This sharp reminder came after trading in all government debt was suspended by the Stock Market Commission yesterday in an all out assault on speculation against the national currency, the “bolívar fuerte”. This effectively means that the only legal route of converting local currency to US dollars in order to send them out of the country, capital flight, has been blocked.
Previously, Venezuelan brokers could trade in government bonds purchased at 2.15 to the US dollar and then offload them into the parallel exchange market at a rate 3 times greater. So, just for moving a few pieces of paper or keying in numbers on to a computer screen, so-called investors could free up their bolívares and make an easy 300% profit almost overnight.
In fact the correct word for such investors would be “speculators” or even “parasites”. Their actions have caused the bolívar to weaken significantly against the US dollar sparking an inflationary spiral which affects all 29 million inhabitants of the Bolivarian Republic.
The implications of these actions were not only financial but also political. The background plan of the speculators is one of creating high inflation so as to prejudice the government’s chances of retaining control of the National Assembly in the September 26th elections.
Add to this the Venezuelan and international media campaign placing all the blame for climbing prices – especially food – at the government’s door – and you have an excellent strategy to turn voters against government candidates. Essentially, it is an attack on the successful social programs that have elevated the quality of live for Venezuela's poor and disenfranchised. The privately controlled media in Venezuela amounts to at least 80% of all print and audiovisual media countywide and not one of these media outlets ever mentions the fact that it is the producers, distributors, wholesalers and retailers who are continually increasing selling prices, undermining government policies and programs.
This corporate media campaign concentrates on the weakening of the bolivar without explaining that the cause lies not with the government but rather with the speculators. International news brokers like Reuters and Associated Press consistently misrepresent problems in Venezuela, placing the blame on the government rather than where it belongs – on the US-funded opposition. They also focus on the recent negative GDP figures and the rate of inflation. No mention is made of the consistent fall in poverty levels from 71% in 1996 to 23% in 2010; or the increase in the Human Development Index to .84 which is classified as “high” by the United Nations Development Body. The media campaign ignores:
The gradual redistribution of wealth to the historically excluded classes
Setting up of a National Health Service – new medical clinics, hospitals, free public health care.
Progressive Educational System - opening of new universities, public schools, medical clinics, and hospitals
Aggressive law enforcement of crime, including violent offenders, illegal drugs and white collar crime
Creation of the Women's Development Bank for small business
The development of quality, affordable housing
The Venezuela bourgeoisie which controls most of the media, supermarkets, factories and much of the arable land is behind this strategy and all work in concert to undermine government policy. Having control of trading the government bond market meant that they could influence the devaluation of the currency and by extension the inflation rate but now all that has been stopped dead in its tracks.
Government debt will have to be traded via the Venezuelan Central Bank (BCV) which will set the exchange rate. Brokers are excluded from these transactions. These companies will not be able to speculate on their own account and the end buyer will be vetted to ensure that no hidden buyers are lurking in the shadows.
Reaction in the press, radio and TV as well as internet blogs has amounted to desperation in the bourgeois ranks. “The country is going to rack and ruin,” they scream. Not so. A country goes broke when it has unmanageable debts in relation to its GDP such as Greece whose external debt amounts to 115% of its GDP.
Venezuela’s public debt fell from 47.5 percent of GDP in 2003 to 13.8 percent in 2008. In 2009, as the economy shrank, public debt picked up to 19.9 percent of GDP. Even if we include the debt of the state oil company, PDVSA, Venezuela’s public debt is 26 percent of GDP. The foreign part of this debt is less than half of the total.
The irony of this situation is akin to shooting oneself in the foot. The bourgeoisie created inflation and were moving their funds off-shore in US dollars. Now, with it being impossible to trade government debt without the oversight of the BCV, they will have to suffer the consequences of their own treacherous actions and suffer the inflation they themselves created.
This will devalue the purchasing power of the bolívares they hold and when a true illegal black market (or as Chavez recently quipped, “why are we calling it the black market and not the white market?”) arises, which it surely will, the perpetrators run the risk of being caught with cash dollars acquired illegally. Jail sentences of 2 – 6 years are mandatory for amounts over US$20,000 plus huge fines.
Perhaps this will encourage honest investment in internal production and reduce the bill for imports in the longer term.
The perpetrators whose task was to destabilize the economy will have succeeded in prejudicing the middle class voters they need to win at least some seats in the National Assembly in September.
You can rest assured that businesses which speculate will be expropriated and hoarders sent to trial. It is unfortunate that the government has taken so long to act but it is not isolated in these actions internationally speaking.
The US Securities and Exchange Commission (SEC) has clamped down on “naked short selling” of debt as has Germany. Venezuela is simply protecting itself, as developed countries are doing, against unbridled speculation which can cause countries to default on their obligations.
Let the international and local media criticize Venezuela’s measures. Constitutionally Chávez is obliged to protect the population against such machinations and if that means closing down the stock broking fraternity and the Caracas Stock Exchange itself, so be it.
The greed of the Venezuelan bourgeoisie will have boomeranged back on itself and one can clearly understand why Chávez said today, “Tremble bourgeoisie! Long live the Bolivarian Revolution!”
1. Associated Press, Venezuela temporarily halts bond trading
2. Venezuela is not Greece, The Guardian (UK)
3. Multinational Monitor, A People's Health System. Venezuela Works to Bring Healthcare to the Excluded Multinational Monitor
4. Venezuela Analysis, A Look at the Venezuelan Healthcare System
5. State University.com, Venezuela Educational System overview
6. Axis of Logic, Poverty in Venezuela fell from 70% in 1996 to 23% in 2009
7. Ralph T. Niemeyer, Does Venezuela Suppress Free Media?
8. MINCI (Venezuelan Ministry of Communication and Information)
9. Radio Nacional Venezuela
11. El Universal, US dollar skyrockets in Venezuelan swap market
12. Venezuelan National Television
13. Axis of Logic, Mass Transportation System in Venezuela Leaps Forward
14. Ven Global News, Venezuela's Railway Development Boosts Dynamically
15. National Public Radio (U.S.)
16. El Nacional, Venezolanos sufren para llegar a fin de mes por inflación récord
17. Associated Press, Venezuela annual inflation rate hits 30 percent
18. Venezuela Analysis, Venezuela Criticizes Bias in Inter-American Human Rights Commission Annual Report
19. Venezuela Analysis, Women's Development Bank: Creating a Caring Economy
20. Axis of Logic, Reuters busted for indecent exposure. The automobile industry in Venezuela
Ramon Santiago is a guest columnist at Axis of Logic.