Introduction by Venezuelanalysis.com
In the face of on-going shortages of basic consumer goods, soaring inflation, a multi-pronged and broken currency exchange system and now falling oil prices, Venezuela’s economic “crisis” is now being acknowledged at the highest levels of government. As opposed to the simplistic mainstream media coverage that attempts to blame Venezuela’s woes on the boogie monster of “socialism,” we present two perspectives from within the Bolivarian Revolution on concrete public policy solutions to Venezuela’s economic crisis.
Political commentator and member of Socialist Tide Nicmer Evans has presented an 8 point plan of concrete policies to exit the crisis. These proposals come from discussion and debate within Socialist Tide but many are also echoed by progressive economists (such as fixing the exchange rate system) and grassroots Venezuelans (investigating mismanagement of funds and prioritizing preferential dollars for importing basic goods over luxury items.)
The solutions that he suggests are fixing the exchange system and ensuring that wages don´t fall in the process, nurturing domestic production through import substitution style subsidies, work against sabotage, enacting a progressive tax reform, asserting state control of imports with participation of of the private sector in ensuring the supply of goods, replacing the whole government Cabinet, launching a citizen public audit, and the incremental increase of gasoline prices.
The second perspective is by Eudes Vera, an electrical engineer who lays out the three possible paths that he sees as options for monetary reform in Venezuela; dollarization, de-valuation and re-valuation. While Vera and Evans come to different conclusions about the appropriate monetary policy to enact in Venezuela, both are guided by a desire to make policy changes that rescue the economy from recession, reject neo-liberal adjustments and honor the legacy of Hugo Chavez and the Socialist spirit of the Bolivarian Revolution.
Currently Venezuela has four exchange rates. The official exchange rate, reserved for the government and companies that can apply for these preferential rates by arguing that they are importing food or medicine, is at 6.3 Bs to a dollar. The SICAD I rate which Venezuelans who have credit cards have access to or those who are studying abroad is 12 Bs, the SICAD II rate, introduced in March 2014 is at 52.1 Bs and the illicit informal market in dollars hovers between 150-180, just under 30 times the official government rate.
Evans suggests the creation of a convertible currency (this would mean a currency that was 1:1, most likely pegged to the dollar) or a dual currency system (where bolivars and, presumably dollars) would be legal tender in Venezuela. Core to this argument is that through this conversion, Evans argues that the value of wages of Venezuelans should be protected. While the Venezuelan minimum monthly wage is roughly USD$750 at the official exchange rate it is only about $30 at the black market rate. Any change in monetary policy must protect the value of workers wages, Evans argues.
Vera makes a case for re-valuation, just as Evans is concerned about how devaluation would lower the wage of workers, Vera rejects dollarizing because without protections for workers wages this would bring the value down to the second lowest on the continent. Instead he suggests keeping the exchange rate lower than the current average of the 3 official rates (this is what he defines as re-evaluation), with the hope of raising the value of the wages of Venezuelan workers. While this does not address the current black market rates in dollars, he makes interesting arguments that are worth considering.
Evans also suggests incrementally raising the price of gas so that Venezuelans pay the cost of production and Vera suggests a modest increase of 4 bolivars/liter, which would still be the cheapest in the world. Venezuela’s current gas subsidies mean that filling a tank of gas is virtually free in Venezuela. As a result of extremely cheap gasoline, much of it is being trafficked across the borders to Colombia and Brasil where large profits can be made. Estimates of the costs of oil subsidies range from US$20 Billion a year upwards. In addition to concrete changes in monetary policy and a gradual reduction of the oil subsidy, Evans highlights political policies that go after corruption and increase public confidence in the government as well as policies to increase domestic production and industrialization in Venezuela. Vera suggests that currency re-valuation could aid in increasing national production.
Recent shortages have highlighted Venezuela’s weakness as an oil exporting country that relies heavily on imports. Evans looks towards traditional ISI (Import Substitution Industrialization) approaches combined with public-private sector collaboration in solving distribution problems.
