A Marxist Analysis of the Currency Exchange Controls in Venezuela

The author argues that the current foreign exchange control regime has failed to prevent transnational and domestic capital from taking its profits out of the country and that no government policy, no matter how conciliatory towards business, will attract investment in Venezuela as long as the Revolution continues. Only the expropriation of the bourgeois-controlled means of production– the "completion of the revolution"– will solve the present crisis. 


In this article we will be analysing the objective conditions which led to the emergence of SIMADI and the currency exchange controls in general, which since their implementation have been unable to reach their stated objective of preventing capital flight. 

While private property and the main forces of the economy are in the hands of the national and transnational bourgeoisie, it will use the means of production to sabotage the Bolivarian government until all of the revolutionary gains for the dispossessed masses are destroyed. 


In the frequent meetings between the bourgeoisie and the national government, the so-called “working groups for economic peace,” businesspeople confirmed that they had capital in other countries (principally in Colombia and the U.S.) and that if they had an “attractive” exchange rate with the state, as well as other guarantees (no more expropriations, a liberalisation of labour conditions in order to dismiss and exploit workers freely and no more job security) then they would be willing to repatriate their capital and invest it in the country.  

This is the objective reason for the emergence of SIMADI, an exchange rate based on the free market and that, due to lack of state regulation, can shoot up so high that it attracts the attention of the businesspeople with capital abroad. 

By doing this, state analysts were attempting, on the one hand, to attract private investment through the billions of dollars in the bank accounts of national businesspeople, that today are invested in other countries, and on the other hand, to totally eliminate the parallel exchange rate through the enormous quantity of dollars offered in the SIMADI by both private business and the state, even leading to a SIMADI rate that would, in the middle and longterm, even out to a a value close to the preferential state dollar rate. Simultaneously they hoped that this investment would increase production and this resolve the crisis of hoarding. 

All of this, seen in this light, would enormously benefit the country’s economy which has been brutally hit by the fall of oil prices and in the long term would put an end to the principle problems of the economy. However, none of this happened as planned and it couldn’t have been any other way. 

This is not the moment for naivety  

We believe that making concessions to businesspeople cannot resolve the problems of the country (even less so by worsening the living conditions of the working people), for the following reasons; 

1) In Venezuela the free market does not exist. Not just because the state has regulated the prices of the main items that make up citizens’ daily consumption (amongst others), but also because a small handful of businesses (national and transnational) have controlled the market on essential goods for decades in the country. For this reason, there is no way that the “law of supply and demand” applies to the national economy.  

For this reason, it is not possible for the rate of the dollar to fluctuate freely, without conscious state intervention and control over the bourgeoisie. 

2) Within the framework of the so-called economic war, businesspeople always find a way of treating every control and regulation that the state applies to them with contempt. If the prices of certain essential goods are regulated, then the production of these goods is reduced and the production of other non-regulated items is increased (for example, the production of cornflour but with some ingredient added). If the exchange rate is controlled, then they create sham businesses to transfer dollars out of the country, etc. At the end of the day, the problem is born out of the private control of the means of production, given that there is no legal form to oblige the bourgeoise to invest under conditions it does not find appealing. 

3) Since oil was discovered, the Venezuelan economy has been based principally on the importation of goods which have ceased to be produced within the country and the services of countries such as the U.S. and Europe, not on production. This is why businesspeople in the country, such as Lorenzo Mendoza, Gustavo Cisneros etc. only produce, in the best case, what they cannot import, functioning as mere middlemen, given that they cannot compete with the transnationals.  

(If some U.S. transnational decided to massively export cornflour, for instance, Polar would have no other option than to close its production line in cornflour and, due to not being able to compete, simply devote itself to importation.)  

4) There is no sector of the economy that is willing to invest its capital in the country, even if in Venezuela the free market existed and the exchange rate could be deregulated, the bourgeoisie has no interest in investing due to the revolutionary process which exists, where the working and peasant classes who are in rebellion and looking for the socialist transformation of the country are a threat to the interests of the bourgeois class. While there is a revolution, the bourgeoisie will carry out economic sabotage.  

5) No state policy will translate to businesspeople’s increased interest in investing the country, unless the same policy ends up putting an end to the revolution. While the gains that benefit the working class, specifically in the laboral and economic sphere, continue to be maintained, employment rights and annual salary raises, as well as all of the benefits set forth in the Law for Work and Men and Women Workers, are all maintained. For the working people they represent benefits and historic recognition, for the businesspeople they are obstacles which prevent them from extracting the maximum amount of surplus profit from their workers. 

The exchange controls have not met their objective  

The route for capital flight from the country is not through the “raspacupos,”* who only represent a small percentage (around 7% of foreign currency handed over). Rather it is through sham businesses (corruption) and the same bourgeoisie which uses state dollars on the one hand to import and on the other to move its profits out of the country to be kept in foreign banks. 

