Ever since he was minister of Mining and Basic Industry in Hugo Chavez’s cabinet and president of the Venezuelan Guayana Corporation at the same time (2005-06), Victor Alvarez has refused to hold any other public office. He had previously been president of the Foreign Commerce Bank, director of PDVSA and the executive director of the Industrial Development Council.
-If I became convinced of anything within those positions it was the amount of dogma, myth, and taboo that imprisoned many of the country’s important leaders, he confessed.
Including president Chavez?
-Yes, he was also prisoner or committed to many old ideas. My intention was to construct 21st century socialism with new ideas, and that is what I have dedicated myself to doing from the grassroots and social movements.
Alvarez is an economist, an investigator, a university professor and writer, columnist, lecturer and adviser, as well as a convinced militant of the Bolivarian Revolution and the United Socialist Party of Venezuela (PSUV), from which standpoint he maintains without duplicity very critical postures regarding the governmental management of the country’s current economic crisis.
Has the economic model established by Chavez collapsed, or has the current administration failed at managing it?
-What has failed is the socialist neo-rentier model based on extraction that has existed in Venezuela since petroleum first appeared. This model first manifested itself in rentier capitalism, where the petroleum income was allocated for the transformation from an agrarian economy to an industrial economy. This rentier capitalism failed and made way for a new form of the same extractionist model- which I call neo-rentier socialism, and under which the emphasis of distribution of income has been for the financing of social investment.
And that is, in other words, the model adopted by Chavez?
-Correct. In essence what failed was the same extractivist model. Not by coincidence, the same economic problems that plagued the 4th republic [neoliberal era preceding Chavez] ended up being the same in the 5th [today]. Now we have them on a larger scale, given the income is much greater.
Is it necessary to maintain controls on foreign exchange?
-The forex controls make up a temporary measure, which countries are obligated to adopt in very specific situations, such as disproportionate capital flight that threatens to liquidate foreign reserves…and when that fall in reserves deteriorates the backing of the national currency and spending power is lost as inflation spirals upwards. This was the situation in Venezuela in 2002, but it disappeared in 2005, and in 2006 there was practically no economic reason to maintain the controls.
Do those reasons exist today?
-Today it’s true that we have low foreign reserves but the currency controls have been continued not so much for economic reasons, rather they ended up being used as an instrument of political domination. In the end, the controls in their worst manifestation, namely the regime of multiple exchange rates, have had disasterous effects, in which a very cheap and a very high rate of exchange coexist, creating a perfect incentive for the profit hunters who always manage to capture their cheap dollars from the Cencoex [foreign commerce division] to be sold in the parallel market or even the Simadi [official free-floating rate].
At what point should it be abolished?
-If the currency controls were abolished today and the government, instead of giving out the dollars for 6.30 or 12 bolivars, sold them at the Simadi rate [currently 198], the latter would begin to decrease and the government would obtain the necessary resources to safeguard the missions and social programs. It’s false that maintaining preferential rates has anti-inflationary effects. In 2014, inflation in the cost of food was 102%, much higher than the 68% world average. The controls have worn themselves out as an anti-inflationary policy and no longer make sense because their impact has already been conveyed.
Was it a wise decision to cut dollar allotments for foreign travel?
-Those allotments are part of the rentier culture. The petroleum income became so great that it no only afforded abundant social investment and projects in economic sectors, but also the financing of the luxuries and pleasures of the middle and upper classes. This populist measure of patronage was easy to maintain in times of abundance but becomes unsustainable now that the country is receiving a third of the petroleum income that was coming in two years ago. They are perverse and distorted privileges that should be corrected in the transition to a post-rentier Venezuela.
Fedecamaras and Missions
How should we interpret the announcement of president Nicolas Maduro that he will radicalize the revolution?
-If the country needs anything, it’s an understanding between the public and private sectors. That determination to destroy the capitalist economy without having created an alternative communal, socialist, or even state economy, has been the quickest route to failures in production, scarcity, hoarding and speculation. Private investment has been deactivated and the voids left behind have not been filled or balanced out opportunely for the social and public economy, and what public economy does exist is not working.
Does this mean that there is or is not an economy war?
-When you analyze the causes of scarcity, hoarding and speculation, you find that 70% is due to depletions, deviations, and errors in economic policy, while 30% is caused by those sectors that oppose the government and play at destabilization. This means that the government has in its hands 70% of the solution to win the economic war if it takes the proper legal, monetary, financial, exchange rate, and price measures necessary. It would disarm those who wish to attack, destabilize and overthrow.
Is it necessary to dialogue with Fedecamaras [industry cartel] and the unions?
-Dialogue with the productive labor sectors is urgent. We have to recognize the guilds and commercial associations that the business sector recognizes. The business movement does not doubt the authorities of Fedecamaras, Conindustria and Consecomercio. They are the bodies the business sector has organized, they are the spokespeople, and if the government wants to speak with the productive sector they have to recognize those spokespeople. And if the private sector wants to speak with the government they have to recognize their representatives.
