After months of rumors in opposition circles of a forthcoming devaluation, and denials of the rumor by Bolivarian government officials, the Venezuelan bolívar was finally devalued by 47% on February 8th . Even though devaluation has become a fairly regular event, especially since currency controls were put in place in 2003, this devaluation has a potentially far greater significance for the future of the Bolivarian Revolution than the previous economic measures and an undeniably greater immediate impact on the base of support for the Bolivarian government.
After months of rumors in opposition circles of a forthcoming devaluation, and denials of the rumor by Bolivarian government officials, the Venezuelan bolívar was finally devalued by 47% on February 8th. Even though devaluation has become a fairly regular event, especially since currency controls were put in place in 2003, this devaluation has a potentially far greater significance for the future of the Bolivarian Revolution than the previous economic measures and an undeniably greater immediate impact on the base of support for the Bolivarian government.
The reasons for the devaluation are many and complex. Some analysts argue that that the devaluation is aimed at controlling inflation (Venezuela’s, at 20% last year, is the highest in Latin America) while others, like economist Pedro Palma, argue that it will increase inflation. The devaluation will certainly help the government’s balance sheet and effectively reduce its deficit and it will also bring the official exchange rate a bit closer to that of the “parallel” or black market rate. The devaluation will also likely address the problem of scarcity and shortages of basic goods.
Vice-President Nicolas Maduro explained the devaluation by saying that the root of the problem is speculation and a conspiracy of foreign, and internal enemies, to destroy the process of change in the country by creating scarcity through hoarding or withholding essential goods. Such activity in the business sector aims at raising prices and increasing profits at the same time the government attempts to maintain low “solidarity” prices to keep essential commodities affordable to the poor and working people.
“Speculation,” some might argue, is just the way business works, but it becomes economic sabotage when the drive for profiteering is directed to political ends. One area of great vulnerability in countries like Venezuela, attempting to build alternative economic models, is the policy of currency controls. The ostensible aim of currency controls is to prevent or limit capital flight from the country and in such a context black markets in currency exchange inevitably open up new, parallel markets in money that upend the government controls. Currency manipulation, besides being a lucrative business, then becomes a weapon of choice for the United States and its allies in the local oligarchies when directed at governments targeted for destruction.
While the corporate press in the US described the devaluation as a blow to US corporations with investments in Venezuela, the most devastating impact will be on Venezuelans, particularly the poor and working people. Life savings have suddenly been cut nearly in half, with further cuts promised in the future. While the minimum wage, and wages in general, will likely eventually rise to compensate for what is effectively a nearly 50% cut in consumer spending power across the board, the raise won’t come immediately and inflation will erode what’s gained. The opposition has described the new measure as a “paquetazo rojo,” or what could be roughly translated as “red austerity” or “structural adjustment package” usually associated with World Bank neoliberal measures, but which is now being carried out by the “red” or “socialist” Bolivarian government.
Widespread outrage over the devaluation was immediately apparent as even a number of Chavistas protested by posting articles at the pro-government website, aporrea.org. In articles such as the one titled, “The Opposition was Right,” frustration and anger at the government poured out with unusual honesty in a context of extreme polarization in which Chavistas hesitate to publicly criticize government policies for fear of being called “escualidos” (quislings) of the opposition. Writer Henry Escalante ended his piece, agreeing that the nation’s money must be protected, but he asks “How will the people be protected from what is to come? More inflation, more speculation, poverty salaries, and probably a new devaluation…” In “The Devaluation of the Bolívar: A Betrayal of the Bolivarian Revolution” the author, Jose Juan Requena, opines that the “betrayal” consists in the government not having “consulted with the people” on the matter beforehand, especially after the people came out to support Chavez and the Bolivarian Process so forcefully in the October 2012 elections.
My Venezuelan friend, a Chavista who would prefer not to be named, echoed this sentiment. In a telephone interview made on February 11th, she said she felt that the announcement made on Friday, the eve of Carnival, was underhanded: “it was obviously put out at that moment to make sure the policy went under the radar and happened without anyone noticing it. It’s like Obama announcing his ‘kill’ policies on December 31st so no one would notice. “ But worse still, my friend pointed out, “the government lied. Just a week or so before [Minister of Finances Jorge] Giordani said there would be no devaluation and that everything was fine. So many of the measures the government said they’d implemented didn’t work or weren’t really implemented: price controls, consumer protection and so on. We never saw those things realized.”
With Chavez absent from the scene, there was no one to soften the impact of the devaluation with clear, cogent explanations. Whatever weaknesses the Venezuelan leader has, his undisputed charisma, his natural gift as a teacher to be able to break things down and express them simply, his compelling and reassuring presence, would have made the overnight impoverishment of millions somewhat more bearable.
Somewhere between 92 and 94% of export income in Venezuela comes from oil, and the attempts to build “endogenous development,” local manufacturing, and self-sufficient agriculture have failed or have met with only minimal success. My friend Juan, who I called the same day, commented on this failure, saying, “why would anyone want to go out to work in the fields and sweat over produce that could fail with bad weather or work in a factory when we have a sure income from oil?” As a result, everything continues to be imported, and that with US dollars. This strengthens the power of the central government, but it makes the country extremely vulnerable to inflation and recurring devaluations.
What is increasingly coming into question from these economic shocks and the ongoing death-by-a-thousand-cuts that inflation represents, is the government’s ability to manage the economy. Certainly there are the Missions that have improved the lot of the masses in innumerable ways; there is a great flowering in culture, subsidized by oil; there is enthusiasm and support for the policies that Chavez has implemented over his thirteen years in power, but the economy is dragging all that down.
My friend, speaking of the weeks before the devaluation, tells of shortages in everything and prices that in a matter of a week have gone up six times. Tomatoes, my friend complains, were five bolívares a kilo at the local outdoor Soto Rosa Market (known as the “cheap” place to buy fresh food in Mérida), and a week later they’d gone up to thirty (from roughly US $1.15 to US$7). “I think the business community knew this was coming. Why didn’t we, the Chavistas, know?” My friend is sure that over this long Carnival weekend the stores and supermarkets will bring out the goods they’ve held back and hoarded and mark them up to the new prices when they open for business again. “And I’m sure there’ll be no shortage of anything next week – if you can afford to pay the prices.”
Given the unlikelihood that Chavez will be returning to take the presidency means new elections will almost certainly be held once again in the near future. Since the opposition presents no viable alternative to the Bolivarian revolution, most feel Maduro will be promoted from the Vice Presidency to the Presidency. But given the current outrage over not just the devaluation but over economic management as a whole, a “voto de castigo” (a vote of punishment) is not out of the question.
Clifton Ross is the director of “Venezuela: Revolution from the Inside Out” (2008, PM Press) and co-editor with Marcy Rein of “Until the Rulers Obey: Voices from Latin American Social Movements,” due out in November with PM Press.