According to Forbes magazine, in 2009 Lorenzo Mendoza had accumulated a wealth of 2 billion dollars, while in 2013 his fortune reaches 4 billion. For his part, Cisneros had 3.8 billion dollars in 2009 and 4.4 billion in 2013. 

It is true that these businessmen have investments abroad, however, their businesses headquarters are here in Venezuela and the principal source of their wealth is here, and it is from here that they transfer their fortunes to international accounts even with the exchange controls that exist. This demonstrates a unique dynamic in the national economy where the most part of the wealth is lost to imports and through transnationals (including the banks) and the rest through the capital that national businesses are harboring abroad. 

This is the reason why the exchange controls emerge. The objective was to prevent the “traditional” operation of undeveloped capitalism in Venezuela, which acts like a revolving door and in which every dollar that enters through the state and the sale of oil through PDVSA, leaves via imports or capital flight without being re-invested back in the country to generate some wealth for the nation. However this dynamic has continued and it hasn’t changed in the last few years during the Bolivarian government, even with the implementation of a control mechanism over foreign currency. 

And to this situation we have to add corruption through the same state civil servants (many of them now declared political refugees and granted asylum in the U.S.) who create sham businesses for alleged importation purposes and then, once approved and in receipt of state dollars, transfer them to banks abroad. 

It’s for this reason, according to then Planning Minister Giordani, that 25 million dollars “disappeared” between 2003 and 2013. However, during that same period the state granted more than 300 billion dollars to the principal private companies of the country (including the businesses of Cisneros, Mendoza and other transnationals). 

This demonstrates it clearly; that the enormous sum of 25 million dollars that were lost to corruption pale in comparison if we compare it to the 300 billion dollars mainly handed over to the bourgeoisie. And it is precisely the bourgeoisie carrying out this massive capital flight. 

Now this is all very well, but eliminating the exchange controls would be even worse still, given that this would also remove all of the obstacles (as easy as they are to circumvent) that are preventing the bourgeoisie from transferring all of its capital outside the country. This would convert the country into a “revolving door” for dollars in one foul swoop, leaving it in total bankruptcy. 

The reduction in the traveling allowance

The government carried out a significant reduction in the amount of dollars given to travelers, with the intention of weakening the “rascacupos”. If we accept that it is true that the rise of the black market has generated a market for the purchase and sale of traveller’s allowances, and due to this a considerable quantity of dollars has left the country, it is also true that the working class’ newfound opportunity to travel outside of the country, which was denied to the popular masses in previous decades, was a victory for the revolution. Through these last measures, it is not just the mistakenly labelled “middle class” and the petty bourgeoisie (the principal benefactor of having access to dollar allowances to travel and to spend on the internet) that are damaged, but also the dispossessed masses’ possibilities of travellng abroad. 

According to the figures, only 7% of foreign currency is granted to travelers, while the 93% that remains is granted to private and public businesses. This is why we believe that the problem is being attacked from the less serious angle, and that even if we eliminate the raspacupos, this will still not permanently prevent capital flight, given the fact that, as we made clear a moment ago, the majority of that capital flight is being carried out by the bourgeoisie. 

As Marxists we reject the accusation (even from the petty bourgeois left) that is it impossible to “travel outside the country” as a result of these measures, given that they are the very same airlines who have eliminated the practice of selling flights in Bolivars and who have raised the prices of flights in dollars, creating a kind of “aero-blockade” against the Venezuelan people. This situation might merit the sale of flights exclusively in foreign currency, but it cannot justify the increase of the cost of flights in dollars – a flight from Colombia to Europe often costs half of what it costs to fly from Venezuela to Europe with the same airline.

Either way, these measures do not eliminate the rascacupos, even if they place significant obstacles in their way, they still will not meet the objective of stemming the buying and selling of travel allowances. On the contrary, they will just make it more difficult for those who legitimately do their personal shopping of goods and services priced according to the SICAD dollar. 

In the same way, we must reject any measure which does damage to the interests of the working class, not just because these measures make it complicated for the popular sectors to travel outside of the country, but also because these measures will doubtlessly generate an increase in the value of the parallel dollar with the elimination of the “raspacupos” offer, which means that inflation will increase as imports (event those being carried out at the official rate) are sold at a price which uses the parallel dollar rate as a reference. 

(Although it’s also true that the rate of the parallel dollar is not based on supply and demand and that the price does not revolve around the real market, but rather it is under the control of a group of currency exchange centres which set the price at will. It is also true that they will use any excuse to “justify” an increase.)

What is to be done? 