Are the social missions in danger?
-Of course they are in danger if they don’t recover their income and if the government does not take measures to compensate the setback in petroleum income. One very important point is the increase in gasoline [prices].
Why haven’t they raised the price of gasoline?
-Because the government is prisoner to taboos and superstitions, to limiting beliefs. They continue to believe that the increase would detonate a social conflict at a moment when there is already unrest because people are tired, fatigued of waiting in lines, of scarcity, of watching their spending power wash away like salt in water. Another limiting belief is that raising the price of gasoline would have a high political cost during a year when there are National Assembly elections. Paradoxically, this increase could save them because with the 12.4 billion dollars that the state avoids receiving today [by subsidizing gasoline] they could banish the danger that hovers over the missions, social programs, while reducing the fiscal deficit and stabilizing PDVSA’s finances.
We Don’t Need to Go to the IMF
Would going to the International Monetary Fund be an option for the governing Chavista movement?
-Venezuela does not need to go the IMF because it has important maneuvering room. If it does what needs to be done at the right time, it can correct the instabilities that are affecting the national economy and making an enormous social impact today. Countries go to the IMF when they have nothing left to do. Only inaction, government inertia and a deterioration of the situation could bring us to impose an IMF package. If the government does not react, act, and do what needs to be done, it will be they themselves who bring us to the IMF, and we know even with the tremendous makeover they’ve attempted, these IMF programs have a tremendous social cost.
Why has the Venezuelan Central Bank not revealed inflation data this year?
-Because it has opted to conceal the problem, believing that in this way it will disappear or resolve itself.
The Three R’s of Chavez
[Revision, Rectification, and Reactivate the revolution]
Are you concerned that for your critical opinions you’ll be accused of being a counterrevolutionary?
-My position, my critiques and demands are from the left. They are a result of my long process of investigation and express interest and empathy with workers and popular sectors. What I am is an investigator who confronts reality with scientific method.
And if, on the contrary, the president invites you to hold a ministerial office- would you accept?
-No. I want my contribution to be the generating of revolutionary awareness that permits us to transform the economy and Venezuelan society to eradicate the structural causes of unemployment, poverty and social exclusion. I am not overly pro-government, mostly because the revolution I believe in is carried out by social movements and new processes of economic and productive organization, and that is what I’m working on.
But there is no doubt of your support for the president?
-Of course, what I want most is for the government of president Maduro to be successful, to correct all the deviations and errors that are diminishing their support among the social and political bases and eroding socialism as a viable option for humanity and for the country. In the end, all these problems that the government insists on attributing to the economic war are in a great part the product of its own mistakes and policy errors. If they had the humility to recognize these flaws and make the necessary decisions, many of the issues the population currently laments would not exist. Now, I believe that the government is prisoner of the legacy of Chavez, who left a combination of measures like the currency and price controls, the energy agreements and the reforms of the Central Bank and the Developmental Fund, which in the past proved their logic but with the years they have been exhausted. I am sure that Chavez would have applied his three R’s and corrected a large part of these problems, as he knew how to do during his time. Now they believe that eliminating the currency controls, relaxing price controls and fixing what no longer works is the same as betraying Chavez’s memory.
When asked for the formula he would apply to refloat the national economy, Victor Alvarez listed the following:
-Balance fiscal administration. Convert the funds created by neo-rentier socialists to spend money into funds to save resources that will permit us to stay afloat during times of scarcity, like the Fund for Macroeconomic Stabilization.
-Reestablish the autonomy of the Central Bank in its emitting of capital and the management of foreign reserves. Reforms have driven the bank to finance government projects without backing and with inflationary results.
-Review energy agreements with other countries, because those generous policies of solidarity were indiscernible during times of abundant income, but the country is no longer in conditions to make such a large sacrifice.
-Clear up the threat of a default and avoid the embargo of our assets abroad. Initiate an aggressive strategy to buy back our debt, which is closing out at 40% [interest] because stockholders believe Venezuela is unable to honor it. This will reduce principal and interest payments and mitigate commitments.
-Reduce military spending. Obama’s decree has exacerbated military reactions in the country, but even if we arm ourselves to the teeth we would be swept away in a week. We must demonstrate we are a country of peace and save those resources.
-Reorient state imports in favor of national production. The government spends between 8 and 10 billion dollars in the purchase of other countries’ food and medicine that we could produce here with significant savings.
-Restructure the capital component of all the developmental work hired from Brazilian, Iranian and Belarusian companies, countries that are truly our friends should receive [high-interest] Venezuelan bonds as part of their payment.
-Elimate currency controls, which no longer has economic justification and is being used only as an instrument for domination.
-Raise the cost of gasoline.
-Cultivate an understanding between the private and public sectors.
Abridged and translated for venezuelanalysis.com.
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