While the mainstream media has covered the empty supermarket shelves, long lines, plummeting oil prices, and falling value of the Bolivar on the black market, they have failed to provide context for the root causes of the economic crisis and they have ignored the solutions being presented from within the rank and file chavista movement. This article is an important contribution to the bottom-up solutions coming from supporters of the Bolivarian Revolution.
The following two articles were edited and translated by Venezuelanalysis.com. They were both originally published on Aporrea.org. The original links can be found below.
Now that the Government Has Recognized Its Existence: How to Get Out of the Crisis
1. Unification of Exchange rate with salaries anchored in the price of the dollar.
Today the calculus of the minimum salary is estimated with a base of the lowest exchange rate (6.3 Bs x $), as such giving the apparent minimum wage of approximately US$750. We know that this is not the reality, so that if a single exchange rate is created based on a convertible currency or a dual system, salaries should become calculated based on the highest official rate, thus ensuring that the people do not pay for the crisis, the nation embezzlement and foreign exchange shortages.
2. Protection of national production and pertinent subsidies.
We can overcome a crisis of dependency on foreign currency generated by oil revenues if our domestic production is protected to stimulate growth. This implies the just recognition of the few remaining of private productive sector in the country by facilitating immediate access to raw materials for production, but in addition also involves encouraging democratic workers control without bureaucratic interference in State-owned companies. To do this a joint effort between the private sector, the state and the state-run Social Production Companies (EPS) is needed to ensure the raw material needed for production. Companies should be discouraged from importing products that could be domestically produced, with emphasis on strengthening the EPS as an alternative to capitalism.
3. Fight against the privatizing bureaucracy and transform the National Public Administration
The strategy of a sector of the bureaucracy, disagree with the development of socialism and therefore have deepened mediocrity and inefficiency in key areas of public administration of state enterprises in order to encourage and facilitate privatization. It is also necessary to transform the state, generating a reclassification of positions to be more agile and help state enterprises be more productive. A massive training of employees in public administration needs to be initiated and a training school for public administrators and a program of mandatory training for all staff needs to be established so that the current structure of public administration can be adapted towards a real transition to socialism.
4. Progressive tax reform where those who earn more and accumulate more capital pay more
Currently income tax (VAT) is the tax that contributes most to the Treasury (42%.) All Venezuelans, including the richest and poorest pay12 %, this is unfair. A revolutionary tax system should force those who earn or accumulate more to pay a higher percentage.
5. State control and planning of imports and private sector participation in the distribution and sales.
Without claiming to strengthen an omnipotent state, a responsible State would import and deliver the products and raw materials needed by industry, eliminating the import companies that are generally complicit in embezzlement. However this can not be done without a joint planning between the public and private sector and the community that has real needs and demands. This means not privilege the importation of whiskey with preferential dollars before importing diapers or drugs for chronic or endemic diseases.
6. Changing the whole Cabinet of Ministers (without just moving the same people around) to ensure the renewal of wills in the executive bodies.
This measure, more political than economic, includes:
1. Renew the confidence of the people in their government, encouraging new expectations
2. Do not bring in those who led to the current situation.
7. Development of a citizen public audit, that is allowed to determine who is responsible for embezzlement and punish and make and example out of them by confiscating their assets and freezing their accounts.
8. A gradual increase in gasoline prices over 3 or 4 years until it arrives at the cost it takes to produce.
These are some proposals to the Venezuelan people even though they can only be executed by the government. The government is capable of taking these proposed actions without falling into the neoliberal trap, without pretending to be orthodox in the management of political economy while still preserving important social and political contributions of President Chavez.
What’s Best for the People: Dollarization, Devaluation, or Revaluation?
