Bolivia-Venezuela Comparisons Should be Very Helpful to Radical Chavistas

Emersberger responds to the recent opinion article “Paralysed Venezuela vs Thriving Bolivia”, arguing: “Maduro’s government, like that of Chavez before him, is facing an economic war and other forms of destabilization. The lesson from Bolivia isn’t that it must try harder to win over foreign and domestic elites.  On the contrary, Bolivia’s example offers ways to fight more effectively.”

The Morales government has been more defiant of economic orthodoxy (i.e. more radical) than Venezuela’s in some important ways.

A piece appeared in Aporrea by Hernán Luis Torres Núñez that made the comparison between Bolivia’s and Venezuela’s economic performance over the last few years. It’s a very important comparison for obvious reasons and I’m glad he made it. However, his general conclusion that the Morales government has been more “pragmatic” than Chavista governments in Venezuela is very misleading. The Morales government has actually been more defiant of economic orthodoxy (i.e. more radical) than Venezuela’s in some important ways.  

One example: in 2007, Bolivia withdrew from the World Bank’s ICSID, the body that just ordered Venezuela to pay $1.6 billion to Exon-Mobile, years before Venezuela finally did in 2012, and that is far from the most important example.

Bolivia, in contrast to Venezuela, did not cut spending as the global economy began to run into trouble in August of 2007. Bolivia significantly increased government spending during the global crisis. In 2006, Bolivia’s government spending was 34.6% of GDP. It increased to 41.9% in 2007 and to 45.1% in 2008 (see figure 4 in this paper).   Consequently, Bolivia’s per capita GDP continued to grow through the worst period of the global crisis.

In Venezuela the story was very different. Government spending was 29.8% of GDP in 2006. It decreased to 26% in 2007, and then basically plateaued for two years. Spending then dropped all the way down to 22.9% in 2010. Government spending finally picked up again 2011 when it rose to 26.5% of GDP. Unsurprisingly, given these spending cuts, Venezuela experienced a very avoidable recession that began at the end of 2008 and continued until middle of 2010 (See figure 1 in this paper). The former Finance Minster Giordani has been hailed as “radical” by some Chavistas who lamented his replacement this year. However, it is clear that his fiscal policies were overly orthodox and conservative in important ways, not radical.

Another very important contrast between Venezuela and Bolivia is in the amount of reserves each country has tied up in gold.  Venezuela has a whopping 70% tied up in gold compared to Bolivia which has only 10%. Ecuador, the next closest country to Venezuela in the region by this metric, holds only 25% of its reserves in gold. The regional average (excluding Venezuela) is only about 15%. It seems obvious Venezuela should sell off some gold to solve many of the state’s artificially generated cash flow problems. Interestingly, the international corporate press (which never fails to say Venezuela has the highest inflation in the region) barely ever mentions, never mind questions, why Venezuela has such a high percentage of its reserves tied up in gold compared to the rest of the region.[1]

In 2010, Mark Weisbrot wrote that Venezuela’s “biggest long term economic mistake has been the maintenance of a fixed, overvalued exchange rate.” He advocated a “managed or ‘dirty’ float – in which the government does not set a target exchange rate but intervenes when necessary to preserve exchange rate stability.”  This is what Bolivia has and it has maintained a very stable exchange rate. Bolivia’s huge supply of cash reserves basically scares off would-be speculators. Therefore Torres Núñez’s claim that “there are no currency controls” in Bolivia is not really true simply because Bolivia does not announce a commitment to a fixed exchange rate.

Is a fixed exchange rate (or fixed multiple rates) more “radical” or more “left” than a “dirty float”? Is any kind of floating exchange rate a capitulation to markets and to capitalism?  It is hard to see how the answer could be yes when the IMF has sometimes championed fixed exchange rates as it did (infamously) for Argentina during the 1990s. More generally, it is a total myth that neoliberals always prefer competitive markets to state intervention.  For example, rich countries enforce patents and copyrights – outlaw competitive markets- so that huge corporations can charge monopoly prices. Some very privileged workers (doctors for example) are similarly protected from competition, foreign competition in particular, by governments in rich countries. Venezuela’s medical establishment has essentially demanded for years that the government keep foreigners competitors (Cubans) out. Thankfully Chavista governments have not listened to them.   

If opposition to reforming Venezuela’s exchange rate system is driven by misguided ideological concerns then I’d agree with Torres Núñez that some more “pragmatism” would be helpful. However, such pragmatism in Bolivia has gone hand in hand with considerable boldness that he seems to have been overlooked.

Maduro’s government, like that of Chavez before him, is facing an economic war and other forms of destabilization. The lesson from Bolivia isn’t that it must try harder to win over foreign and domestic elites.  On the contrary, Bolivia’s example offers ways to fight more effectively.