In this interview with Venezuelanalysis, a young economist evaluates the government’s recent economic measures.
Former Venezuelan Vice President for Productive Economy, Luis Salas now teaches political economy at the Bolivarian University while writing prolifically about Venezuela’s economic and political scene.
In this interview with Venezuelanalysis, Salas responds to our questions about the economic measures that the government implemented earlier this month, which include a reconversion of the Bolivar currency, an anchoring of the latter to the Petro cryptocurrency, and a minimum wage hike.
We asked him to help us make sense of these measures and their likely effect on the country’s future.
What are the causes of Venezuela’s current crisis, and to what degree can the government’s recent measures solve the problem?
We can’t say that the crisis has only one cause. There are structural causes that have to do with historical conditions and the structure of the Venezuelan economy, but I think our situation today is in a large measure attributable to attacks on Venezuela’s exchange rate that began in 2013 in the context of Chavez’s worsening health and then his death. The arrival of President Nicolas Maduro to power led to a very aggressive monetary attack, and what has happened since then has much to do with the immediate and medium-term effects of that.
Later on, other elements entered the picture. In my view, a large part of the responsibility lies with the inefficacy of the government’s measures to offset and reverse the effects of these [monetary] attacks. Moreover, many policies even contributed to making things worse, as for example, in the areas of prices and currency exchange.
Also, we have to consider the sanctions, even if they are more recent (beginning in mid-2015), and the falling oil price. These are factors which come in to complicate the situation, but I don’t think they are the fundamental causes of what is happening now.
Additionally, the handling of the debt has not been very apt. First, the practice has been to simply pay the debt without asking for any kind of renegotiation or restructuring. We only asked for restructuring when it was already very late, when the sanctions were already there, and moreover when we had paid a very large amount: more than US $70 billion. That meant that we sacrificed a large part of the imports to pay for that debt without reducing the country’s risk and without abating the atmosphere of conflict.
Because of the financial blockade, Venezuela has difficulty accessing international financial markets, and can only access them if it pays very high interests. The last attempt to break out of the blockade, which was the Petro, was itself blocked. I think that all this has contributed to the crisis. Later on, there are other factors that make the situation worse, such as what is happening in the state oil company, PDVSA, and new practices that have been introduced in the society such as the illegal economy, etc. (1) The hyperinflation that we are seeing has to do with all those things brought together over the long term.
There are many uncertainties about these new economic measures. One concerns the anchoring of the Sovereign Bolivar to the Petro,and in turn the Petro to the price of the Venezuelan oil barrel. That really only makes sense if one could exchange Bolivars for Petros and Petros for oil barrels or the equivalent in hard currency. Is that the case? It’s clear that in a market economy, the value of a currency can’t be a matter of mere decree. In effect, how are we to understand the idea of “anchoring” the currency?
As you yourself indicate, I think the anchoring of the Sovereign Bolivar to the Petro is essentially a matter of decree. There are many things that continue to be unclear here. There is a formula that was established in which the value of the Petro corresponds to the current price of an oil barrel. From there the government set up an exchange rate with different currencies, such as the dollar and the Sovereign Bolivar. Those are the basics.
They say the Petro will function as a unit of account as was the case with the Real in the context of Brazil’s “Plan Real.” However, they also continue to claim it is a cryptocurrency, even though we don’t know exactly how it can be used, nor how it will be used. The President said there will be a surprise announcement about it in October or November, but similar announcements have been made on earlier occasions. A pre-sale and a sale were done in which supposedly we got US $3 billion, but we don’t know what happened with that. Nor do we know if it will be a currency or a cryptocurrency for external commerce, or if it is for internal commerce too. Based on some decisions the government took before the Petro came out, we can suppose it is also for internal circulation. That raises the issue of how it will coexist with the Sovereign Bolivar. Possibly Venezuela will have a system with two currencies, as in Cuba, with the peso and the CUC, which have different values and cause a set of distortions.
So, for now, the anchoring of the Sovereign Bolivar to the Petro functions as a governmental decree, but whose economic base and future functioning is still to be seen.
With regard to socialism – which was Chavez’s strategic objective – do you think that the recent measures amount to a step forward or step backward? Or perhaps they are a step backward to later go forward?
I have said on other occasions that if there is one weakness of the economic policy in the present moment, it is that it lacks definition. In the time of Chavez, one understood that there was an economy that, although it was operating in a capitalist context, there was still an implicit process of transition toward a goal that was socialism (even if we didn’t know exactly what kind of socialism beyond some statements).
Now, even though socialism continues to be part of the discourse, in practice the general tendency is toward policies that wager on a kind of neo-industrialization, counting on the Venezuelan private sector. It seems to be along the lines of the classic discourse in Venezuela of substituting so-called “rentier capitalism” for industrial capitalism, with a nationalist bourgeoisie, etc. At the same time, there has been support for the communes, but with time the communal project has lost more and more importance. The same goes for the EPSs (2).
So the announced measures, assuming that they work, seem to be part of a stabilization plan in the conventional sense, even if they contain elements that are heterodox and nonconventional. They seem to be the result of a pact with the most concentrated private sector regarding prices, and there is talk about the reduction of the fiscal deficit.
Whether all this amounts to a step forward or as step backward is still to be seen. Most elements point to it being a heterodox plan in an overall framework of capitalism that is trying to develop industry and attract foreign investment. In that sense, of course, it doesn’t seem to escape the logic of the traditional plans of that kind.