Departing from the existing consensus of Venezuelan economists that the current 3 official exchange rates (6.3, 12, and 52.01) are unsustainable…the question arises of what exchange policy would be best for the Venezuelan people, in the face of successive devaluations since 2004 which have reduced workers’ salaries to their minimum expression, causing an uncontrollable spiral of inflation, runaway corruption associated with the parallel market, and obscene capital flight; all of which paralyzes the country’s productive apparatus and fragments the quality of life of Venezuelans. In my modest opinion, 3 paths exist for the government to choose how to mend this grave and explosive economic and social situation. The three paths are mutually exclusive; dollarization, devaluation, and revaluation.
Dollarization: This option has the positive aspect of making the government moderate public spending, which should be adjusted depending on the amount of petroleum revenue. That is to say, the government would be able to spend only what comes in, and it would not be able to print more green bills because the dollar is a foreign currency which the government has no control over. This would stem inflation, but if the price of petrol falls, as it currently is, the country’s income would contract, causing further recession, more shortages and eventually Venezuela may have to declare default after failing to pay its immense external debt. On the other hand, a condition necessary to dollarize the economy would that the Central Bank of Venezuela retracts the immense mass of currency presently available (BsF 2,010,126,877,000) and substitute it with the amount currently in international reserves (USD$20,907,000,000). In order to do this the central bank would have to give 96.15 bolivars for every dollar (Implicit Exchange Rate), which would imply a mega-devaluation from the three current exchange rates. As the minimum monthly wage recently rose to 4,889 bolivars, dollarization would consequently cause it to be worth the laughable amount of USD$50.85, which would make it the lowest salary on the continent with the exception of Cuba (USD$39.67). This option, in my opinion, is not the best for the Venezuelan people.
Definition of devaluation and revaluation. The mathematic average of the current three exchange rates is 23.44. To simplify the following discussion, we will refer to any policy that places the bolivar above this number as devaluation, and any that places the bolivar below it as revaluation.
Devaluation: This is the preferred option for the majority of Venezuelan economists, particularly for those formed under the School of Chicago (the so-called “Chicago Boys”). These economists (some of whom are self-declared Marxists, while others profess their favor of capitalism) sustain that the only exchange rate, which they called balanced, should be fixed at 35 bolivars. This would present a devaluation of 49.33% compared to the current average rate of 23.44. I do not doubt that this proposal of our eminent economists is the product of a very thorough study from a technical standpoint, but from a social perspective it would be catastrophic for the Venezuelan people, bringing the current minimum monthly salary to be worth USD$139.70, making it one of the lowest of the continent, with the exception of Cuba, Haiti ($65.92) and the Dominican Republic ($125.25).
Revaluation: What is most ideal for the Venezuelan people is that our minimum monthly wage equals that of the United States ($1,256.57). But, to achieve this, the official exchange rate would have to drop to 3.89 bolivars. Even so, a second best option would be to have a similar minimum salary as that of Argentina ($613.33). I propose then that we adopt the only official exchange rate of 8 bolivars to the dollar, in order to raise the value of our minimum wage to US$611, thereby increasing the spending power of all Venezuelans, reducing inflation significantly and reactivating our industries and agro-industries by reducing the costs of production (labor, supplies, machinery, equipment, and the cost of bank loans). Of course, a proposal such as this one must be accompanied by policies of the state which protect our national production from the disloyal competition of those importing goods we have a natural advantage at supplying (for example, coffee, cacao, sugar cane, livestock, cement, petrochemicals, gasoline, etc.)
To minimize capital flight, the revaluation would have to be accompanied by a maximum limit of foreign currency sold each day, like for example, $100 million, which would guarantee the mathematical impossibility that over $25 billion leave the country annually, a considerably lower number than the current figure. In this way, to guarantee equal access to foreign currency for all citizens and Venezuelan businesses, the sale should be organized in an orderly manner, utilizing informatics and the internet so that each business day only people legally authorized people who have submitted a request and whose last digit of their ID card corresponds with that day may purchase dollars.
Additionally, to minimize losses for PDVSA and gasoline contraband, I suggest that the revaluation be accompanied by a raise in gasoline prices to 4 bolivars ($0.5) the liter, which would place the gallon of gasoline at a more international price ($1.9) without causing inflation or social unrest.