is the petroleum," a veteran foreign banker here said. "It is a classic example of state enterprise run amok."
Oil still provides 95 percent of Venezuela's export earnings, and funds over 60 percent of its annual government budget. And while the new projects have grown, more basic sectors of the Venezuelan economy have lagged. A once dominant agricultural sector has smothered under inefficient production, distribution, and subsidization. Venezuela now imports more than half of its food, including $900 million a year from the United States alone.
In per-capita income, oil revenues have ranked Venezuela as the richest country in Latin America and conspicuous consumption has layered Caracas, the capital, with skyscrapers and clogged freeways. But government figures show that distribution of wealth has become more concentrated. In 1976, the richest 5 percent received 33 percent of the national income; now that share is 40 percent.
What happened in this democratic country of 16 million after the rise in oil prices has long been known as the "Venezuelan effect"--signifying inefficiency, waste and structural economic problems brought on by inability to absorb sudden increases in income.
Ciudad Guayana, with its half-used industrial plants and rows of new and empty apartment towers, is both a physical monument to that overcharged era and a focus of readjustment. "To develop, the country must go on with these projects," said Argenis Gamboa, one of Ciudad Guayana's industrial planners in the 1970s. "But now it must be a boot-strap operation."
Created in 1960, even as Venezuelan leaders were urging the formation of an oil exporters' organization, Ciudad Guayana was for many years a more carefully managed government project.
Large supplies of iron ore and bauxite lie in the surrounding jungles, and cheap electricity--needed to refine the bauxite into aluminum--could be drawn from dams. For shipping, it is only 187 nautical miles to the Caribbean by the Orinoco, second only to the Amazon among South American rivers.
The state steel company, Sidor, had opened a plant here in 1956, and in 1963 construction began on the giant Guri Dam, 40 miles up the Caroni River. By 1974, when Venezuela began to look for ways to use its oil wealth, Sidor had plans to expand its production capacity to 1.25 million tons of steel a year. Alcasa, the aluminum company, had just finished installing a new capacity of 50,000 tons a year with its partner, Reynolds Aluminum.
Then came the boom. Government planners at Ciudad Guayana, urged on by ambitious political leaders in Caracas, decided to cram decades of long-range development plans into one crash program.
Instead of 1.25 million tons of capacity, Sidor decided to expand to 4.8 million tons--a size originally planned for 1990. Alcasa bought out most of Reynolds' share in its plant and added another 70,000 tons of capacity. A new aluminum company, Venalum, ordered a massive plant of 280,000 tons, suddenly thrusting Venezuela into the top ranks of aluminum producers in terms of installed capacity.
The iron-ore operations of U.S. Steel and Bethlehem Steel were nationalized, and other new state factories, such as the now completed alumina plant, were hastily scheduled.
Figures of the Venezuelan Investment Fund, created in 1974 to distribute surplus oil revenues, show that 72 percent of the $7.8 billion it handed out in grants and loans to national projects until 1982 went into Ciudad Guayana.
So great was the boom that struck this city that the Venezuelan government once purchased an ocean liner and docked it on the Orinoco to help accommodate the 35,000 construction workers that poured into the area. But then, as the new projects neared completion in the late 1970s, the trouble started.
Government planners realized they had grossly underestimated both the sums that would be required to finish the new projects and the financial resources available to invest. At Sidor, the largest of the new projects, company officials say that goverment funding for the expansion project fell $400 million short. Barred from negotiating long-term loans, Sidor resorted to taking short-term loans at high interest rates from foreign banks to cover its costs, with the result that the firm soon became deeply in debt.
Interest payments and financing charges went from $30.3 million in 1974 to $312 million in 1981, when the company lost over $500 million. The losses were exaggerated by inefficiency in operations of the new facilities. When the new steel facilities opened, productivity rates were less than half those of other Latin American steel companies.
At all of the large plants, the sudden expansion, shortage of trained personnel, and the government's weakness for political patronage led to sometimes startling records of mismanagement.
At the new Venalum plant, a politically oriented president ousted all foreign technicians and top Venezuelan management and replaced them with his own team. By mid-1981, about half of the plant's production cells had been put out of operation by technical snafus and the government was forced to spend millions of dollars on repairs. Then, after a fire that caused $5 million in damage, the president was removed--to be replaced by the son of an ex-candidate for president of the currently ruling Christian Democrats.
Sidor produced only about 2 million of its 4.8 million tons of steel capacity last year, and company officials say the full production figure will probably never be realized.
As the managers of the new alumina plant have discovered, money needed to bridge the current crisis may not be available in this year of debts and overabundant oil. "We've managed to make it to start-up," said company president Martinez. "From there we can try to generate the funds through our own operations. We've entered an era where these operations may have to make it or break it themselves."