In spite of the fact that the exchange rate controls did not achieve their objective of preventing capital flight, eliminating the controls is not the correct solution either. On the contrary, it would bring us more problems than solutions. 

Removing the exchange rate controls would only facilitate massive capital flight, with the bourgeoisie, and especially the banks and industries, taking abroad the very little that they are holding here. Even those workers who have some kind of savings in Bolivars would be pressured by the bourgeois media to “take advantage” of the opening to change their savings into dollars and, if possible, to keep them abroad. This would leave the country with no capital in a very short amount of time. It would lead us to the bankruptcy of the country, generating catastrophic consequences for the working people which would be the same or even worse than those of the 1970s, 1980s and 1990s. 

To start the process of recovery, it’s necessary to carry out a series of measures which attack the root of the problem. Simply putting bandaids on it will not solve anything, even less so when the fall in oil prices, the economic war and corruption continue to weaken the economy and lead to the pronouncement of the growing discontent of the support base of the Bolivarian government. 

We consider the following measures to be urgent tasks to put a break on capital flight, combat corruption in the short term and which would lay down the foundations for immediate socialist measures following their implementation; 

1)The publication of a list of businesses that have received state dollars; to evaluate the cost structure of all of the big businesses and publicly prove that the parasitic bourgeoisie of the country imports using the official dollar and then sells according to the black market rate. 

2)  Do not give a single dollar more to the bourgeoisie. If the bourgeoisie wants dollars then they should bring them in themselves. If entrepreneurs like Mendoza (with 4 billion dollars abroad) or Gustavo Cisneros (with 4.4 billion dollars) what to import then let them do it with their own dollars (they certainly have enough) without the blackmail of asking the state. 

3) Only use state dollars for primary material and productive capital (machinery, tools, technology etc) and focus on developing national production and especially that of the EPS (Socially Productive Enterprises), state companies and those under workers’ control, as well for the land which is in the hands of small and medium sized campesinos, industrialising specifically agricultural centres in the hands of the state.

4) Finance, subsidise and invest through the public bank in all of the EPS, companies under workers control and state companies, as well as in the land that is the hands of small and medium campesinos. Especially protect small businesses which cannot compete in the framework of a market capitalist economy such as that which exists in Venezuela. They cannot compete against the monopolies or other bigger businesses. 

5) The creation of People’s Committees through the communal councils, workers’ councils and social movements and the organised people alongside the state to implement a tax against those businesses (both public and private) which have artificially raised their prices,  which hoard or voluntarily carry out any other measure designed to weaken the economy and damage the working people, based on the amount of dollars granted to them by the state and their structure of costs. 

6) A people’s taxation review of all of the institutions and state businesses, publicising the budgets and outgoings at all levels, which will allow the organised people to be aware of and evaluate what the money that we are handing over is being spent on. 

7) Prison and the confiscation of all the properties of businesspeople and state functionaries that have committed currency exchange crimes and/or acts of corruption. In the words of Zamora “you have to kidnap the rich’s wealth, because they use it to make war against the people, we have to leave them with nothing more than the shirt on their backs”. 

These urgent measures can only put an end to the economic crisis in the country in the medium and long term, stabilising the economy, ending capital flight and developing national production. There are no magic solutions that can resolve the problem overnight, and anyone claiming to be able to resolve the problem in a few weeks or months is simply attempting to manipulate the masses through a kind of proselytism. 

Complete the revolution 

However, putting an end to scarcity and the economic war in general will not resolve all of the economic problems in the country. The bourgeoisie would still not cease its attempts to overthrow the Bolivarian government. For this reason, it will be necessary to implement much more radical measures which resolve the root of the problem, such as: 

1)The nationalisation of all economic forces: national monopolies and transnationals, large landed estates and underproductive land, as well as the entirety of the public bank. 

2)Unifying all of the industrial sector into one company. Workers’ control in all of state businesses and in all state institutions. Only the democratic planning of all state businesses and institutions can bring corruption to a negligible amount. Allowing these businesses to be put at the service of the people and not bureaucrats. 

3) The re-activation of all closed and under-used businesses through the investment of the entire national bank. 

4) A state monopoly on foreign trade. 

5) State and party support, consultation and backing  in the consolidation of the workers’ and campesino councils. 

6) The possibility to elect and revoke public positions within the state and all state businesses. 

7) No public servant should have a salary above that of a qualified worker. Serving the revolution is a duty, not a privilege.  

8) Democratic planning of the national economy through the communal councils, the campesino councils and the workers’ councils.  

*”Raspacupos” refers to the practice of selling products or services subsidized with government dollars on the blackmarket. For instance, airline tickets for the state-run Conviasa might be sold on the blackmarket for quadruple or quintuple the price, instead of the state-regulated rate. 

Translated by Venezuelanalysis.com